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 December 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 |X| No __
The number of shares of the registrant's common stock, $.001 par value,
outstanding on February 2, 2000 was 21,389,179.
2
THERMOGENESIS CORP.
INDEX
Page
Number
Part I Financial Information
Item 1. Financial Statements (Unaudited):
Balance Sheets at December 31, 1999
and June 30, 1999 ....................................................3
Statements of Operations for the
Three and Six Months ended December 31, 1999 and 1998 ................5
Statements of Cash Flows for
the Three and Six Months Ended December 31, 1999 and 1998 ............6
Notes to Financial Statements ........................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk. See
Management's Discussion and Analysis of Financial Conditions and Results
of Operations.
Part II Other Information
Item 1. Leegal proceedings ...................................................13
Item 2. Changes in Securities ................................................13
Item 3. Default Upon Senior Securities .......................................13
Item 4. Submission of Matters to a Vote of Security Holders ..................14
Item 5. Otther Information ...................................................14
Item 6. Exhibits and Reports on Form 8-K .....................................14
Signatures ...................................................................15
3
PART I FINANCIAL INFORMATION
THERMOGENESIS CORP.
Balance Sheets
(Unaudited)
December 31, June 30,
ASSETS 1999 1999
------------- -------------
Current Assets:
Cash and cash equivalents $ 3,730,000 $ 2,327,000
Accounts receivable, net of allowance for doubtful
accounts of $95,000 ($95,000 at June 30, 1999) 870,000 1,204,000
Inventory 2,362,000 2,717,000
Other current assets 240,000 222,000
------------- -------------
Total current assets 7,202,000 6,470,000
Equipment, at cost less accumulated depreciation
of $1,491,000 ($1,216,000 at June 30, 1999) 1,283,000 1,457,000
Prepaid royalties, net of accumulated amortization
of $527,000 ($499,000 at June 30, 1999) 27,000 55,000
Other assets 56,000 151,000
------------- -------------
$ 8,568,000 $ 8,133,000
============= =============
See accompanying notes to financial statements.
4
THERMOGENESIS CORP.
Balance Sheets (continued)
(Unaudited)
December 31, June 30,
LIABILITIES AND SHAREHOLDER'S EQUITY 1999 1999
-------------- --------------
Current liabilities:
Accounts payable $ 767,000 $ 639,000
Accrued payroll and related expenses 121,000 236,000
Accrued liabilities 382,000 539,000
-------------- --------------
Total current liabilities 1,270,000 1,414,000
Commitments and contingencies
Shareholders' equity:
Series B convertible preferred stock, 4,080 shares authorized,
4,000 issued and outstanding 1,000 ---
Series A convertible preferred stock, 1,200,000 shares
authorized; 770,000 issued and outstanding (884,000 at
June 30, 1999) 1,000 1,000
Preferred stock, $.001 par value; 795,920 shares
authorized; no shares issued and outstanding --- ---
Common stock, $.001 par value; 50,000,000 shares
authorized; 18,930,685 issued and outstanding (18,925,669 at
June 30, 1999) 21,000 21,000
Paid in capital in excess of par 41,467,000 37,442,000
Accumulated deficit (34,192,000) (30,745,000)
-------------- --------------
Total shareholders' equity 7,298,000 6,719,000
-------------- --------------
$ 8,568,000 $ 8,133,000
============== ==============
See accompanying notes to financial statements.
5
THERMOGENESIS CORP.
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------ -------------------------
1999 1998 1998 1999
------------- ------------- ------------- --------------
Net revenues $ 1,281,000 $ 1,326,000 $ 2,260,000 $ 2,426,000
Cost of revenues 1,231,000 1,309,000 2,467,000 2,604,000
------------- ------------- ------------- --------------
Gross profit (loss) 50,000 17,000 (207,000) (178,000)
------------- ------------- ------------- --------------
Expenses:
General and administrative 454,000 666,000 917,000 1,362,000
Selling and marketing 563,000 349,000 1,131,000 746,000
Research and development 404,000 453,000 865,000 963,000
Issuance of stock options for
services 15,000 15,000 30,000 26,000
Interest 3,000 88,000 8,000 96,000
------------- ------------- ------------- --------------
Total expenses 1,439,000 1,571,000 2,951,000 3,193,000
Interest income 9,000 2,000 24,000 15,000
------------- ------------- ------------- --------------
Net loss ($1,380,000) ($1,552,000) ($3,134,000) ($3,356,000)
============= ============= ============= ==============
Per share data:
Net loss ($1,380,000) ($1,552,000) ($3,134,000) ($3,356,000)
Preferred stock discount (313,000) (2,297,000) (313,000) (2,297,000)
------------- ------------- ------------- --------------
Net loss to common stockholders ($1,693,000) ($3,849,000) ($3,447,000) ($5,653,000)
============= ============= ============= ==============
Basic and diluted net loss per share ($0.08) ($0.20) ($0.16) ($0.30)
============= ============= ============= ==============
Shares used in computing
per share data 21,036,929 18,930,045 20,920,935 18,927,857
============= ============= ============= ==============
See accompanying notes to financial statements.
6
THERMOGENESIS CORP.
Statements of Cash Flows
Six Months Ended December 31, 1999 and 1998
1999 1998
------------- ---------------
Cash flows from operating activities:
Net loss ($3,134,000) ($3,356,000)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 303,000 331,000
Amortization of stock and options issued for services 37,000 32,000
Net change in operating assets and liabilities:
Accounts receivable 334,000 262,000
Inventory 355,000 439,000
Other current assets (18,000) (50,000)
Other assets 95,000 (62,000)
Accounts payable 98,000 (269,000)
Accrued payroll and related expenses (115,000) 12,000
Accrued liabilities (127,000) 3,000
------------- ---------------
Net cash used in operating activities (2,172,000) (2,658,000)
------------- ---------------
Cash flows from investing activities:
Capital expenditures (101,000) (40,000)
------------- ---------------
Cash flows from financing activities:
Proceeds from short-term debt --- 450,000
Issuance of convertible preferred stock 3,668,000 4,734,000
Exercise of stock options and warrants 8,000 ---
------------- ---------------
Net cash provided by financing activities 3,676,000 5,184,000
------------- ---------------
Net increase in cash and cash equivalents 1,403,000 2,486,000
Cash and cash equivalents at beginning of period 2,327,000 1,975,000
------------- ---------------
Cash and cash equivalents at end of period $3,730,000 $4,461,000
============== ===============
See accompanying notes to financial statements
7
THERMOGENESIS CORP.
Notes to Financial Statements
December 31, 1999
(Unaudited)
Interim Reporting
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended December 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 2000.
Inventory
Inventory consisted of the following at:
December 31, 1999 June 30, 1999
----------------- -------------
Raw materials $1,227,000 $1,330,000
Work in process 274,000 363,000
Finished goods 861,000 1,024,000
----------- ---------
$2,362,000 $2,717,000
=========== ===========
Series B Convertible Preferred Stock
On December 22, 1999, 4,000 shares of Series B Convertible Preferred Stock
("Series B") were sold in the initial closing of a private placement for net
proceeds after payment of placement fees and expenses of $3,668,000. The final
closing occurred on January 4, 2000 for 40 additional shares and net proceeds of
$40,000. The significant features of the Series B are as follows:
Voting Rights - The holders of shares of Series B have no general voting
rights other than as accorded by law under certain circumstances that
effect Series B holders.
Liquidation Rights - In the event of liquidation or dissolution of the
Company, the Series B stockholders are entitled to priority over common
stockholders and in parity with Series A holders with respect to
distribution of Company assets or payments to stockholders. The
liquidation distribution is equal to $1,000 per share plus any accrued
and unpaid dividends.
8
THERMOGENESIS CORP.
Notes to Financial Statements (Continued)
December 31, 1999
(Unaudited)
Series B Convertible Preferred Stock (continued)
Conversion Rights - The Series B is currently limited in conversion to a
maximum of 4,236,000 shares. However, the current conversion price is a
fixed conversion price of $2.2719 which represents the average market
price of the Company's common stock for the ten days prior to the
issuance of the Series B. Commencing on June 22, 2000, the conversion
price will be adjusted on such date and every six months thereafter to
be the lesser of (a) 130% of the fixed conversion price as stated above,
or (b) 90% of the average market price for the ten days prior to such
adjustment date. The conversion price is subject to further adjustment
under certain other circumstances.
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 Series B was sold, amounted to
$777,000. Of the beneficial conversion feature, $292,000 is the amount
attributed to the current conversion price and is recorded in the
preferred stock discount at December 31, 1999. The remaining amount of
the beneficial conversion feature, $485,000 will be amortized over the
six months ended June 22, 2000, the initial reset date. The preferred
stock discount at December 31, 1999 includes $21,000 of amortization.
Dividends - Dividends at the rate of $60 per annum per share of Series B
are payable in cash or, at the Company's option, may be added to the
value of the Series B subject to conversion and to the $1,000 per share
liquidation preference.
Redemption - If the Company is in compliance with the terms of the
Series B agreements, the Company has the right at any time to redeem the
Series B at a premium (generally, 120% of the $1,000 per share
liquidation value plus accrued and unpaid dividends), and under certain
circumstances, at the market value of the common stock into which the
Series B would otherwise be convertible. Assuming the Company is in
compliance with such agreements, after the third anniversary of
issuance, the Company may redeem the Series B at its liquidation value
plus accrued and unpaid dividends.
If certain events occur which are solely within the Company's control,
the holders of the Series B have the right to request that the Company
repurchase all or some of their Series B at the greater of the premium
or converted market value. These events include the Company taking
actions or omitting to take actions that result in the following:
There is no closing bid price reported for the Company's common
stock for five consecutive trading days;
The Company's common stock ceases to be listed for trading on the
Nasdaq SmallCap Market;
9
THERMOGENESIS CORP.
Notes to Financial Statements (Continued)
December 31, 1999
(Unaudited)
Series B Convertible Preferred Stock (continued)
The holders of the Seris B are unable, for 30 or more days
(whether or not consecutive) to sell their common stock issuable
upon conversion of the Series B preferred stock pursuant to an
effective registration statement;
The Company defaults under any of the agreements relating to the
sale of the Series B;
Certain business combination events;
The adoption of any amendment to the Company's Certificate of
Incorporation materially adverse to the holders of the Series B
without the consent of the holders of a majority of the Series B;
and
The holders of the Series B are unable to convert all of their
shares because of limitations under exchange or market rules that
require stockholder approval of certain stock issuances and the
Company fails to obtain such approval.
However, if any of these events occur which are not solely within the
Company's control, the Company can give a Control Notice to the Series B
shareholders which provides for certain adjustments to the conversion
price, in lieu of the Company repurchasing the Series B shares.
In addition, preferred shares are subject to certain transfer
restrictions and are entitled to certain registration rights.
10
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ended December 31, 1999 and 1998
The Company designs and sells medical devices which utilize its proprietary
thermodynamic technology for the processing of biological substances including
the cryopreservation, thawing and harvesting of blood components. During fiscal
1988 through 1999, the Company has focused on refining product design of the
Thermoline(TM) (blood plasma freezers and thawers) products and developing two
new technology platforms (BioArchive and CryoSeal Systems) and derivative
products which utilize sterile disposable containers for processing blood
components. The BioArchive system was launched at the end of fiscal 1998.
Beginning in late 1993, and with accelerated research and development efforts
from 1996 to 1999 totaling approximately $10 million, the Company completed
development of the BioArchive and CryoSeal technology platforms. Each of the
platforms will give rise to multiple medical devices targeted at a number of
surgical, intravenous and external wound healing applications. Also, the Company
spent approximately an additional $1 million on improvements, additional
accessories and beta test site support for the new products launched to date. To
achieve completion of the development and add experienced executive talent to
launch the products and move the Company to new levels of growth and revenues,
considerable capital resources were used. The Company is currently seeking
strategic alliance partners with substantially greater financial and marketing
resources than the Company in order to maximize the commercial value of the
CryoSeal and BioArchive platform 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
Revenues:
Revenues for the three and six months ended December 31, 1999 were $1,281,000
and $2,260,000 compared to $1,326,000 and $2,426,000 for the three and six
months ended December 31, 1998. The volume of revenues are consistent with those
recorded in the corresponding periods of fiscal 1999. However, the slight
decreases are due to the delay of expected orders for the BioArchive System.
Five systems were sold in the six months ended December 31, 1998, which
accounted for over 30% of that period's revenues, compared to two systems and
19% of revenues in the six months ended December 31, 1999. This delay in
BioArchive sales was unexpected because the quotations requested by potential
customers have risen steadily to 40 BioArchive Systems for Cord Blood Banks in
26 countries. The technical and regulatory hurdles within each country that are
required to authorize this new medical therapy, prepare the Cord Blood Bank site
and obtain the necessary budget allocation is a more time consuming process than
originally estimated by the Company. Additional resources have been added to the
Company's marketing efforts in order to assist the acceleration of this process.
11
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ended December 31, 1999 and 1998 (Cont'd)
Results of Operations (Cont'd)
Revenues (Cont'd):
To somewhat offset the decrease in BioArchive sales the Company's freezer sales
for the six months ended December 31, 1999 increased 51% over the freezer sales
recorded in the corresponding fiscal 1999 period. The increase in freezer sales
is primarily due to shipping ten MicroCascade Plasma freezers to a single
customer in the second quarter of fiscal 2000.
Cost of Revenues:
Cost of revenues as a percent of revenues was approximately 96% and 109% for the
three and six months ended December 31, 1999, as compared to 99% and 107% for
the corresponding fiscal 1999 periods. The cost of revenues percentage decrease
in the second quarter as compared to the prior year was due to the mix of
products sold and the Company's cost reduction efforts. However, cost of
revenues was higher for the six months ended December 31, 1999 as compared to
the prior year, primarily due to the decrease in sales volume, the mix of
products sold and the Company's significant overhead costs associated with
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 the
marketing launches of the two new products.
General and Administrative Expenses:
General and administrative expenses were $454,000 and $917,000 for the three and
six months ended December 31, 1999 compared to $666,000 and $1,362,000 for the
fiscal 1999 periods, a decrease of 32% and 33%, respectively. The decreases were
primarily due to personnel reductions and transferring or allocating personnel
to other functions, namely sales and marketing and research and development.
Sales and Marketing Expenses:
Selling and marketing expenses for the three and six months ended December 31,
1999 were $563,000 and $1,131,000, compared to $349,000 and $746,000 for the
comparable fiscal 1999 periods. The increased sales and marketing resources were
dedicated to expanding the global sales force for BioArchive systems from one to
three and further expanding the efforts to satisfy the customers' needs for
technical support to satisfy scientific and regulatory requirements for
establishing Cord Blood banks in their respective countries. In addition,
greater sales and marketing resources were devoted to the initial efforts to
launch the CryoSeal AHF system. The Company expects the increased spending on
sales and marketing resources to continue, as its primary focus is to drive
revenue generated by the two new products.
12
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ended December 31, 1999
Results of Operations (Cont'd)
Research and Development Expenses:
Research and development expenses for the three and six months ended December
31, 1999 were $404,000 and $865,000 compared to $453,000 and $963,000 for the
corresponding fiscal 1999 periods. These decreases are primarily due to cost
reduction efforts which were initiated the first quarter of fiscal 1999 and have
continued into fiscal 2000. Management expects the research and development line
item to increase during the completion of the CryoSeal AFG pre clinical trials.
Liquidity and Capital Resources
Working capital increased by $876,000 from June 30, 1999 to December 31, 1999.
The increase was due to the net proceeds received from the private placement.
The Company used $2,172,000 for operations for the six months ended December 31,
1999. This was primarily due to lower sales volume in relationship to fixed
manufacturing costs and added personnel to generate revenues. The report of
independent auditors on the Company's June 30, 1999 financial statements
includes an explanatory paragraph indicating there is substantial doubt about
the Company's ability to continue as a going concern. The Company has developed
a plan to address these issues and believes that its plan will enable the
Company to continue as a going concern through the end of calendar year 2000
without additional financing. In the past, the Company has been able to obtain
financing to continue its operations and product development. The plan includes
the realization of revenues from the commercialization of new products and the
reduction of certain operating expenses as required. Additionally, the Company
is currently pursuing partnering relationships with large corporations in
connection with the products derived from the BioArchive and CryoSeal technology
platforms. 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. There is no assurance that the
Company will be able to achieve additional financing or reach a strategic
relationship, or that such events will be on terms favorable to the Company.
The Company made the transition to the calendar year 2000 without "Year 2000"
interruptions. The Company did not incur any material costs to be "Year 2000"
compliant.
At December 31, 1999, the Company has no significant outstanding capital
commitments.
Quantitative and Qualitative Disclosures About Market Risk
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 revenues. The
Company has no long-term debt or investments and therefore is not subject to
interest rate risk.
13
PART II - OTHER INFORMATION
Item 1. Legal proceedings. In December 1998, the Company was served
with a civil action entitled Metropolitan Creditors Service of
Sacramento vs. THERMOGENESIS CORPORATION, Sacramento Superior Court
No. 98-AS-05815. The action allegedly arises from the Company's vendor
relationship with On-Time Manufacturing, Inc., and relates to several
invoices totaling approximately $90,000 in the aggregate which On-Time
Manufacturing, Inc. claimed were owing, and which were allegedly
assigned to Metropolitan Creditors Service of Sacramento. The Company
disputes the claims and filed an answer to the complaint in December
1998. In August 1999, Metropolitan Creditors Service of Sacramento
sought to amend the Complaint to include additional claims for breach
of contract, seeking compensatory and consequential damages in excess
of $1 million. The Company proceeded to arbitration on the claims,
including the breach of contract claims, and the arbitrator issued an
award of $2,625 to Metropolitan Creditors Association on one invoice
not encompassed by the contract, and ruled in the Company's favor on
all other claims. Metropolitan Creditors Service of Sacramento
rejected the arbitrator's award and elected to proceed to trial in
Superior Court. In January 2000, following conversion of the On- Time
bankruptcy proceeding to Chapter 7 liquidation, the Company and
Metropolitan Creditors attended a judicial settlement conference,
during which all claims were settled, without admission of liability
by either party. The settlement is conditioned upon Bankruptcy Court
approval in the On-Time bankruptcy proceeding, and the Company will
pay to the bankruptcy trustee the sum of $40,000 upon receipt of the
approval.
Item 2. Changes in Securities.
None.
Item 3. Default Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
14
American Securities Transfer & Trust, Inc. reports the following totals for all
the proposals voted on at the Annual Meeting of shareholders held December 10,
1999.
Proposal #1 Election of Directors For Withhold
--------------------- ----------- ---------
Philip H. Coelho 14,205,061 313,415
James Godsey 14,205,424 313,052
Patrick McEnany 14,033,180 485,296
Hubert Huckel 14,130,174 388,302
David Howell 14,058,161 460,315
Proposal #2 Approval of Amendment to the Company's 1998 Equity Incentive Plan
to add an additional 1,000,000 shares of common stock underlying
that plan.
For Against Abstain
----------- ---------- -----------
13,339,291 980,373 198,812
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K.
(1) Form 8-K for event dated December 22, 1999.
15
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 February 10, 2000
/s/ PHILIP H. COELHO
-----------------------------------------
Philip H. Coelho
Chief Executive Officer
(Principal Executive Officer)
/s/ RENEE M. RUECKER
-------------------------------------------
Renee M. Ruecker
Vice President of Finance
(Principal Financial and Accounting Officer)