-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fvzr0rVeJka/pExiFNjIDV8Y450jGBaugBgwr4vbQG87XZk3KNyh0sS/plfF+FFc h0iA24Xn8PuPAAJdfqSx4w== 0000950133-98-002734.txt : 19980729 0000950133-98-002734.hdr.sgml : 19980729 ACCESSION NUMBER: 0000950133-98-002734 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980728 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRYOMEDICAL SCIENCES INC CENTRAL INDEX KEY: 0000834365 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 943076866 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-18170 FILM NUMBER: 98672157 BUSINESS ADDRESS: STREET 1: 1300 PICARD DR STE 102 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 3014177070 MAIL ADDRESS: STREET 1: 1300 PICCARD DRIVE SUITE 102 CITY: ROCKVILLE STATE: MD ZIP: 20850 10QSB 1 CRYOMEDICAL SCIENCES, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20459 FORM 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 28, 1998 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) 1300 Piccard Drive Suite L-105 Rockville, Maryland 20850 ------------------------- (Address of principal executive offices) Issuer's telephone number, including area code: (301) 417-7070 -------------- 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 --- --- 33,454,302 shares of Cryomedical Sciences, Inc. Common Stock, par value $.001 per share, were outstanding as of July 15, 1998. 2 CRYOMEDICAL SCIENCES, INC. FORM 10-QSB QUARTER ENDED JUNE 28, 1998 INDEX
Part I. Financial Information Page No. Item 1. Financial Statements Consolidated Balance Sheets at June 28, 1998 (unaudited) and December 28, 1997 3 Consolidated Statements of Operations for the thirteen and twenty-six weeks ended June 28, 1998 and June 29, 1997 (unaudited) 4 Consolidated Statements of Cash Flows for the twenty-six weeks ended June 28, 1998 and June 29, 1997 (unaudited) 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13
2 3 CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
June 28, December 28, 1998 1997 ---- ---- (unaudited) ASSETS Current assets Cash and cash equivalents $ 46,766 $ 124,000 Receivables, net allowance for doubtful 547,978 989,908 accounts of $625,527 and $569,000 Inventories 1,290,475 1,654,106 Prepaid expenses and other current assets 98,076 98,030 ---------- ------------ Total current assets 1,983,295 2,866,044 Fixed assets, net accumulated depreciation 1,020,832 994,296 and amortization of $2,210,267 and $2,032,959 Other assets 21,346 18,727 ---------- ------------ Total assets $3,025,473 $ 3,879,067 ========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 503,099 $ 533,674 Accrued expenses 507,282 428,324 Unearned revenues 120,356 135,262 Warranty reserves 17,394 50,598 Extended warranties - current portion 21,579 92,837 Capital leases - current portion 37,411 36,981 ---------- ------------ Total current liabilities 1,207,121 1,277,676 ---------- ------------ Extended warranties, net of current 19,071 4,500 portion Capital leases, net of current portion 80,298 103,106 Deferred rent 31,418 33,330 ---------- ------------ Total liabilities 1,337,908 1,418,612 ---------- ------------ Stockholders' equity Preferred stock, $.001 par value per share, 9,378,800 authorized; no shares issued - - Common stock, par value $.001 per share, 50,000,000 shares authorized; 33,454,302 issued and outstanding 33,454 33,454 Additional paid-in capital 30,551,263 30,551,263 Unearned compensation - (39,525) Accumulated deficit (28,897,152) (28,084,737) ---------- ------------ Total stockholders' equity 1,687,565 2,460,455 ---------- ------------ Total liabilities and stockholders' equity $3,025,473 $ 3,879,067 ========== ============
See notes to consolidated financial statements. 3 4 CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS
Thirteen weeks ended Twenty six weeks ended June 28, June 29, June 28, June 29, -------------------------------------- ----------------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- (unaudited) (unaudited) Revenues $ 720,842 $ 860,462 $ 1,259,359 $ 1,847,310 Cost of sales 337,111 660,694 668,581 1,005,186 -------------------- --------------- ---------------- --------------- Gross profit 383,731 199,768 590,778 842,124 Expenses Research and development 123,088 318,638 526,154 594,418 Sales and marketing 151,000 245,957 281,827 449,107 General and administrative 249,860 332,884 581,870 602,583 -------------------- --------------- ---------------- --------------- Total expenses 523,948 897,479 1,389,851 1,646,108 -------------------- --------------- ---------------- --------------- Operating loss (140,217) (697,711) (799,073) (803,984) Interest income, net of interest expense (5,912) 60,220 (13,342) 76,193 -------------------- --------------- ---------------- --------------- Net loss $ (146,129) $ (637,491) $ (812,415) $ (727,791) ==================== =============== ================ =============== Net loss per common share $ (0.00) $ (0.02) $ (0.02) $ (0.02) ==================== =============== ================ =============== Weighted average number of common shares outstanding 33,454,302 33,190,094 33,454,302 32,702,041 ==================== =============== ================ ===============
See notes to consolidated financial statements. 4 5 CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Twenty six weeks ended June 28, June 29, ------------------------- ------------------------- 1998 1997 ---- ---- (unaudited) Cash flows from operating activities: Net loss $ (812,415) $ (727,791) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 181,220 210,528 Provision for bad debt 56,527 - Gain on disposal of fixed assets (285) - Amortization of unearned compensation 39,525 26,062 Changes in operating assets and liabilities: Decrease in receivables 385,403 237,003 Decrease (increase) in inventories 363,631 (71,196) Increase in prepaid and other current assets (46) (90,408) Increase in other assets (2,619) - Decrease in accounts payable (30,575) (224,677) Increase in accrued expenses 78,958 39,200 Decrease (increase) in unearned revenue (14,906) 28,070 Decrease in warranty reserves (33,204) (22,085) Decrease in extended warranties (56,687) (252,476) Decrease (increase) in capital leases (22,378) 51,164 Decrease in deferred rent (1,912) (72,093) ------------------------- ------------------------- Net cash provided by (used in) operating activities 130,237 (868,699) ------------------------- ------------------------- Cash flows from investing activities: Proceeds from disposal of fixed assets 6,636 - Purchase of equipment (214,107) (139,604) ------------------------- ------------------------- Net cash used in investing activities (207,471) (139,604) ------------------------- ------------------------- Cash flows from financing activities: Issuance of shares for employee stock purchase plan - 12,991 ------------------------- ------------------------- Net cash provided by financing activities - 12,991 ------------------------- ------------------------- Net decrease in cash and cash equivalents (77,234) (995,312) Cash and cash equivalents at beginning of period 124,000 1,769,243 ------------------------- ------------------------- Cash and cash equivalents at end of period $ 46,766 $ 773,931 ========================= ========================= Supplemental Cash Flow Information: Cash paid for interest 15,228 1,392 ------ -----
See notes to consolidated financial statements. 5 6 CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. GENERAL Cryomedical Sciences, Inc. (the "Company") is engaged in the research, development, marketing and manufacture of products for use in the field of low-temperature medicine. The Consolidated Balance Sheet as of June 28, 1998, the Consolidated Statements of Operations for the thirteen and twenty-six week periods ended June 28, 1998 and June 29, 1997, and the Consolidated Statements of Cash Flows for the twenty-six week periods ended June 28, 1998 and June 29, 1997, 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 28, 1998, 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 28, 1997 included in the Company's Annual Report on Form 10-KSB/A for the year ended December 28, 1997. The results of operations for the thirteen week period ended June 28, 1998 are not necessarily indicative of the operating results anticipated for the full year. B. NET LOSS PER SHARE Net loss per share is based on the weighted average number of common shares outstanding during the thirteen and twenty-six week periods ended June 28, 1998 and June 29, 1997. 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 28, 1998 December 28, 1997 ------------- ----------------- Raw materials and purchased parts $ 710,748 $ 859,674 Work in process 203,984 243,431 Finished goods 419,488 594,746 ----------- ----------- 1,334,220 1,697,851 Less reserves (43,745) (43,745) ----------- ----------- $ 1,290,475 $ 1,654,106 =========== ===========
6 7 D. Contingencies In November 1996, the Company filed suit against EndoCare, Inc., ("EndoCare") and ZhaoHua Chang in the Circuit Court for Montgomery County, Maryland (Case No. 161496). The lawsuit alleges, among other things, that EndoCare misappropriated trade secrets of the Company, and that EndoCare tortuously interfered with the Company's contracts, its relationships with its employees, and the Company's contractual and potential business relationships with customers. The lawsuit, which contains six counts, also alleges that Dr. Chang and EndoCare engaged in unfair competition against the Company and civil conspiracy, and that Dr. Chang, who was formerly employed as a Vice President of Cryosurgical Engineering by the Company, breached contractual and fiduciary obligations owed to the Company by his employment by EndoCare, his retention and misuse of the Company's confidential information, and his improper solicitation of the Company's employees to disclose trade secret information and/or to become employed by EndoCare. EndoCare and Dr. Chang have denied the allegations in the lawsuit. In March 1997, Dr. Chang filed a counter-suit in the Circuit Court for Montgomery County, Maryland (Case No. 161496-V) regarding numerous claims of a breach of contract by the Company. An agreement in principle has been reached with Endocare to resolve this suit. The Company is presently waiting for Endocare to communicate with Dr. Chang in regard to the terms and conditions of settlement. If these mediation efforts fail, the Company intends to pursue and defend this case vigorously. In June 1997, Concept Group, Inc. ("Concept") filed suit against the company in the United States District Court for the Eastern District of Pennsylvania. The Company successfully transferred venue to the United States District for the District of Maryland, Southern Division. The suit involves the manufacture of cryosurgical probes allegedly developed by Concept which are used in certain surgical procedures. Concept alleges that in December 1992 the parties entered into a confidentiality agreement regarding certain proprietary and technical information relating to the cryoprobe. Concept further alleges that in January 1994 the parties entered into a Development and Manufacturing Agreement ("Development Agreement") in which Concept was to perform vacuum brazing on the cryoprobe according to a detailed set of design specifications. After a dispute arose regarding defects in the vacuum brazing process performed by Concept, the parties executed a release in August 1996 which discharged both parties from all business obligations to each other. Concept alleges that the Company violated the terms of the confidentiality agreement and the Development Agreement by subsequently applying for and receiving a United States patent on the cryoprobe. Concept contends it has a proprietary interest in the design of the cryoprobe. Further, Concept alleges that the Company fraudulently induced it into signing the release in order to secure the patent. Concept is demanding $1,500,000 plus costs and interest it claims it expended manufacturing the cryoprobes. The Company has denied all liability and damages, and intends to defend this matter. After evidence was found to show that the plaintiff failed to manufacture the probes in accordance with the design specification set out in the agreement, the Company filed a counterclaim against Concept. The counterclaim requests a judicial determination that the release was valid as well as damages for repairs to the cryoprobes due to the Concept's failure to conform with the design specifications set out in the agreement. Although the Company believes it has meritorious defenses and that the counterclaim asserts valid claims, no prediction concerning the ultimate outcome or amount or range of damages, if any, can be made at this time. 7 8 E. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income" was issued, which is effective for fiscal years beginning after December 15, 1997. The Company is complying with all requirements, but has no items of comprehensive income. 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's business activities focus primarily on the manufacturing and marketing related to its cryosurgical systems. The CMS AccuProbe(R) System Model 450 was cleared by the FDA in April 1991, the CMS AccuProbe(R) System Models 530 and 550 were cleared in December 1995, the CMS AccuProbe(R) 600 series was cleared in March 1997 and the Cryo-lite(R) series was cleared in July 1997. The Company plans to continue to market these systems in the various fields for which they received clearance from the FDA. The Company received clearance in November 1997 to expand its indications for use (labeling) for the AccuProbe(R) system family. The Company is presently in the process of seeking funds for its wholly owned subsidiary BioLife Technologies, Inc. ("BioLife") for the purpose of commercializing its Hypothermosol(R) series of preservation solutions. Although the Company has contacted a number of parties who have expressed an interest in potentially providing such funding, there can be no assurance that such funding will be obtained. RESULTS OF OPERATIONS Revenues for the thirteen week and twenty six week periods ended June 28, 1998 totaled $720,842 and $1,259,359, respectively, compared to $860,462 and $1,847,310, respectively, for the comparable periods of the prior year, representing decreases of 16% and 32%, respectively. The decreases in revenues reflect a decline in the number of CMS AccuProbe(R) Systems and accessories sold. The Company believes that this decline is due primarily to a lack of formal Medicare reimbursement for prostate cryosurgery. The revenues of the Company have also been negatively impacted by an FDA advisory that all companies involved in thermal ablation can no longer advertise or promote uterine cryosurgical applications, specifically endometrial ablation. Gross profit for all products for the thirteen and twenty six week periods ended June 28, 1998 totaled $383,731 and $590,778, respectively, or 53% and 47% of revenues, respectively, compared to gross profits of $199,768 and $842,124, respectively, or 23% and 46% of revenues, respectively, for the comparable periods of the prior year. Gross profit as a percent of revenues increased in the thirteen and twenty six week periods ended June 28, 1998 compared to the prior year periods due to changes in the mix of product sales and a reduction in production personnel. Research and development expenses for the thirteen and twenty six week periods ended June 28, 1998 totaled $123,088 and $526,154, respectively, a decrease of 61% and 11%, respectively, compared to $318,638 and $594,418, respectively, for the comparable periods of the prior year. Development expenses decreased due to a reduction in personnel, a decrease in raw material inventory used in R&D projects, and a reduction in the salary of the Senior Vice President of R&D. Sales and marketing expenses for the thirteen and twenty six week periods ended June 28, 1998 totaled $151,000 and $281,827, respectively, a decrease of 39% and 37%, respectively, compared to $245,957 and $449,107, respectively, for the comparable periods of the prior year. Sales and marketing expenses decreased over the comparable periods of the previous year due to reduced commissions and a reduction in travel and related expenses. 9 10 General and administrative expenses for the thirteen and twenty six week periods ended June 28, 1998 totaled $249,860 and $581,870, respectively, a decrease of 25% and 3%, respectively, compared to $332,884 and $602,583, respectively, for the comparable periods of the prior year. General and administrative expenses decreased due to a reduction in legal expenses, consulting fees, and a reduction in the salary of the CEO. Operating expenses for the thirteen and twenty six week periods ended June 28, 1998 totaled $523,948 and $1,389,851, respectively, a decrease of 42% and 16%, respectively, compared to $897,479 and $1,646,108, respectively, for the comparable periods of the prior year. The Company sustained net losses of $146,129 and $812,415, for the thirteen and twenty six week periods ended June 28, 1998 compared to net losses of $637,491 and $727,791 in the comparable periods of the prior year. The Company is making reductions in all discretionary expenses in an attempt to maintain its viability as an operating entity. Sales of the CMS AccuProbe(R) System are increasingly affected by the level of reimbursement by public and private insurers in connection with procedures in which the AccuProbe(R) is utilized. The availability of consistent, uniform insurance reimbursement guidelines for hospitals and physicians is an important factor often considered by some potential customers when making a decision regarding the purchase of any new medical device, including the AccuProbe System. Reimbursement of hospitals and urologists by public and private insurers such as Medicare and Blue Cross and Blue Shield is a necessary part of gaining general acceptance for use of the AccuProbe(R) for urological cryosurgery. Although no national payment guidelines for urological cryosurgery have been established by Medicare's Health Care Financing Administration ("HCFA"), the Company was advised in October 1996 that HCFA is planning to put into effect its Technology Advisory Committee's recommendation that a national non-coverage policy be adopted in regard to cryoablation of the prostate. It is the Company's understanding that HCFA continues to explore the possibility of working with various agencies, including the American Urology Association, in establishing a nationwide randomized prospective clinical study to collect data on a comparative basis between cryosurgery and radiation therapies. The results of this study will provide the basis on which a future determination regarding Medicare reimbursement will be made. When insurance coverage is not available, patients may either elect to pay for treatment themselves or undergo traditional therapies that are covered by their insurers. Uncertainty and added efforts required for the Company's customers, or potential customers, to secure payment has constrained sales and utilization of AccuProbe systems to a large degree and may continue to do so until formal national coverage guidelines are established. LIQUIDITY AND CAPITAL RESOURCES At June 28, 1998, the Company had cash and cash equivalents totaling $46,766 and working capital of $776,174, as compared to $124,000 and $1,588,368, respectively, at December 28, 1997. The Company's cash and working capital positions decreased from December 28, 1997 due primarily to the net loss of $666,286 sustained by the Company in the thirteen-week period ended March 29, 1998. Capital expenditures for equipment totaled $214,107, including $164,101 in consignment and loaner CMS AccuProbe(R) Systems, in the twenty six week period ended June 28, 1998, compared 10 11 to $275,030 and $135,426 respectively, 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 27, 1998. The Company expects to incur expenditures over the next twelve months related to development, manufacturing and testing of its products and for sales and marketing efforts and other operating expenses. The Company's management assumes that sales for the remainder of the 1998 fiscal year may be less than the level experienced in comparable year ago periods and believes that its current cash and working capital position, together with potential financing and possible additional cost cutting, will be sufficient to fund the operations of the Company for the next twelve months, dependent, in part, on the level of sales and marketing activity engaged in by the Company, and the amounts of development funded by the Company. However, the Company expects to continue to reduce expenditures if necessary and to pursue various forms of short term financing to supplement working capital during the next twelve months and possibly additional equity financing. Except for the sale of its products, the Company currently has no other major sources of liquidity and has no commitments with regard to obtaining any additional funds. 11 12 CRYOMEDICAL SCIENCES, INC. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule. (b) Reports on Form 8-K: none.
12 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: July 22, 1998 /s/Richard J. Reinhart, Ph.D. ------------------------------ Richard J. Reinhart, Ph.D President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) 13 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-28-1997 DEC-29-1997 JUN-28-1998 46,766 0 1,173,505 (625,527) 1,290,475 1,983,295 3,231,099 (2,210,267) 3,025,473 1,207,121 80,298 0 0 33,454 1,654,111 3,025,473 704,118 1,259,357 329,165 668,576 1,389,853 0 (13,343) (812,415) 0 0 0 0 0 (812,415) (.02) (.02)
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