10QSB

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, 2001 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)

125 Townpark Drive
Suite 300
Kennesaw, GA 30144
(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 July 31, 2001.

CRYOMEDICAL SCIENCES, INC.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2001

INDEX

Part I.     Financial Information				Page No.
		Item 1.     Financial Statements
			Consolidated Balance Sheets at June 30, 2001 (unaudited) and December 31, 2000		3
			Consolidated Statements of Operations for the three-month and six month periods ended June 30, 2001 and June 30, 2000 (unaudited)		4
			Consolidated Statements of Cash Flows for the three-month and six-month periods ended June 30, 2001 and 2000 (unaudited)		5
			Notes to Consolidated Financial Statements		6
		Item 2.     Management’s Discussion and Analysis or Plan of Operation			7-9
Part II.     Other Information
	Item 6.     Exhibits and Reports on Form 8-K				10
Signatures					11

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PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

			June 30,			December 31,
			2001			2000
			(unaudited)
ASSETS
Current assets
	Cash and cash equivalents		$	125,228		$	2,150,112
	Receivables, net allowance for doubtful accounts
		of $18,325 and $13,018, respectively		171,513			86,956
	Inventories			607,731			653,945
	Prepaid expenses and other current assets			119,799			135,547
		Total current assets		1,024,271			3,026,560
Fixed assets, net accumulated depreciation of $2,007,993 and      $1,879,927, respectively				473,403			433,655
Intangible assets, net of accumulated amortization of $67,244 and      $46,634, respectively				491,710			512,320
Other assets				3,717			16,284
		Total assets	$	1,993,101		$	3,988,819
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
	Accounts payable		$	537,015		$	120,066
	Accrued expenses			268,425			225,195
	Extended warranties — current portion			0			4,146
	Capital leases — current portion			5,048			10,858
		Total current liabilities		810,488			360,265
		Total liabilities		810,488			360,265
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			(35,746,668	)		(33,300,727	)
		Total stockholders’ equity		1,182,613			3,628,554
		Total liabilities and stockholders’ equity	$	1,993,101		$	3,988,819

See notes to consolidated financial statements

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CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

		Three-months ended						Six-months ended
		June 30,						June 30,
		2001			2000			2001			2000
		(unaudited)						(unaudited)
Revenues		$	313,180		$	233,906		$	789,129		$	633,063
Cost of sales			151,785			134,154			413,832			267,580
Gross profit			161,395			99,752			375,297			365,483
Expenses
	Research and development		628,460			450,155			1,077,945			636,780
	Sales and marketing		506,569			55,750			968,686			91,185
	General and administrative		382,034			488,555			778,752			681,234
Total expenses			1,517,063			994,460			2,825,383			1,409,199
Operating loss			(1,355,668	)		(894,708	)		(2,450,086	)		(1,043,716	)
Interest income			5,803			46,286			28,087			48,699
Interest expense			(20,748	)		(5,312	)		(23,942	)		(12,719	)
Net loss		$	(1,370,613	)	$	(853,734	)	$	(2,445,941	)	$	(1,007,736	)
Net loss per common share		$	(0.11	)	$	(0.10	)	$	(0.20	)	$	(0.13	)
Weighted average number of common   shares outstanding			12,413,209			8,174,025			12,413,209			7,472,443

See notes to consolidated financial statements

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CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

				Six-months ended
				June 30,
				2001			2000
				(unaudited)
Cash flows from operating activities:
	Net loss			$	(2,445,941	)	$	(1,007,736	)
Adjustments to reconcile net loss to net cash used in    operating activities:
		Depreciation			128,065			112,561
		Amortization			20,610			13,846
		Provision for bad debt			12,203			10,081
		Write off of accounts receivable			(6,896	)		(9,437	)
		Loss on disposal of fixed assets			—			14,579
		Changes in operating assets and liabilities:
			(Increase) decrease in receivables		(89,864	)		93,955
			Decrease in inventories		46,214			234,863
			Decrease (increase) in prepaid and other current assets		15,748			(169,058	)
			Decrease (increase) in other assets		12,567			(4,508	)
			Increase (decrease) in accounts payable		416,949			(169,465	)
			Increase (decrease) in accrued expenses		43,230			(186,251	)
			Increase in unearned revenue		—			(7,802	)
			Decrease in extended warranties		(4,146	)		(4,974	)
			Decrease in deferred rent		—			(7,399	)
Net cash used in operating activities					(1,851,261	)		(1,086,745	)
Cash flows from investing activities:
	Increase in intangible assets				—			(15,000	)
	Purchase of equipment				(167,813	)		(21,192	)
Net cash used in investing activities					(167,813	)		(36,192	)
Cash flows from financing activities:
	Decrease in capital leases				(5,810	)		(17,949	)
	Issuance of common stock				—			5,518,442
	Increase in line of credit				—			900,000
Net cash (used in) provided by financing activities					(5,810	)		6,400,493
Net (decrease) increase in cash and cash equivalents					(2,024,884	)		5,277,556
Cash and cash equivalents at beginning of period					2,150,112			7,952
Cash and cash equivalents at end of period				$	125,228		$	5,285,508
Supplemental Cash Flow Information:
			Cash paid for interest	$	23,942		$	12,719

See notes to consolidated financial statements

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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 cryoablation and preservation of cells, tissues and organs in low temperature environments.
	The Consolidated Balance Sheet as of June 30, 2001, the Consolidated Statements of Operations for three-month and six-month periods ended June 30, 2001 and 2000, and the Consolidated Statements of Cash Flows for the six-month periods ended June 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 June 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 six-month periods ended June 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 June 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:	June 30, 2001		December 31, 2000
Raw materials and purchased parts	$	374,021	$	264,254
Work in process		8,595		9,643
Finished goods		225,115		380,048
	$	607,731	$	653,945

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      The Company has developed cryosurgical systems called the CMS AccuProbe^® System (the “AccuProbe”), the CMS Blizzard™ Series (the “Blizzard”), and the Cryo-Lite^® Series (the “Cryo-Lite”). The AccuProbe, the Blizzard and the Cryo-Lite are sophisticated cryosurgical devices designed to freeze and destroy diseased tissue. They are particularly applicable where diseased tissue cannot be removed surgically or where surgery is likely to have extensive adverse side effects. The Company plans to utilize its AccuProbe, Blizzard and Cryo-Lite in the various fields for which the devices have received clearance from the United States Food and Drug Administration (the “FDA”).

The Company completed initial development of the AccuProbe in 1992 and has marketed this system to hospitals, surgeons and radiologists in the United States and abroad. In addition to the AccuProbe, the Company sells single use probes and other disposables used with the AccuProbe and offers service warranty contracts. Although the Cryo-Lite received FDA clearance in July 1997 and the Blizzard received FDA clearance in February 1998, no Blizzard or Cryo-Lite devices have been shipped for commercial sale.

The Company is also attempting to develop and commercialize a series of hypothermic preservative solutions (the “Solutions”). Some of these Solutions are designed to maintain the fluid and chemical balances of human organs while body temperature is significantly lowered. Other Solutions have been developed that may be utilized in preserving certain cells and tissues utilized by scientists in research laboratory and academic institutions. All of these Solutions continue to be tested in laboratory settings. Commercialization of certain Solutions is presently being pursued for those markets not subject to FDA regulations through the Company’s wholly-owned subsidiary, BioLife Solutions, Inc. (“BioLife”), formed in 1998. At present, development of the Solutions for human organ transplantation is in the laboratory and preclinical stage. The Company is seeking funds from various government and non-government granting agencies as well as third party investors to continue the development of the Solutions.

Results of Operations

Revenues for the three-month and six-month periods ended June 30, 2001 totaled $313,180 and $789,129, compared to $233,906 and $633,063, for the comparable periods of the prior year, respectively. This represents an increase of 34% and 25%, respectively. The increase in revenues in these periods reflects an increase in the number of CMS AccuProbe^® Systems and accessories sold during this period.

Gross profit for all products for the three-month and six-month periods ended June 30, 2001 totaled $161,395 or 51% of revenues and $375,297 or 48% of revenues, compared to gross profits of $99,752, or 43% of revenues and $365,483 or 58% of revenues for the comparable periods of the prior year, respectively. In 2001, gross profit as a percent of revenues decreased in the 1st quarter and increased in the 2nd quarter 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 three-month and six-month periods ended June 30, 2001 totaled $628,460 and $1,077,945, compared to $450,155 and $636,780, for the comparable period of the prior year, respectively. This represents increases of 40% and 69% during the three-months and six-months ended June 30, 2001, respectively. Research and development expenses increased as a

7

result of expenditures for clinical trials related to the Hypothermosol™ solutions and other expenses related to the development of the 800 series Accuprobe system.

Sales and marketing expenses for the three-month and six-month periods ended June 30, 2001 totaled $506,569 and $968,686, compared to $55,750 and $91,185 for the comparable periods of the prior year, respectively. This represents increases of 809% and 962% from the prior year periods, respectively. 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, an increase in sales commissions, and an increase in trade shows, travel and related expenses.

General and administrative expenses for the three-month and six-month periods ended June 30, 2001 totaled $382,034 and $778,752, compared to $488,555 and $681,234 for the comparable periods of the prior year. This represents a decrease of 22% and an increase of 14%, respectively, from the prior year periods. General and administrative expenses increased during the six-months ended June 30, 2001 as a result of increases in personnel costs. This increase was offset in the three-months ended June 30, 2001 as a result of decreases in consulting and legal expenses.

Operating expenses for the three-month and six-month periods ended June 30, 2001 totaled $1,517,063, and $2,825,383, compared to $994,460 and $1,409,199 for the comparable periods of the prior year, representing an increase of 52% and 100% from the prior year periods, respectively. The Company sustained a net loss of $1,370,613 and $2,445,941 for the three-month and six-month periods ended June 30, 2001, compared to a net loss of $853,734 and $1,007,736, for the comparable periods of the prior year.

Liquidity and Capital Resources

At June 30, 2001, the Company had cash and cash equivalents totaling $125,228 and working capital of $213,783, 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 $167,813, in the period ended June 30, 2001, compared to $21,192 in the comparable period of the prior year. The Company does not expect to spend more than $300,000 in total for equipment in the year ending December 31, 2001.

The Company believes that sales for the remainder of the 2001 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.

Additional capital will be necessary to ensure the Company's viability. In this respect, the Company currently 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

8

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 10KSB 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.

9

Part II – Other Information

Item 6.     Exhibits and Reports on Form 8-K

(a)	Exhibits
11.1	Employment Agreement with J. Andrew Greuling
(b)	Reports on Form 8-K
There were no reports on Form 8-K filed during the three-months ended June 30, 2001.

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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.

Date: August 14, 2001 By: /s/ Andrew Grueling
Andrew Grueling
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial Officer)

11 EX-11.1 3 w52258ex11-1.txt EMPLOYMENT AGREEMENT WITH J. ANDREW GREULING 1 EXHIBIT 11.1 CRYOMEDICAL SCIENCES, INC. EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is dated as of May 30, 2001 by and between J. ANDREW GREULING ("Employee") and CRYOMEDICAL SCIENCES, INC., a Delaware corporation (the "Company"). 1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall be effective through December 31, 2002 (the "Original Term"). This Agreement shall automatically renew for successive 12-month periods (each, an "Additional Term") unless terminated by either party. The Original Term and each Additional Term shall each be referred to as a "Term." 2. DUTIES. (a) POSITION. Employee shall be employed as President and Chief Executive Officer, and as such will have responsibility for the duties typically associated with such positions and will report to the Company's Board of Directors (the "Board"). (b) OBLIGATIONS TO THE COMPANY. Employee agrees to perform to the best of his ability and experience all of the duties and obligations reasonably required of and from Employee pursuant to the express and implicit terms hereof. During the term of Employee's employment relationship with the Company, Employee further agrees that he will devote his business time and attention to the business of the Company. 3. AT-WILL EMPLOYMENT. The Company and Employee acknowledge that Employee's employment is and shall continue to be at-will, as defined under applicable law, and that Employee's employment with the Company may be terminated by either party at any time for any or no reason. If Employee's employment terminates for any reason, Employee shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided in this Agreement. The rights and duties created by this Section 3 may not be modified in any way except by a written agreement executed by the Company. 4. COMPENSATION. For the duties and services to be performed by Employee hereunder, the Company shall pay Employee, and Employee agrees to accept, the salary, stock options, bonuses and other benefits described below in this Section 4. (a) SALARY. Employee shall receive a salary of $21,000 per month, payable pursuant to the Company's normal payroll practices. In the event this Agreement is extended beyond the Original Term, the base salary shall be reviewed at the time of such extension by the Board, and any increase will be effective as of the date determined appropriate by the Board. (b) BONUSES. Employee's entitlement to incentive bonuses from the Company is discretionary and shall be determined by the Board in good faith based upon the extent to which Employee's individual performance objectives and the 2 Company's financial and non-financial objectives are achieved during the applicable bonus period. Notwithstanding the foregoing, Employee's target bonus for the Original Term is $200,000, of which Employee shall receive $95,000 as a signing bonus. (c) ADDITIONAL BENEFITS. Employee will be eligible to participate in the Company's employee benefit plans of general application including, without limitation, those plans covering medical, disability and life insurance, in accordance with the rules established for individual participation in any such plan and under applicable law. Employee will receive an automobile allowance of $500 per month. Employee will receive four (4) weeks paid vacation, which shall be taken at such times as are consistent with the needs of the Company. Employee will be eligible for sick leave in accordance with the policies in effect during the term of this Agreement and will receive such other benefits as the Company generally provides to its other employees of comparable position and experience. (d) STOCK OPTIONS AND OTHER INCENTIVE PROGRAMS. Employee shall be eligible to participate in any stock option or incentive programs available to officers of employees of the Company. In addition, on the date hereof, the Employee shall be grated ten-year incentive stock options to purchase 1,000,000 shares of common stock (the "Options") under the terms and conditions of the Company's 19__ Stock Option/Stock Issuance Plan (the "Plan"). The Options shall be exercisable at the fair market value on the date of grant. Twenty-five (25) percent of the stock option grant will be vested on date of hire, with the final 75% vesting over the next 3 years, with 25% vesting on each anniversary of the date of hire. (e) REIMBURSEMENT OF EXPENSES. Employee shall be authorized to incur on behalf and for the benefit of, and shall be reimbursed by, the Company for reasonable business expenses, provided that such expenses are substantiated in accordance with Company policies. 5. CONFIDENTIAL INFORMATION (a) Employee acknowledges that, because of his employment hereunder, he will be in a confidential relationship with the Company and will have access to confidential information and trade secrets of the Company. Employee acknowledges and agrees that the following constitutes confidential and/or trade secret information belonging exclusively to Company (collectively "Confidential Information") (i) all information related to customers including, without limitation, customer lists, the identities of existing, past or prospective customers, prices charged or proposed to be charged to customers, customer contacts, special customer requirements and all related information; (ii) marketing plans, materials and techniques; and (iii) all know-how devices, compilations of information, copyrightable material and technology and technical information, relating to the business of the Company. 3 (b) Employee agrees that except in the limited performance of his duties under this Agreement, Employee shall not use for his own benefit or disclose to any third-party Confidential information acquired by reason of his employment under this Agreement or his former status as officer of the Company. (c) This Section 5 shall survive termination of this Agreement. 6. COMPANY PROPERTY. (a) Any patents, inventions, discoveries, applications or processes, software and computer programs devised, planned, applied, created, discovered or invented by Employee in the course of his employment under this Agreement and which pertain to any aspect of the business of the Company, or its subsidiaries, affiliates or customers, shall be the sole and absolute property of the Company, and Employee shall make prompt report thereof to the Company and promptly execute any and all documents reasonably requested to assure the Company the full and complete ownership thereof. (b) All records, files, lists, drawings, documents, equipment and similar items relating to the Company's business which Employee shall prepare or receive from the Company shall remain the Company's sole and exclusive property. Upon termination of this Agreement, Employee shall return promptly to the Company all property of the Company in his possession and Employee represents that he will not copy, or cause to be copied, printed summarized or compiled, any software, documents or other materials originating with and/or belonging to the Company. Employee further represents that he will not retain in his possession any such software, documents or other materials in machine or human readable forms. (c) This Section 6 shall survive termination of this Agreement. 7. TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS. (a) TERMINATION OF EMPLOYMENT. Employee's employment shall terminate immediately upon a Change of Control (as defined below) or his death, and may be terminated upon the occurrence of any of the following events: (i) The effective date of a written notice sent to the Company from Employee stating that Employee is electing to terminate his employment with the Company other than as a result of a "Constructive Termination" (as defined below) ("Voluntary Termination"); (ii) The Company's determination that it is terminating Employee without Case (as defined below), which determination may be made by the Company at any time at the Company's sole discretion, for any reason or no reason ("Termination Without Cause"); (iii) Employee's Constructive Termination (as defined below); 4 (iv) The Company's reasonable, good faith determination that it is terminating Employee for Case ("Termination for Cause"); or (v) Employee's Disability. (b) SEVERANCE BENEFITS. Employee shall be entitled to receive severance benefits upon termination of employment only as set forth in this Section 7(b). (i) VOLUNTARY TERMINATION. If Employee's employment terminates by Voluntary Termination, then Employee shall not be entitled to receive payment of any severance benefits. Employee will receive payment for all salary and vacation accrued s of the date of Employee's termination of employment, and Employee's benefits will be continued under the Company's then existing benefit plans and policies in accordance with such plans and policies in effect on the date of termination and in accordance with applicable law. (ii) INVOLUNTARY TERMINATION. If Employee's employment terminates due to Termination Without Cause or Constructive Termination (collectively, "Involuntary Termination"); (1) Employee will be entitled to receive payment of severance benefits equal to Employee's regular monthly salary for an additional twelve (12) months following the date of such Involuntary Termination (the "Severance Period"), such payment to be made ratably over the Severance Period according to the Company's standard payroll schedule; (2) Health insurance benefits with the same coverage provided to Employee prior to the termination (e.g. medical, dental, optical, mental health) and in all other respects significantly comparable to those in place immediately prior to the termination will be provided at the Company's cost over the Severance Period; and (3) Any unvested stock options or shares of restricted stock held by Employee as of the date of Employee's termination of employment shall continue to vest through the end of the Severance Period according to the vesting schedule set forth in any agreement between Employee and the Company governing the issuance to Employee of such securities. (iii) TERMINATION FOR CAUSE. If Employee's employment is terminated for Cause, then Employee shall not be entitled to receive payment of any severance benefits. Employee will receive payment for all salary and vacation accrued as of the date of Employee's termination of employment and Employee's benefits will be continued under the Company's then existing benefit plans and policies in accordance with such plans and 5 policies in effect on the date of termination and in accordance with applicable law. (iv) TERMINATION BY REASON OF DEATH OR DISABILITY. In the event that Employee's employment with the Company terminates as a result of Employee's death or Disability (as defined below), Employee or Employee's estate or representative will receive all salary and vacation accrued as of the date of Employee' death of Disability and any other benefits payable under the Company" then existing benefit plans and policies in accordance with such plans and policies in effect on the date of death or Disability and in accordance with applicable law. (v) CHANGE OF CONTROL. Notwithstanding the preceding clause of this Section 7(b), upon a Change of Control: (1) Employee will be entitled to receive payment of severance benefits equal to Employee's regular monthly salary for a period of twelve (12) months following said Change of Control (the "Change of Control Severance Period"), such payment shall be made ratably over the Change of Control Severance Period according to the Company's standard payroll schedule; (2) Health insurance benefits with the same coverage provided to Employee prior to the Change of Control (e.g. medical, dental, optical, mental health) and in all other respects significantly comparable to those in place immediately prior to the Change of Control will be provided at the Company's cost over the Change of Control Severance Period; and (3) Any unvested stock options or shares of restricted stock held by Employee on the date of the Change of Control such securities shall vest immediately. (vi) NONCOMPETE. If Employee, directly or indirectly, shall at any time during a Severance Period or a Change of Control Severance Period, as an owner (other than a shareholder in a publicly traded company), officer, principal, agent, advisor, partner, member, director, or employee of a business that directly competes with the business conducted by the Company on the date of Employee's termination of employment, then effective upon Employee's commencement of such activities, Employee shall not receive any severance payment or other benefits under Sections 7 (b)(ii) or (v) beyond what he would have received had he been Terminated for Cause. 8. DEFINITIONS. For purposes of this Agreement, (a) "Cause" for Employee's termination will exist at any time after the happening of one or more of the following events: (i) Employee's willful misconduct or gross negligence in performance of his duties hereunder, including Employee's refusal to comply in any material 6 respect with the legal directives of the Board so long as such directives are not inconsistent with the Employee's position and duties, and such refusal to comply is not remedied within fifteen (15) working days after written notice from the Company, which written notice shall state that failure to remedy such conduct may result in Termination for Cause; (ii) Dishonest or fraudulent conduct related and materially adverse to the activities of the Company, a deliberate attempt to do a material injury to the Company, or conduct that materially discredits the Company or is materially detrimental to the reputation of the Company, including conviction of a felony; or (iii) Employee's knowing and intentional material breach of this Agreement, including without limitation, Employee's theft or other misappropriation of the Company's proprietary information. (b) "Constructive Termination" shall be deemed to occur if (I)(1) there is a significant reduction in Employee's duties, positions or responsibilities causing such position to be of reduced stature or responsibility or, (2) a reduction in Employee's base compensation or benefits; and (ii) within the 60-day period immediately following such material change or reduction Employee elects to terminate his employment voluntarily. (c) "Disability" shall mean that Employee has been unable to perform his duties hereunder as the result of his incapacity due to physical or mental illness, and such inability, which continues for at least 60 consecutive calendar days or 90 calendar days during any consecutive twelve-month period, if shorter, after its commencement, is determined to be total and permanent by an independent and impartial physician selected by the Company and its insurers and acceptable to Employee or to Employee's legal representative (with such agreement or acceptability not to be unreasonably withheld). (d) "Change of Control" shall mean the occurrence of any of the following events: (i) an acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but excluding any merger effected exclusively for the purpose of changing the domicile of the Company), or (ii) a sale of all or substantially all of the assets of the Company (collectively a "Merger"), so long as in either case (x) the Company's stockholders of record immediately prior to such Merger will, immediately after such Merger, hold less than 50% of the voting power of the surviving or acquiring entity, or (y) the Company's stockholders of record immediately prior to such Merger will, immediately after such Merger, hold less than 60% of the voting power of the surviving or acquiring entity and a majority of the members of the Board of Directors of the surviving or acquiring entity immediately after such Merger were not members of the Board of Directors of the Company immediately prior to such Merger. 9. SUCCESSORS. Any successor to the Company (whether direct or indirect and whether by purchase, loan, merger, consolidation, liquidation or otherwise) or to all or substantially 7 all of the Company's business and/or assets shall assume the obligations under this Agreement and agree expressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession. The terms of this Agreement and all of Employee's rights hereunder shall inure to the benefit of, and be enforceable by, Employee's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. 10. MISCELLANEOUS PROVISIONS. (a) NO DUTY TO MITIGATE. Employee shall not be required to mitigate the amount of any payment contemplated by this Agreement (whether by seeking new employment or in any other manner), nor, except as otherwise provided in this Agreement, shall any such payment be reduced by any earnings that Employee may receive from any other source. (b) AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or waived only with the written consent of the parties. (c) SOLE AGREEMENT. This Agreement, including any exhibits hereto, constitutes the sole agreement of the parties and supersedes all oral negotiations and prior writings with respect to the subject matter hereof, including the Employment Agreement, dated May 30, 2001 between the Company and Employee. (d) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or by a nationally-recognized delivery service (such as Federal Express or UPS), or 48 hours after being deposited in the U.S. mail as certified or registered mail with postage prepaid, if such notice is addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. (e) CHOICE OF LAW. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of California, without giving effect to the principles of conflict of laws. (f) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms. (g) COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument. 8 The parties have executed this Agreement as of the date first written above. CRYOMEDICAL SCIENCES, INC. By: /s/ RAYMOND W. COHEN -------------------- Name: Raymond W. Cohen Title: Director /s/ J. ANDREW GREULING 4/19/2001 -------------------------------------------- J. Andrew Greuling Address: 5013 Preservation Pointe Kennesaw, GA 30152 -----END PRIVACY-ENHANCED MESSAGE-----

EX-11.1

   1
                                                                    EXHIBIT 11.1

                           CRYOMEDICAL SCIENCES, INC.

                              EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (this "Agreement") is dated as of May 30, 2001 by and
between J. ANDREW GREULING ("Employee") and CRYOMEDICAL SCIENCES, INC., a
Delaware corporation (the "Company").

        1.      TERM OF AGREEMENT. This Agreement shall commence on the date
                hereof and shall be effective through December 31, 2002 (the
                "Original Term"). This Agreement shall automatically renew for
                successive 12-month periods (each, an "Additional Term") unless
                terminated by either party. The Original Term and each
                Additional Term shall each be referred to as a "Term."

        2.      DUTIES.

                (a)     POSITION. Employee shall be employed as President and
                        Chief Executive Officer, and as such will have
                        responsibility for the duties typically associated with
                        such positions and will report to the Company's Board of
                        Directors (the "Board").

                (b)     OBLIGATIONS TO THE COMPANY. Employee agrees to perform
                        to the best of his ability and experience all of the
                        duties and obligations reasonably required of and from
                        Employee pursuant to the express and implicit terms
                        hereof. During the term of Employee's employment
                        relationship with the Company, Employee further agrees
                        that he will devote his business time and attention to
                        the business of the Company.

        3.      AT-WILL EMPLOYMENT. The Company and Employee acknowledge that
                Employee's employment is and shall continue to be at-will, as
                defined under applicable law, and that Employee's employment
                with the Company may be terminated by either party at any time
                for any or no reason. If Employee's employment terminates for
                any reason, Employee shall not be entitled to any payments,
                benefits, damages, awards or compensation other than as provided
                in this Agreement. The rights and duties created by this Section
                3 may not be modified in any way except by a written agreement
                executed by the Company.

        4.      COMPENSATION. For the duties and services to be performed by
                Employee hereunder, the Company shall pay Employee, and Employee
                agrees to accept, the salary, stock options, bonuses and other
                benefits described below in this Section 4.

                (a)     SALARY. Employee shall receive a salary of $21,000 per
                        month, payable pursuant to the Company's normal payroll
                        practices. In the event this Agreement is extended
                        beyond the Original Term, the base salary shall be
                        reviewed at the time of such extension by the Board, and
                        any increase will be effective as of the date determined
                        appropriate by the Board.

                (b)     BONUSES. Employee's entitlement to incentive bonuses
                        from the Company is discretionary and shall be
                        determined by the Board in good faith based upon the
                        extent to which Employee's individual performance
                        objectives and the



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                        Company's financial and non-financial objectives are
                        achieved during the applicable bonus period.
                        Notwithstanding the foregoing, Employee's target bonus
                        for the Original Term is $200,000, of which Employee
                        shall receive $95,000 as a signing bonus.

                (c)     ADDITIONAL BENEFITS. Employee will be eligible to
                        participate in the Company's employee benefit plans of
                        general application including, without limitation, those
                        plans covering medical, disability and life insurance,
                        in accordance with the rules established for individual
                        participation in any such plan and under applicable law.
                        Employee will receive an automobile allowance of $500
                        per month. Employee will receive four (4) weeks paid
                        vacation, which shall be taken at such times as are
                        consistent with the needs of the Company. Employee will
                        be eligible for sick leave in accordance with the
                        policies in effect during the term of this Agreement and
                        will receive such other benefits as the Company
                        generally provides to its other employees of comparable
                        position and experience.

                (d)     STOCK OPTIONS AND OTHER INCENTIVE PROGRAMS. Employee
                        shall be eligible to participate in any stock option or
                        incentive programs available to officers of employees of
                        the Company. In addition, on the date hereof, the
                        Employee shall be grated ten-year incentive stock
                        options to purchase 1,000,000 shares of common stock
                        (the "Options") under the terms and conditions of the
                        Company's 19__ Stock Option/Stock Issuance Plan (the
                        "Plan"). The Options shall be exercisable at the fair
                        market value on the date of grant. Twenty-five (25)
                        percent of the stock option grant will be vested on date
                        of hire, with the final 75% vesting over the next 3
                        years, with 25% vesting on each anniversary of the date
                        of hire.

                (e)     REIMBURSEMENT OF EXPENSES. Employee shall be authorized
                        to incur on behalf and for the benefit of, and shall be
                        reimbursed by, the Company for reasonable business
                        expenses, provided that such expenses are substantiated
                        in accordance with Company policies.

        5.      CONFIDENTIAL INFORMATION

                (a)     Employee acknowledges that, because of his employment
                        hereunder, he will be in a confidential relationship
                        with the Company and will have access to confidential
                        information and trade secrets of the Company. Employee
                        acknowledges and agrees that the following constitutes
                        confidential and/or trade secret information belonging
                        exclusively to Company (collectively "Confidential
                        Information")

                        (i)     all information related to customers including,
                                without limitation, customer lists, the
                                identities of existing, past or prospective
                                customers, prices charged or proposed to be
                                charged to customers, customer contacts, special
                                customer requirements and all related
                                information;

                        (ii)    marketing plans, materials and techniques; and

                        (iii)   all know-how devices, compilations of
                                information, copyrightable material and
                                technology and technical information, relating
                                to the business of the Company.



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                (b)     Employee agrees that except in the limited performance
                        of his duties under this Agreement, Employee shall not
                        use for his own benefit or disclose to any third-party
                        Confidential information acquired by reason of his
                        employment under this Agreement or his former status as
                        officer of the Company.

                (c)     This Section 5 shall survive termination of this
                        Agreement.

        6.      COMPANY PROPERTY.

                (a)     Any patents, inventions, discoveries, applications or
                        processes, software and computer programs devised,
                        planned, applied, created, discovered or invented by
                        Employee in the course of his employment under this
                        Agreement and which pertain to any aspect of the
                        business of the Company, or its subsidiaries, affiliates
                        or customers, shall be the sole and absolute property of
                        the Company, and Employee shall make prompt report
                        thereof to the Company and promptly execute any and all
                        documents reasonably requested to assure the Company the
                        full and complete ownership thereof.

                (b)     All records, files, lists, drawings, documents,
                        equipment and similar items relating to the Company's
                        business which Employee shall prepare or receive from
                        the Company shall remain the Company's sole and
                        exclusive property. Upon termination of this Agreement,
                        Employee shall return promptly to the Company all
                        property of the Company in his possession and Employee
                        represents that he will not copy, or cause to be copied,
                        printed summarized or compiled, any software, documents
                        or other materials originating with and/or belonging to
                        the Company. Employee further represents that he will
                        not retain in his possession any such software,
                        documents or other materials in machine or human
                        readable forms.

                (c)     This Section 6 shall survive termination of this
                        Agreement.

        7.      TERMINATION OF EMPLOYMENT AND SEVERANCE BENEFITS.

                (a)     TERMINATION OF EMPLOYMENT. Employee's employment shall
                        terminate immediately upon a Change of Control (as
                        defined below) or his death, and may be terminated upon
                        the occurrence of any of the following events:

                        (i)     The effective date of a written notice sent to
                                the Company from Employee stating that Employee
                                is electing to terminate his employment with the
                                Company other than as a result of a
                                "Constructive Termination" (as defined below)
                                ("Voluntary Termination");

                        (ii)    The Company's determination that it is
                                terminating Employee without Case (as defined
                                below), which determination may be made by the
                                Company at any time at the Company's sole
                                discretion, for any reason or no reason
                                ("Termination Without Cause");

                        (iii)   Employee's Constructive Termination (as defined
                                below);


   4



                        (iv)    The Company's reasonable, good faith
                                determination that it is terminating Employee
                                for Case ("Termination for Cause"); or

                        (v)     Employee's Disability.

                (b)     SEVERANCE BENEFITS. Employee shall be entitled to
                        receive severance benefits upon termination of
                        employment only as set forth in this Section 7(b).

                        (i)     VOLUNTARY TERMINATION. If Employee's employment
                                terminates by Voluntary Termination, then
                                Employee shall not be entitled to receive
                                payment of any severance benefits. Employee will
                                receive payment for all salary and vacation
                                accrued s of the date of Employee's termination
                                of employment, and Employee's benefits will be
                                continued under the Company's then existing
                                benefit plans and policies in accordance with
                                such plans and policies in effect on the date of
                                termination and in accordance with applicable
                                law.

                       (ii)     INVOLUNTARY TERMINATION. If Employee's
                                employment terminates due to Termination Without
                                Cause or Constructive Termination (collectively,
                                "Involuntary Termination");

                                (1)     Employee will be entitled to receive
                                        payment of severance benefits equal to
                                        Employee's regular monthly salary for an
                                        additional twelve (12) months following
                                        the date of such Involuntary Termination
                                        (the "Severance Period"), such payment
                                        to be made ratably over the Severance
                                        Period according to the Company's
                                        standard payroll schedule;

                                (2)     Health insurance benefits with the same
                                        coverage provided to Employee prior to
                                        the termination (e.g. medical, dental,
                                        optical, mental health) and in all other
                                        respects significantly comparable to
                                        those in place immediately prior to the
                                        termination will be provided at the
                                        Company's cost over the Severance
                                        Period; and

                                (3)     Any unvested stock options or shares of
                                        restricted stock held by Employee as of
                                        the date of Employee's termination of
                                        employment shall continue to vest
                                        through the end of the Severance Period
                                        according to the vesting schedule set
                                        forth in any agreement between Employee
                                        and the Company governing the issuance
                                        to Employee of such securities.

                       (iii)    TERMINATION FOR CAUSE. If Employee's employment
                                is terminated for Cause, then Employee shall not
                                be entitled to receive payment of any severance
                                benefits. Employee will receive payment for all
                                salary and vacation accrued as of the date of
                                Employee's termination of employment and
                                Employee's benefits will be continued under the
                                Company's then existing benefit plans and
                                policies in accordance with such plans and

   5
                        policies in effect on the date of termination and in
                        accordance with applicable law.

                (iv)    TERMINATION BY REASON OF DEATH OR DISABILITY. In the
                        event that Employee's employment with the Company
                        terminates as a result of Employee's death or Disability
                        (as defined below), Employee or Employee's estate or
                        representative will receive all salary and vacation
                        accrued as of the date of Employee' death of Disability
                        and any other benefits payable under the Company" then
                        existing benefit plans and policies in accordance with
                        such plans and policies in effect on the date of death
                        or Disability and in accordance with applicable law.

                (v)     CHANGE OF CONTROL. Notwithstanding the preceding clause
                        of this Section 7(b), upon a Change of Control:

                        (1)     Employee will be entitled to receive payment of
                                severance benefits equal to Employee's regular
                                monthly salary for a period of twelve (12)
                                months following said Change of Control (the
                                "Change of Control Severance Period"), such
                                payment shall be made ratably over the Change of
                                Control Severance Period according to the
                                Company's standard payroll schedule;


                        (2)     Health insurance benefits with the same coverage
                                provided to Employee prior to the Change of
                                Control (e.g. medical, dental, optical, mental
                                health) and in all other respects significantly
                                comparable to those in place immediately prior
                                to the Change of Control will be provided at the
                                Company's cost over the Change of Control
                                Severance Period; and

                        (3)     Any unvested stock options or shares of
                                restricted stock held by Employee on the date of
                                the Change of Control such securities shall vest
                                immediately.


                (vi)    NONCOMPETE. If Employee, directly or indirectly, shall
                        at any time during a Severance Period or a Change of
                        Control Severance Period, as an owner (other than a
                        shareholder in a publicly traded company), officer,
                        principal, agent, advisor, partner, member, director,
                        or employee of a business that directly competes with
                        the business conducted by the Company on the date of
                        Employee's termination of employment, then effective
                        upon Employee's commencement of such activities,
                        Employee shall not receive any severance payment or
                        other benefits under Sections 7 (b)(ii) or (v) beyond
                        what he would have received had he been Terminated for
                        Cause.


8.      DEFINITIONS. For purposes of this Agreement,

        (a)     "Cause" for Employee's termination will exist at any time after
                the happening of one or more of the following events:

                (i)     Employee's willful misconduct or gross negligence in
                        performance of his duties hereunder, including
                        Employee's refusal to comply in any material

   6

                        respect with the legal directives of the Board so long
                        as such directives are not inconsistent with the
                        Employee's position and duties, and such refusal to
                        comply is not remedied within fifteen (15) working days
                        after written notice from the Company, which written
                        notice shall state that failure to remedy such conduct
                        may result in Termination for Cause;

                (ii)    Dishonest or fraudulent conduct related and materially
                        adverse to the activities of the Company, a deliberate
                        attempt to do a material injury to the Company, or
                        conduct that materially discredits the Company or is
                        materially detrimental to the reputation of the Company,
                        including conviction of a felony; or

                (iii)   Employee's knowing and intentional material breach of
                        this Agreement, including without limitation, Employee's
                        theft or other misappropriation of the Company's
                        proprietary information.


        (b)     "Constructive Termination" shall be deemed to occur if (I)(1)
                there is a significant reduction in Employee's duties, positions
                or responsibilities causing such position to be of reduced
                stature or responsibility or, (2) a reduction in Employee's base
                compensation or benefits; and (ii) within the 60-day period
                immediately following such material change or reduction
                Employee elects to terminate his employment voluntarily.

        (c)     "Disability" shall mean that Employee has been unable to perform
                his duties hereunder as the result of his incapacity due to
                physical or mental illness, and such inability, which continues
                for at least 60 consecutive calendar days or 90 calendar days
                during any consecutive twelve-month period, if shorter, after
                its commencement, is determined to be total and permanent by an
                independent and impartial physician selected by the Company and
                its insurers and acceptable to Employee or to Employee's legal
                representative (with such agreement or acceptability not to be
                unreasonably withheld).

        (d)     "Change of Control" shall mean the occurrence of any of the
                following events: (i) an acquisition of the Company by another
                entity by means of any transaction or series of related
                transactions (including, without limitation, any reorganization,
                merger or consolidation but excluding any merger effected
                exclusively for the purpose of changing the domicile of the
                Company), or (ii) a sale of all or substantially all of the
                assets of the Company (collectively a "Merger"), so long as in
                either case (x) the Company's stockholders of record immediately
                prior to such Merger will, immediately after such Merger, hold
                less than 50% of the voting power of the surviving or acquiring
                entity, or (y) the Company's stockholders of record immediately
                prior to such Merger will, immediately after such Merger, hold
                less than 60% of the voting power of the surviving or acquiring
                entity and a majority of the members of the Board of Directors
                of the surviving or acquiring entity immediately after such
                Merger were not members of the Board of Directors of the Company
                immediately prior to such Merger.

9.      SUCCESSORS. Any successor to the Company (whether direct or indirect
        and whether by purchase, loan, merger, consolidation, liquidation or
        otherwise) or to all or substantially

   7

        all of the Company's business and/or assets shall assume the obligations
        under this Agreement and agree expressly to perform the obligations
        under this Agreement in the same manner and to the same extent as the
        Company would be required to perform such obligations in the absence of
        a succession. The terms of this Agreement and all of Employee's rights
        hereunder shall inure to the benefit of, and be enforceable by,
        Employee's personal or legal representatives, executors, administrators,
        successors, heirs, distributees, devisees and legatees.

10.     MISCELLANEOUS PROVISIONS.

        (a)     NO DUTY TO MITIGATE. Employee shall not be required to mitigate
                the amount of any payment contemplated by this Agreement
                (whether by seeking new employment or in any other manner), nor,
                except as otherwise provided in this Agreement, shall any such
                payment be reduced by any earnings that Employee may receive
                from any other source.

        (b)     AMENDMENTS AND WAIVERS. Any term of this Agreement may be
                amended or waived only with the written consent of the parties.

        (c)     SOLE AGREEMENT. This Agreement, including any exhibits hereto,
                constitutes the sole agreement of the parties and supersedes
                all oral negotiations and prior writings with respect to the
                subject matter hereof, including the Employment Agreement, dated
                May 30, 2001 between the Company and Employee.

        (d)     NOTICES. Any notice required or permitted by this Agreement
                shall be in writing and shall be deemed sufficient upon receipt,
                when delivered personally or by a nationally-recognized delivery
                service (such as Federal Express or UPS), or 48 hours after
                being deposited in the U.S. mail as certified or registered mail
                with postage prepaid, if such notice is addressed to the party
                to be notified at such party's address as set forth below or as
                subsequently modified by written notice.

        (e)     CHOICE OF LAW. The validity, interpretation, construction and
                performance of this Agreement shall be governed by the laws of
                the State of California, without giving effect to the
                principles of conflict of laws.

        (f)     SEVERABILITY. If one or more provisions of this Agreement are
                held to be unenforceable under applicable law, the parties agree
                to renegotiate such provision in good faith. In the event that
                the parties cannot reach a mutually agreeable and enforceable
                replacement for such provision, then (i) such provision shall be
                excluded from this Agreement, (ii) the balance of the Agreement
                shall be interpreted as if such provision were so excluded and
                (iii) the balance of the Agreement shall be enforceable in
                accordance with its terms.

        (g)     COUNTERPARTS. This Agreement may be executed in counterparts,
                each of which shall be deemed an original, but all of which
                together will constitute one and the same instrument.

   8

The parties have executed this Agreement as of the date first written above.



                                CRYOMEDICAL SCIENCES, INC.


                                By:  /s/ RAYMOND W. COHEN
                                     --------------------
                                Name: Raymond W. Cohen

                                Title: Director


                                /s/ J. ANDREW GREULING           4/19/2001
                                --------------------------------------------
                                J. Andrew Greuling

                                Address:    5013 Preservation Pointe
                                            Kennesaw, GA 30152