U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1998.
Commission File Number: 0-16375
__________________________
THERMOGENESIS CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3018487
(State of Incorporation) (I.R.S. Employer
Identification No.)
3146 GOLD CAMP DRIVE
RANCHO CORDOVA, CA 95670
(916) 858-5100
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $.001 Par Value Nasdaq SmallCap Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 <checked-box> No __
The number of shares of the registrant's common stock, $.001 par value,
outstanding on April 30, 1998 was 18,925,669.
_______________________________
1
THERMOGENESIS CORP.
INDEX
PAGE NUMBER
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Balance Sheets at March 31, 1998
and June 30,1997...................................................3
Statements of Operations for the
Three and Nine months ended March 31, 1998 and 1997............... 5
Statements of Cash Flows for
the Three and Nine months ended March 31, 1998 and 1997............6
Notes to Financial Statements..................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 12
SIGNATURES...............................................................13
2
PART I FINANCIAL INFORMATION
THERMOGENESIS CORP.
BALANCE SHEETS
(UNAUDITED)
March 31, June 30,
ASSETS 1998 1997
Current Assets:
Cash and cash equivalents $3,294,367 $3,510,861
Accounts receivable, net of allowance for doubtful
accounts of $97,910 ($97,913 at June 30, 1997) 1,061,525 2,067,990
Inventory 2,606,667 2,579,368
Other current assets 170,731 247,819
Total current assets 7,133,290 8,406,038
Equipment, at cost less accumulated depreciation
of $984,976 ($670,269 at June 30, 1997) 1,611,311 1,358,747
Prepaid royalties, net of accumulated amortization
of $429,774 ($388,185 at June 30, 1997) 124,726 166,315
Other assets 232,096 256,626
$9,101,423 $10,187,726
See accompanying notes to financial statements.
3
THERMOGENESIS CORP.
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
March 31, June 30,
LIABILITIES AND SHAREHOLDER'S EQUITY 1998 1997
Current liabilities:
Accounts payable and accrued liabilities $1,034,875 $1,523,647
Accrued payroll and related expenses 233,797 274,008
Customer deposits 88,248 49,310
Current portion of capital lease obligations 105,151 151,836
Total current liabilities 1,462,071 1,998,801
Long-term capital lease obligations 88,582 164,283
Commitments --- ---
Shareholders' equity:
Preferred stock, $.001 par value;
2,000,000 shares authorized; no shares
issued and outstanding --- ---
Common stock, $.001 par value;
50,000,000 shares authorized;
18,919,419 issued and outstanding
(15,865,305 at June 30, 1997) 18,918 15,866
Paid in capital in excess of par 26,284,519 19,197,526
Accumulated deficit (18,752,667) (11,188,750)
Total shareholders' equity 7,550,770 8,024,642
$9,101,423 $10,187,726
See accompanying notes to financial statements.
4
THERMOGENESIS CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine months ended
March 31, March 31,
1998 1997 1998 1997
Net sales $1,028,973 $1,396,259 $2,556,065 $5,744,545
Cost of sales 1,231,468 1,077,363 3,713,100 3,565,284
Gross profit (loss) (202,495) 318,896 (1,157,035) 2,179,261
Expenses:
General and administrative 510,282 375,753 1,613,234 814,069
Selling and marketing 550,303 556,130 1,706,936 1,326,088
Research and development 837,690 858,646 3,040,232 2,052,793
Issuance of stock options for
services 13,000 14,000 55,000 42,000
Interest 17,956 22,001 44,098 58,448
Total expenses 1,929,231 1,826,530 6,459,500 4,293,398
Interest income 11,930 16,021 52,618 57,825
Net loss ($2,119,796) ($1,491,613) ($7,563,917) ($2,056,312)
Per share data:
Basic and diluted loss per share ($0.11) ($0.09) ($0.44) ($0.14)
Shares used in computing
per share data 18,821,502 15,846,000 17,197,945 14,452,000
See accompanying notes to financial statements.
5
THERMOGENESIS CORP.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
Cash flows from operating activities: 1998 1997
Net loss ($7,563,917) ($2,056,312)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 359,121 218,665
Issuance of stock options for inventory - - 432,395
Issuance of stock options for services 55,000 42,000
Net change in operating assets and liabilities:
Accounts receivable 1,006,465 (785,714)
Inventory (27,299) (376,347)
Other current assets 77,088 (140,104)
Other assets 24,530 29,356
Accounts payable and accrued liabilities (488,772) (199,916)
Accrued payroll and related expenses (40,211) 29,501
Customer deposits 38,938 31,048
Net cash used in operating activities (6,559,057) (2,775,428)
Cash flows from investing activities:
Capital expenditures (570,096) (512,620)
Cash flows from financing activities:
Principal payments on long-term lease obligations (122,386) (56,081)
Exercise of stock options and warrants 539,549 --
Issuance of common stock 6,495,496 7,946,265
Net cash provided by financing activities 6,912,659 7,890,184
Net increase (decrease) in cash and cash equivalents (216,494) 4,602,136
Cash and cash equivalents at beginning of period 3,510,861 1,243,079
Cash and cash equivalents at end of period $3,294,367 $5,845,215
See accompanying notes to financial statements
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THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. Interim Reporting
These Financial Statements should be read in conjunction with the Company's
Annual Report (Form 10-K) for the year ended June 30, 1997. All sales,
domestic and foreign, are made in U.S. dollars and therefore currency
fluctuations are believed to have no impact on the Company's net sales. In the
opinion of management, all adjustments (which consist only of normally
recurring adjustments) necessary for a fair presentation of the Financial
Statements have been made. The results of operations for the nine months ended
March 31, 1998 are not necessarily indicative of the results expected for the
full year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share". Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. The adoption of Statement 128 had no impact on the basic and
diluted loss per share for the three and nine months ended March 31, 1998 and
1997. In addition, the adoption of Statement 128 had no impact on net loss per
share amounts for all periods presented in the Selected Consolidated Financial
Data and the financial statements included in the Company's Annual Report (Form
10-K) for the year ended June 30, 1997.
INVENTORIES
Inventories are stated at the lower of cost (First-In, First-Out) or market and
consist approximately of the following:
MARCH 31, 1998 JUNE 30, 1997
Raw materials $ 1,798,928 $ 1,574,388
Work in process 595,869 525,067
Finished goods 211,870 479,913
Total $ 2,606,667 $ 2,579,368
Included in the March 31, 1998 inventory is $1,048,000 in raw materials and
work in process to manufacture the BioArchive System and CryoSeal System.
EQUITY
The Company completed private financings in December 1997, from which it
received $6,469,996 net of expenses. The proceeds from the offering were
received from the sale of 2,781,000 shares of common stock at $2.50 per share
and issued three year warrants to the purchasers representing the right to
acquire an additional 278,100 shares in the aggregate, at an exercise price of
$3.00 per share.
7
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997
The Company designs and sells products and devices which utilize its
proprietary thermodynamic technology for the processing of biological
substances including the cryopreservation, thawing, and harvesting of blood
components ("Proprietary Technology"). Historically, the Company's primary
revenues have been from sales of its FDA Class I blood plasma freezers and
thawers ("Core Line Products") to hospitals, blood banks and blood transfusion
centers in 32 countries. The Company has under development five new FDA Class
II blood and/or tissue processing systems ("Pipe Line Products"), each
consisting of a thermodynamic device designed to process blood and/or tissues
through use of proprietary, sterile, disposable processing containers and
applicators.
During the fiscal years 1988 through 1994, the Company focused its research and
development efforts on developing and refining Core Line Products. Since July
1994, the Company has aggressively sought new applications for its Proprietary
Technology, which culminated in five FDA Class II products, two of which the
Company expects to market launch in the fourth quarter of calendar 1998. The
new FDA Class II products are indicative of the Company's efforts to develop
systems and processes for therapeutic use in larger markets; products which by
their inherent nature require high gross margin consumable disposable
components for the processing of blood and/or tissue.
The following is Management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and results of
operations during the period included in the accompanying financial statements.
RESULTS OF OPERATIONS
SALES AND REVENUES:
Net sales decreased for the three and nine months ended March 31, 1998 by
approximately 26% and 56%, respectively, from the corresponding 1997 period.
The decrease in the fiscal 1998 periods is reflective of one time sales of
$4,326,090 of the Company's largonth period ended March 31, 1997. The Company
delivered the first two Beta BioArchive Systems for use by IND/IDE sites in
December 1997. Based on the success of those installations, a production run
of 10 BioArchive units was set for the fourth quarter fiscal 1998. Production
has also begun on the CryoSeal CS-1 device and CP-1 processing container as the
Company expects to market and sell those products in Europe and Canada, pending
ISO 9003 certification and CE Marking. The CryoSeal System is awaiting FDA
clearance for marketing in the U.S. At this time, the Company is unable to
project an FDA clearance date that would be sooner than the first quarter of
fiscal 1999.
8
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997 (CONT'D)
RESULTS OF OPERATIONS (CONT'D)
COST OF SALES:
Cost of sales as a percent of sales was approximately 120% and 145% for the
three and nine months ended March 31, 1998, as compared to 77% and 62% for the
corresponding fiscal 1997 periods. Cost of sales increased as a percentage of
revenues as a result of the following factors: 1) Labor costs incurred to
ensure the Company meets ISO 9003 quality standards; 2) Labor costs for the
start-up production of the CryoSeal System and the BioArchive System which have
generated no revenues in this quarter; 3) Production labor diverted to the
upgrading of the manufacturing facility; 4) Higher warranty reserves for Pipe
Line Products used in clinical studies; and 5) Significant overhead costs
incurred in building and maintaining an infrastructure that is required to meet
FDA regulatory requirements and standards for production of Class II medical
devices. Those costs include: quality control, document control, production
control, production management, equipment, facilities and support personnel.
The Company believes that the increases in overhead expenses are consistent
with the needs to manufacture the two new Pipe Line products within the FDA
guidelines and achieve ISO 9003 certification.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the three and nine months ended March
31, 1998 increased by 36% and 98% from the corresponding fiscal 1997 periods.
In November 1997, the Company made significant changes in senior management to
improve operations, replacing the Chief Operating Officer and Director of
Manufacturing. Approximately $200,000 of the increase for the nine month
period was due to accrual of severance payments to departing executives and
signing bonuses for the new President and the new Vice President of
Manufacturing Operations. The additional increase is also attributable to
expansion of facilities, personnel and additions to management that are
required for the Company to manufacture and market Class II medical devices and
achieve ISO 9003 certification.
SELLING AND MARKETING EXPENSES:
Selling and marketing expenses for the three months ended March 31, 1998
decreased by 1% from the quarter ended March 31, 1997. The decrease is a
result of the restructuring that occurred in the marketing department in the
third quarter and the Company's efforts to control costs. Although selling and
marketing expenses increased 29% over the year to date 1997 period, the
percentage increase was significantly lower than the second quarter year
to date comparison of 50%. The 29% increase was primarily due to an increase
in salaries for additional executives and support personnel to plan and
implement the expected fourth quarter fiscal 1998 market introduction of
the N{2} BioArchive System and the CryoSeal System.
9
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1998
RESULTS OF OPERATIONS (CONT'D)
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses for the three months ended March 31, 1998
decreased by 2% from the corresponding 1997 period. The decrease is a result of
the BioArchive and CryoSeal systems moving into production and the Company's
efforts to control costs. Research and development expenses for the nine
months ended March 31, 1998 increased 48% over the corresponding 1997 period.
A significant portion of the increase was due to accelerated research and
development of these programs:(i) N{2} BioArchive System: a computerized
liquid nitrogen biological storage and retrieval system and (ii) CryoSeal
System: a system that harvests cryoprecipitated AHF from a donor's blood plasma
for use as an intravenous treatment for hemophilia and as an autologous
surgical tissue sealant and hemostatic agent. The Company also expensed the
cost of CryoSeal devices and surgical disposables during the period that were
utilized in the clinical surgery trials underway in Milan, Italy. Management
believes that research and development is essential to maintaining the
Company's market position and therefore, considers such expenses a continuing
cost of doing business.
ISSUANCE OF STOCK OPTIONS FOR SERVICES:
During the nine months ended March 31, 1998, the Company recorded $55,000 of
consulting expense for issuance of stock options issued to two key advisors
related to the CryoSeal System development and market. The options are
exercisable at the fair market value as determined by the closing bid price for
the Company's common stock as quoted by the Nasdaq SmallCap market on the date
of grant. While the $55,000 is a non-monetary transaction, the Company has
recorded the estimated fair value of the options under generally accepted
accounting principles.
LIQUIDITY AND CAPITAL RESOURCES
During the nine month periods ended March 31, 1998 and 1997, the Company had
consumed cash resources for operating activities. These resources were
primarily used to fund increases in inventory and the net loss resulting from
marketing activities and product development.
Working capital decreased by $736,018. The decrease was primarily due to
funding of accelerated research and development, marketing operations and
manufacturing infrastructure required to prepare for the product launch of the
new pipeline products -- CryoSeal and BioArchive.
The Company used $6,509,595 for operations for the nine months ended March 31,
1998. This was due to increased research and development, lower sales volume in
relationship to manufacturing fixed costs and added personnel in anticipation
of new products production and marketing. The Company believes, based upon its
current business plan, its existing cash equivalents and/or future investment
capital, that it has adequate capital to satisfy its current working capital
needs. The Company is also pursuing additional bank lines of credit to assist
in product distribution and production. No assurances can be made, however,
that financing will be available to fully execute the Company's long term
business plan, or that if available that such financing will be available on
terms favorable to the Company.
10
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1998
LIQUIDITY AND CAPITAL RESOURCES (CONT'D)
In February 1998 the Company signed an agreement with Dideco Sp.A. for
exclusive distribution of the CryoSeal System throughout Europe.
At March 31, 1998, the Company had no significant outstanding capital
commitments.
BACKLOG
The Company's cancelable backlog at June 30, 1997 was $360,000, and was
$1,519,000 at March 31, 1998. The backlog at March 31, 1998 included
$1,344,000 in orders for the BioArchive System. The Company increased
personnel and facility capacity for the production of the two new products.
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF COMMON STOCK
GOVERNMENT REGULATION ASSOCIATED WITH PRODUCTS The European Economic Community
(EEC) is requiring medical devices that the Company manufactures to comply with
the Medical Device Directive and CE Marking requirements by June 14, 1998. In
order to achieve CE Marking, the Company must be certified by a Notified Body
of the EEC countries to meet the EN 46000 quality standard (APPLICATION OF
ISO/EN 9000 TO THE MANUFACTURE OF MEDICAL DEVICES) In the nine months ended
March 31, 1998, approximately 40% of the Company's revenues were generated from
European sales. The Company has established a plan to achieve certification,
however, there is no assurance that the Company will receive certification by
the required date. Delays in certification may impact results of operations
due to decreased foreign sales.
11
PART II - OTHER INFORMATION
Item 1. Legal proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Default Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
American Securities Transfer & Trust, Inc. reports
the following totals for all the proposals voted at the
Annual Meeting of Shareholders held February 2, 1998.
Proposal #1 ELECTION OF DIRECTORS For Withhold
PHILIP H. COELHO 12,193,810 261,164
CHARLES DE B. GRIFFITHS 12,194,823 260,151
HUBERT HUCKEL 12,190,323 264,651
PATRICK McENANY 12,148,888 306,486
JAMES GODSEY 12,189,823 265,151
Proposal #2 APPROVAL OF THE EQUITY INCENTIVE PLAN.
For Against Abstain
11,275,441 994,588 186,895
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K.
Current Report on Form 8-K for event date February 16, 1998.
12
THERMOGENESIS CORP.
Signatures
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
THERMOGENESIS CORP.
(Registrant)
Dated May 11, 1998
s/Philip H. Coelho
Chief Executive Officer
(Principal Executive Officer and Principal
Financial Officer)
s/Renee Ruecker
Director of Finance
(Principal Accounting Officer)
13