10QSB/A 1 form_10qsba.txt FORM 10-QSB/A United States SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB/A Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2002 Commission file number 0-18170 -------------- ------- CRYOMEDICAL SCIENCES, INC. -------------------------- (Exact name of small business issuer as specified in its charter) Delaware 94-3076866 -------- ---------- (State of Incorporation) (IRS Employer I.D. Number) 1000 Cobb Place Blvd. Building 200, Suite 270 Kennesaw, GA 30144 ------------------ (Address of principal executive offices) Issuer's telephone number, including area code: (770) 426-0101 -------------- Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- 12,413,209 Shares of Cryomedical Sciences, Inc. Common Stock, Par Value $.001 Per Share, Were Outstanding as of May 14, 2002. CRYOMEDICAL SCIENCES, INC. FORM 10-QSB QUARTER ENDED MARCH 31, 2002 INDEX Part I. Financial Information Page No. -------- Item 1. Financial Statements Consolidated Balance Sheets at March 31, 2002 (unaudited) and December 31, 2001 3 Consolidated Statements of Operations for the three-month periods ended March 31, 2002 and March 31, 2001 (unaudited) 4 Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2002 and March 31, 2001 (unaudited) 5 Notes to Consolidated Financial Statements 6 - 8 Item 2. Management's Discussion and Analysis or Plan of Operation 9 - 10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 11 Signatures 12 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2002 2001 ------------ ------------ (unaudited) ASSETS ------ Current assets: Cash and cash equivalents $ 121,342 $ 286,105 Accounts receiveable, net of allowance for doubtful accounts of $26,970, respectively 46,886 54,043 Inventories 475,898 487,858 Prepaid expenses and other current assets 23,193 23,192 ------------ ------------ Total current assets 667,319 851,198 ------------ ------------ Fixed assets, net of accumulated depreciation of $2,173,281 and $2,138,614, respectively 482,321 454,293 Intangible assets, net of accumulated amortization of $98,161 and $87,855, respectively 460,794 471,099 ------------ ------------ Total assets $ 1,610,434 $ 1,776,590 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 1,048,946 $ 1,000,027 Accrued expenses 385,046 465,797 Notes payable 250,000 -- ------------ ------------ Total current liabilities 1,683,992 1,465,824 Commitments -- -- ------------ ------------ Total liabilities 1,683,992 1,465,824 ============ ============ Stockholders' equity: Preferred stock, $0.001 par value per share, 1,000,000 shares authorized; 12,000 iissued and outstanding 12 12 Common stock, $0.001 par value per share, 25,000,000 shares authorized; 12,413,209 iissued and outstanding 12,413 12,413 Additional paid-in capital 38,009,325 38,009,325 Accumulated deficit (38,095,308) (37,710,984) ------------ ------------ Total stockholders' equity (73,558) 310,766 ------------ ------------ Total liabilities and stockholders' equity $ 1,610,434 $ 1,776,590 ============ ============
See notes to financial statements 3 CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED MARCH 31, ------------------------------- 2002 2001 ------------ ------------ Revenues $ 302,584 $ 475,949 Cost of sales (82,037) (262,047) ------------ ------------ Gross profit 220,547 213,902 ------------ ------------ Expenses: Research and development 231,618 449,485 Sales and marketing 17,019 462,117 General and administrative 356,838 396,718 ------------ ------------ Total expenses 605,475 1,308,320 ------------ ------------ Operating loss (384,826) (1,094,418) Interest income, net 102 19,090 ------------ ------------ Net loss $ (384,826) $ (1,075,328) ============ ============ Basic net loss per common share $ (0.03) $ (0.09) ============ ============ Weighted average number of common shares outstanding 12,413,209 12,413,209 ============ ============ See notes to financial statements 4 CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ----------------------------- 2002 2001 ----------- ----------- Cash flows from operating activites: Net loss $ (384,826) $(1,075,328) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 34,667 59,809 Amortization 10,305 10,305 Provision for bad debt -- 5,140 Write off of accounts receivable -- (3,056) Changes in operating assets and liabilities: (Increase) decrease in receivables 7,157 (336,056) Decrease in inventories 11,960 140,278 Decrease (increase) in prepaid and other current assets 501 (79,632) Increase (decrease) in accounts payable 48,919 65,478 Increase (decrease) in accrued expenses (80,751) 179,261 Decrease in extended warranties -- (2,488) ----------- ----------- Net cash used in operating activities (352,068) (1,036,289) ----------- ----------- Cash flows from investing activities: Purchase of equipment (62,695) (24,195) ----------- ----------- Net cash used in investing activities (62,695) (24,195) ----------- ----------- Cash flows from financing activities: Increase in notes 250,000 -- Decrease in capital leases -- (2,872) ----------- ----------- Net cash provided by financing activities 250,000 (2,872) ----------- ----------- Net (decrease) increase in cash and cash equivalents (164,763) (1,063,356) Cash and cash equivalents at beginning of period 286,105 2,150,112 ----------- ----------- Cash and cash equivalents at end of period $ 121,342 $ 1,086,756 =========== ===========
See notes to financial statements 5 CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. General Cryomedical Sciences, Inc. (the "Company") is engaged in the research, development, marketing and manufacture of low temperature medical technologies for cryoablation of cancerous tissue, and for the preservation of organs, tissues and cells. The Consolidated Balance Sheet as of March 31, 2002, the Consolidated Statements of Operations for three-month periods ended March 31, 2002 and 2001, and the Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2002 and 2001, have been prepared without audit. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2002, and for all periods then ended, have been recorded. All adjustments recorded were of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2001 included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001. The results of operations for the three-month period ended March 31, 2002 is not necessarily indicative of the operating results anticipated for the full year. B. Net Loss per Share Net loss per share is based on the weighted average number of common shares outstanding during the periods ended March 31, 2002 and 2001. No effect has been given to unexercised stock options or warrants because the effect would be anti-dilutive. C. Inventories Inventories consist of the following: March 31, 2002 December 31, 2001 Raw materials and purchased parts $ 277,146 $ 268,768 Finished goods 198,752 219,090 $ 475,898 $ 487,858 6 CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS D. Recent Accounting Pronouncements In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards (SFAS) as follows: No. 141, Business Combinations No. 142, Goodwill and Other Intangible Assets No. 143, Accounting for Asset Retirement Obligations SFAS No. 141 eliminates the use of the pooling-of-interests method of accounting for business combinations and requires that all such transactions be accounted for by the purchase method. In addition, SFAS No. 141 requires that intangible assets be recognized as assets apart from goodwill and that they meet specific criteria described in the Standard. This Standard is applicable to all business combinations initiated after June 30, 2001 and all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001 or later. Management will follow the Standard in accounting for all future business combinations and does not believe that adoption will have any significant impact on the Company's financial statements. SFAS No. 142 eliminates the requirement to amortize goodwill and requires that other intangible assets be separated into assets that have a finite useful life and those with an indefinite useful life. Intangible assets with a finite useful life are to be amortized over that useful life. Intangible assets with an indefinite life are to be measured for impairment annually, or more frequently if circumstances indicate impairment may have occurred. With respect to goodwill, the Standard requires that it be measured annually for impairment under a defined two-step process that begins with an estimation of the fair value of a "reporting unit," which is defined in the Standard. The first step in the process is a screening for impairment and the second step measures the amount of impairment, if any. Upon initial adoption of SFAS No. 142, the change is to be reported on the financial statements as a change in accounting principle with the cumulative effect reported in the statement of income in the period of adoption. The Standard is required to be applied starting with fiscal years beginning after December 15, 2001, with early application permitted for entities with fiscal years beginning after March 15, 2001. The Company adopted this new Standard with its fiscal year beginning January 1, 2002. The Company has no goodwill and does not believe that adoption of the Standard will have any impact on its financial statements. SFAS No. 143 requires that asset retirement obligations be recognized as a liability in the period in which it is incurred at its fair value if a reasonable estimate can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The Standard requires that the liability be discounted and accretion expense be recognized. SFAS No. 143 is effective for financial statements issued for fiscal years beginning after June 15, 2001, with earlier application permitted. The Company does not have any asset retirement obligations as of March 31, 2002, and does not believe that this new Standard will have any impact upon its financial statements when adopted. 7 CRYOMEDICAL SCIENCES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This Standard establishes a single accounting model for long-lived assets to be disposed of by sale and resolves other implementation issues involving long-lived assets that are impaired or are to be disposed of. The Standard is effective for fiscal years beginning after December 15, 2001, with early application permitted. The Company is considering the effects of this new standard and does not believe that it will have any significant effect on its financial statements when adopted. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto set forth elsewhere herein. The Company is engaged in the research, development, manufacture and marketing of low temperature technologies for use in the cryoablation of cancerous tissue and in preserving and prolonging the life of cellular and genetic material for use in the fields of cell therapy and tissue reengineering. The Company has been a leader in cryosurgical methods and devices which ablate unwanted tissue in minimally invasive procedures. The Company completed initial development of the AccuProbe(R) System (the "AccuProbe") in 1992, establishing the Company as a leader in the modern cryosurgical marketplace. The AccuProbe is a sophisticated cryosurgical device designed to freeze and destroy diseased tissue. It is particularly applicable where diseased tissue cannot be removed surgically or where surgery is likely to have extensive adverse side effects. The AccuProbe uses a patented design that maintains Super Cooled Liquid Nitrogen in a liquid state, resulting in superior freezing characteristics when compared to other cryosurgical systems. Based on its understanding of the molecular basis for the cryogenic destruction of cells, the Company's wholly owned subsidiary, 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 BioLofe's derivative HypoThermosol 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 line of solutions directly and through a distributor to companies and labs engaged in pre-clinical research, and to academic institutions. RESULTS OF OPERATIONS Revenue for the three-months ended March 31, 2002 decreased $173,365 to $302,584, compared to $475,949 for the comparable period of the prior year. This decrease is principally attributable to lower sales of AccuProbes and accessories, as well as lower mobile services volume. Cost of goods sold, as a percentage of revenue, improved to 27% for the three-months ended March 31, 2002, compared to 55% for the comparable period of the prior year. This improvement was primarily attributable to the increase in grant and contract revenue and was partially offset by higher cost of goods on single use probes sold during the period. Research and development expense decreased $217,867 for the three-months ended March 31, 2002 to $231,618, compared to $449,485 for the comparable period of the prior year. The decrease was attributable to decreases in expenditures for clinical trials related to development of the Hypothermosol technology, which involved lower engineering headcount and consulting expense. The decrease also included lower in-house expenditure on the development of the AccuProbe System, resulting in lower salaries and benefits expense. Sales and marketing expense decreased $445,098 for the three-months ended March 31, 2002 to $17,019, compared to $462,117 for the comparable period of the prior year. This decrease was attributable to the overall reduction in the Company's network of independent sales representatives. 9 General and administrative expense decreased $39,880 for the three-months ended March 31, 2002 to $356,838, compared to $396,718 in the comparable period of the prior year. This decrease is attributable to lower consulting costs and decreases in salaries and benefits. Operating expenses decreased $702,845 for the three-months ended March 31, 2002 to $605,475, compared to $1,308,320 for the comparable period of the prior year. The Company sustained a net loss of $384,826 for the three-month period ended March 31, 2002, compared to a net loss of $1,075,328 for the comparable period of the prior year. LIQUIDITY AND CAPITAL RESOURCES At March 31, 2002, the Company had cash and cash equivalents totaling $121,342 and a working capital deficit of $1,016,673, as compared to $614,626 at December 31, 2001. The decrease in the Company's cash and working capital positions from December 31, 2001 was due primarily to net losses during the period. Capital expenditures for equipment totaled $62,695, in the period ended March 31, 2002, compared to $24,195 in the comparable period of the prior year. 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. The Company has a working capital deficit of $1,016,673, and in order to ensure its viability, the Company will need to secure financing in the short term. In this respect, the Company is currently evaluating its strategic alternatives, including the sale of some or all of the Company's assets. There can be no assurance that any 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 funds or achieve some other solution, it is expected that the Company will be required to significantly curtail or cease its operating activities. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. FORWARD LOOKING INFORMATION The information set forth in this Report (and other reports issued by the Company and its officers from time to time) contain certain statements concerning the Company's future results, future performance, intentions, objectives, plans and expectations that are or may be deemed to be "forward-looking statements." Such statements are made in reliance upon safe harbor provisions of the Private Securities Litigation Act of 1995. These forward-looking statements are based on current expectations that involve numerous risks and uncertainties, including those risks and uncertainties discussed in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001. Assumptions relating to the foregoing involve judgements with respect to, among other things, future economic, competitive, and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company's control. Although the Company believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, the Company cannot assure you that the results discussed or implied in such forward-looking statements will prove to be accurate. In light of the significant uncertainties inherent in such forward-looking statements, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the Company's objectives and plans will be achieved. Words such as "believes," "anticipates," "expects," "intends," "may," and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. The Company undertakes no obligations to revise any of these forward-looking statements. 10 PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K There were no reports on Form 8-K filed during the three-months ended March 31, 2002. 11 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Cryomedical Sciences, Inc. -------------------------- (Registrant) Date: May 20, 2002 By: /s/ Andrew Greuling ------------------------------------- Andrew Greuling President and Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) 12