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, 1999.
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 21, 1999 was 19,763,846.
_______________________________
1
THERMOGENESIS CORP.
INDEX
PAGE NUMBER
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Balance Sheets at March 31, 1999
and June 30, 1998...................................................3
Statements of Operations for the
Three and Nine months ended March 31, 1999 and 1998 .......... 5
Statements of Cash Flows for
the Three and Nine months ended March 31, 1999 and 1998........ 6
Notes to Financial Statements.................................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 9
PART II OTHER INFORMATION
Item 1. Legal proceedings.......................................... 12
Item 2. Changes in Securities...................................... 12
Item 3. Default Upon Senior Securities ............................ 12
Item 4. Submission of Matters to a Vote of Security Holders........ 12
Item 5. Other Information.......................................... 12
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 1999 1998
Current Assets:
Cash and cash equivalents $3,257,280 $1,975,042
Accounts receivable, net of allowance for doubtful
accounts of $95,000 ($97,910 at June 30, 1998) 947,816 1,280,327
Inventory 2,500,393 2,456,565
Other current assets 173,417 180,214
Total current assets 6,878,906 5,892,148
Equipment, at cost less accumulated depreciation
of $984,976 ($861,750 at June 30, 1998) 1,395,458 1,679,201
Prepaid royalties, net of accumulated amortization
of $485,226 ($443,637 at June 30, 1998) 69,274 110,863
Other assets 165,366 117,030
$8,509,004 $7,799,242
See accompanying notes to financial statements.
3
THERMOGENESIS CORP.
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
March 31, June 30,
LIABILITIES AND SHAREHOLDER'S EQUITY 1999 1998
Current liabilities:
Accounts payable $971,371 $1,301,141
Accrued payroll and related expenses 248,982 345,875
Accrued warranty reserves 246,570 237,440
Current portion of capital lease obligations 26,482 105,151
Other current liabilities 294,212 179,224
Total current liabilities 1,787,617 2,168,831
Long-term portion of capital lease obligations 37,996 57,519
Commitments and contingencies --- ---
Redeemable convertible preferred stock, 1,200,000 shares
authorized; 1,044,000 issued and outstanding ($6,655,500
aggregate involuntary liquidation value at March 31, 1999) 6,188,929 ---
Shareholders' equity:
Preferred stock, $.001 par value;
800,000 shares authorized; no shares
issued and outstanding --- ---
Common stock, $.001 par value;
50,000,000 shares authorized;
19,123,846 issued and outstanding
(18,925,669 at June 30, 1998) 19,125 18,926
Paid in capital in excess of par 30,263,551 26,293,511
Accumulated deficit (29,788,214) (20,739,545)
Total shareholders' equity 494,462 5,572,892
$8,509,004 $7,799,242
See accompanying notes to financial statements.
4
THERMOGENESIS CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine months ended
March 31, March 31,
1999 1998 1999 1998
Net sales $866,094 $1,028,973 $3,290,287 $2,556,065
Cost of sales 1,031,056 1,231,468 3,619,293 3,713,100
Gross profit (loss) (164,962) (202,495) (329,006) (1,157,035)
Expenses:
General and administrative 794,197 510,282 2,171,026 1,613,234
Selling and marketing 470,480 550,303 1,217,117 1,706,936
Research and development 498,418 837,690 1,465,915 3,040,232
Issuance of stock options
for services 15,000 13,000 41,000 55,000
Interest and other 16,159 17,956 112,656 44,098
Total expenses 1,794,254 1,929,231 5,007,714 6,459,500
Interest income 31,085 11,930 51,791 52,618
Net loss ($1,928,131) ($2,119,796) ($5,284,929) ($7,563,917)
Per share data:
Net loss ($1,928,131) ($2,119,796) ($5,284,929) ($7,563,917)
Preferred stock discount 1,307,700 -- 3,604,740 --
Net loss to common stockholders ($3,235,831) ($2,119,796) ($8,889,669) ($7,563,917)
Basic and diluted net loss per share ($.17) ($0.11) ($.47) ($0.44)
Shares used in computing per share 19,033,888 18,821,502 18,963,201 17,197,945
data
See accompanying notes to financial statements.
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THERMOGENESIS CORP.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1999 AND 1998
Cash flows from operating activities: 1999 1998
Net loss ($5,284,929) ($7,563,917)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation, amortization and accretion 505,590 359,121
Issuance of stock or stock options for services 92,235 55,000
Net change in operating assets and liabilities:
Accounts receivable 332,511 1,006,465
Inventory (88,828) (27,299)
Other current assets 6,797 77,088
Other assets (48,336) 24,530
Accounts payable (329,770) (625,338)
Accrued payroll and related expenses (96,893) (40,211)
Accrued warranty reserves 9,130 92,058
Other current liabilities 114,988 83,446
Net cash used in operating activities (4,787,505) (6,559,057)
Cash flows from investing activities:
Capital expenditures (64,258) (570,096)
Cash flows from financing activities:
Principal payments on long-term lease obligations (98,192) (122,386)
Issuance of redeemable convertible preferred stock 6,228,002 -
Exercise of stock options and warrants 4,191 539,549
Issuance of common stock -- 6,495,496
Net cash provided by financing activities 6,134,001 6,912,659
Net increase (decrease) in cash and cash equivalents 1,282,238 (216,494)
Cash and cash equivalents at beginning of period 1,975,042 3,510,861
Cash and cash equivalents at end of period $3,257,280 $3,294,367
See accompanying notes to financial statements
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THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(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, 1998. 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, 1999 are not necessarily indicative of the results expected for the
full year.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
On January 14, 1999, the Company completed a private placement of 1,077,540
shares of Series A Preferred Stock, raising an aggregate of $6,734,625, before
commissions and direct expenses. Commissions of 7% of the gross proceeds and
warrants to purchase 200,000 shares of common stock at $1.70 per share were
issued to the placement agent. An initial closing for the preferred stock was
held on December 31, 1998, with gross proceeds of $5,100,000 having been
received. The significant features of the Preferred Stock are as follows:
Voting Rights - The holders of shares of Preferred Stock are entitled to
voting rights equal to the number of shares of common stock to be issued
upon conversion of the Preferred Stock. Additionally, so long as in
excess of 35% of the original amount of Preferred Stock remains
outstanding, the holders of the Preferred Stock shall be entitled, voting
as a separate class, to elect one director, who shall be one of the
authorized number of directors of the Corporation.
Liquidation Preferences - In the event of liquidation or dissolution of
the Company, the preferred stockholders are entitled to priority over
common stockholders with respect to distribution of Company assets or
payments to stockholders. The liquidation preference is equal to $6.25
per share compounded annually at 8% per share per year.
Redemption - The Preferred Stock shall be redeemable upon the request of
any holder of Preferred Stock at any time following the fifth anniversary
of the date of issuance. The redemption price shall be the liquidation
preference as stated above. The excess of the redemption value over the
carrying value will be accreted using the interest method over five years.
Conversion Rights - Holders of the Preferred Stock have the right to
convert the preferred stock at the option of the holder, at any time, into
shares of common stock of the Company at the conversion rate of one
preferred share for five shares of common stock. The conversion rate is
subject to adjustment for changes in the Company's capital structure which
would otherwise have a dilutive effect on the conversion rate. As of
March 31, 1999, 33,540 shares of Preferred Stock have been converted.
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THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
REDEEMABLE CONVERTIBLE PREFERRED STOCK (continued)
Beneficial Conversion Feature - The value assigned to the Beneficial
Conversion Feature, as determined using the quoted market price of the
Company's common stock on the date the Preferred Stock was sold, amounted
to $2,297,040 on December 31, 1998, and $1,307,700 on January 14, 1999,
which represents a discount to the value of the Preferred Stock.
Automatic Conversion - At the option of the Company, each share of
Preferred Stock may be converted into shares of Common Stock at the
conversion rate of 1:5 provided that the shares of the Company's common
stock trade at an average price equal to or greater than $5 per share for
30 consecutive trading days.
Dividends - The holders of Preferred Stock shall be entitled to receive
dividends at the same rate and at the same time as any dividends declared
on the Company's common stock.
Preemptive Rights - Each holder of Preferred Stock has been granted
preemptive rights entitling such holder to purchase any new issue of the
Company's stock in order to maintain their ownership percentage in the
Company.
In addition, preferred shares are subject to certain transfer restrictions and
are entitled to certain registration rights.
8
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1999 AND 1998
The Company's core business was principally the sale of ultra-rapid blood
plasma freezing and thawing systems, until the fourth quarter of fiscal 1998
when the Company launched its BioArchive Stem Cell System. The Company's
principal revenues were previously from sales of its core line blood plasma
freezers to blood banks and blood plasma thawers to hospitals and transfusion
centers. All core line blood plasma freezer and thawer products are FDA Class
I medical devices purchased as capital equipment.
Approximately five years ago, management initiated a plan to develop two new
Biopharmaceutical drug micro manufacturing platforms, the BioArchive Platform
and the CryoSeal Platform. Biopharmaceutical drugs are composed of the body's
naturally occurring proteins, enzymes, growth factors, hormones and progenitor
cells and are utilized for the treatment of human disease or a serious medical
condition. Each of these two platforms are expected to generate several micro
manufacturing systems which utilize single use, sterile disposables that are
expected to provide an ongoing revenue stream with system use. Products
developed under the micro manufacturing platforms will compete in markets that
exceed $100 million annually. The Company initially focused it's efforts on
three products from these platforms. This quarter marked the international
launch of the CryoSeal AFG system to three international distributors. The
BioArchive Stem Cell System was launched in the fourth quarter of fiscal 1998,
and the CryoSeal AHF System will be launched in fiscal 1999. The CryoSeal
platform products are regulated under the FDA Class II designation.
Accordingly, the Company incurred significant expenditures to develop these
products and create the manufacturing, marketing and management infrastructure
required to produce and market these Class II products.
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:
Sales for the three and nine months ended March 31, 1999 were $866,094 and
$3,290,287 compared to $1,028,973 and $2,556,065 for the three and nine months
ended March 31, 1998. The 16% decrease for the three months ended March 31,
1999 is due to the loss of a key sales rep at the end of the previous quarter.
Also, a higher than normal amount of backlog was shipped during the third
quarter of fiscal 1998. The 28% increase in year-to-date sales is due to
increased sales of the Company's BioArchive product line. The increase in the
BioArchive product line was due to both sales of units (six were sold in the
nine months ended March 31, 1999, two were sold in the corresponding fiscal
1998 period) and sales of disposable products associated with the BioArchive
systems.
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THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1999 AND 1998 (CONT'D)
RESULTS OF OPERATIONS (CONT'D)
COST OF SALES:
Cost of sales as a percent of sales was approximately 119% and 110% for the
three and nine months ended March 31, 1999, as compared to 120% and 145% for
the corresponding fiscal 1998 periods. The cost of sales percentage decrease is
due to the Company's cost reduction efforts. However, cost of sales remains
higher than expected primarily due to the 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. The Company has built up the infrastructure in anticipation of its
two new products.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses were $794,197 and $2,171,026 for the three
and nine months ended March 31, 1999 compared to $510,282 and $1,613,234 for
the fiscal 1998 periods. The increase for the three and nine months ended
March 31, 1999 was primarily due to $215,000 for expenses associated with the
Quality Assurance and Regulatory departments which were included in R&D last
year and have been included in G&A this year due to the transfer of the
BioArchive and CryoSeal product lines to manufacturing. Other additions to
General and Administrative Expense over the prior year include professional
fees paid to an investor relations firm, $50,000, and the recording of reserves
for various items, $125,000.
SELLING AND MARKETING EXPENSES:
Selling and marketing expenses for the three and nine months ended March 31,
1999 were $470,480 and $1,217,117, a decline as compared to $550,303 and
$1,706,936 for the comparable fiscal 1998 periods. Selling and Marketing
expenses increased 35% or $121,018 from the prior quarter due to the Company
focusing its attention and resources to building a sales and marketing function
to drive revenues of the BioArchive and CryoSeal systems. The decreases from
the prior year were primarily due to the restructuring of the sales and
marketing departments during the fiscal 1998, which was designed to
bring these expenses in line proportionately with sales levels.
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses for the three and nine months ended March 31,
1999 were $498,418 and $1,465,915 compared to $837,690 and $3,040,232 for the
corresponding fiscal 1998 periods, a decrease of 41% and 52%. These
significant decreases are indicative of the Company's transition from
development of the BioArchive and CryoSeal systems to production and market
launch. In recognition of this transition, the Company restructured the
Research and Development function in the first quarter of fiscal 1999,
terminating certain employees and transferring others to the manufacturing
function. Management believes they have the proper staffing to oversee the
development of the additional products which will be generated from the
BioArchive and CryoSeal platforms.
10
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1999
RESULTS OF OPERATIONS (CONT'D)
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by $1,367,972 from June 30, 1998 to March 31, 1999.
The increase was due to the net proceeds received from the private placement.
As discussed in the Notes to Financial Statements, on January 14, 1999, the
Company completed a private placement of 1,077,540 shares of Series A Preferred
Stock, raising an aggregate of $6,734,625, before commissions and direct
expenses.
The Company used $4,787,505 for operations for the nine months ended March 31,
1999. This was due to lower sales volume in relationship to manufacturing fixed
costs and operating expenses incurred in maintaining the infrastructure
necessary to develop, market and manage the two new Class II products. 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 immediate current working capital needs. The Company is also
pursuing bank lines of credit to assist in product distribution. No assurances
can be made, however, that revenues from operations will be adequate short-term
to fully execute the Company's business plan, or that debt or future financing
will be available on terms favorable to the Company. The report of independent
auditors on the Company's June 30, 1998 financial statements includes an
explanatory paragraph indicating there is substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments to reflect the uncertainties related to the
recoverability and classification of assets or the amounts and classification
of liabilities that may result from the inability of the Company to continue as
a going concern.
Management does not anticipate that the Company will incur any material costs
to be "Year 2000" compliant. The Company has completed an assessment of its
internal systems and products and determined that substantially all of the
Company's systems and products operate using third party software that is
compliant, or operate using Company product software which is Year 2000
compliant. The Company has formed a task force to identify and address
potential year 2000 issues with significant vendors, customers and other third
parties. To date, no significant issues have been identified. The Company
intends to complete its Year 2000 assessments and any required remediation
programs in the first quarter of fiscal 2000.
At March 31, 1999, the Company had no significant outstanding capital
commitments.
11
PART II - OTHER INFORMATION
Item 1. Legal proceedings.
On November 8, 1998, Metropolitan Creditors Service of Sacramento, assignee of
On-Time Manufacturing, filed an action in the Sacramento Superior Court
(METROPOLITAN CREDITORS SERVICE OF SACRAMENTO VS. THERMOGENESIS CORP., CASE NO.
98AS05815) alleging monies owed from product delivered by the assignor, On-Time
Manufacturing. The amounts claimed related to products delivered pursuant to
invoices dated in 1997, and totaled approximately $90,000 in the aggregate.
The Company has answered the complaint disputing the claims, and intends to
fully defend the action. Notwithstanding the Company's position on the
dispute, a reserve was previously recorded on the Company's books and
management does not anticipate that the dispute will have any material impact
on operations or financial condition.
Item 2. Changes in Securities.
None.
Item 3. Default Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
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 January 14, 1999.
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 12, 1999
S/PHILIP H. COELHO
Chief Executive Officer
(Principal Executive Officer)
S/RENEE M. RUECKER
Vice President of Finance
(Principal Accounting and Financial Officer)
13