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, 2001.
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 April 30, 2001 was 31,354,576.
2
THERMOGENESIS CORP.
INDEX
Page Number
Part I Financial Information
Item 1. Financial Statements (Unaudited):
Balance Sheets at March 31, 2001 and June 30, 2000..................3
Statements of Operations for the
Three and Nine months ended March 31, 2001 and 2000 ................5
Statements of Cash Flows for
the Nine months ended March 31, 2001 and 2000 .....................6
Notes to Financial Statements ......................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ......................9
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
See Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Part II Other Information
Item 1. Legal 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 ................13
Item 5. Other Information ..................................................13
Item 6. Ehibits and Reports on Form 8-K ....................................13
Signatures..................................................................14
3
PART I FINANCIAL INFORMATION
THERMOGENESIS CORP.
Balance Sheets
(Unaudited)
March 31, June 30,
ASSETS 2001 2000
----------- ------------
Current Assets:
Cash and cash equivalents $1,590,000 $ 810,000
Short term investments -- 1,740,000
Accounts receivable, net of allowance for doubtful
accounts of $84,000 ($84,000 at June 30, 2000) 1,426,000 627,000
Inventory 1,844,000 2,275,000
Other current assets 106,000 150,000
---------- ----------
Total current assets 4,966,000 5,602,000
Equipment, at cost less accumulated depreciation
of $1,864,000 ($1,506,000 at June 30, 2000) 923,000 1,080,000
Other assets 94,000 53,000
---------- ----------
$5,983,000 $6,735,000
========== ==========
See accompanying notes to financial statements.
4
THERMOGENESIS CORP.
Balance Sheets (continued)
(Unaudited)
March 31, June 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 2001 2000
------------ -------------
Current liabilities:
Accounts payable $ 845,000 $ 512,000
Accrued payroll and related expenses 222,000 132,000
Short-term debt, net of discount of $286,000 1,789,000 --
Accrued liabilities 417,000 345,000
------------ -------------
Total current liabilities 3,273,000 989,000
Long-term portion of capital lease obligations 48,000 54,000
Commitments and contingencies -- --
Shareholders' equity:
Series B convertible preferred stock, $0.001 par value, 4,080 shares
authorized; 570 issued and outstanding (4,040 at
June 30, 2000) -- --
Series A convertible preferred stock, $0.001 par value, 1,200,000 shares
authorized; 158,000 issued and outstanding
(166,000 at June 30, 2000) -- --
Preferred stock, $.001 par value; 795,920 shares authorized;
no shares issued and outstanding -- --
Common stock, $.001 par value; 50,000,000 shares authorized;
27,410,529 issued and outstanding (24,804,056
at June 30, 2000) 27,000 26,000
Paid in capital in excess of par 44,790,000 43,005,000
Stockholder note receivable (425,000) --
Accumulated deficit (41,730,000) (37,339,000)
------------ -------------
Total shareholders' equity 2,662,000 5,692,000
------------ -------------
$ 5,983,000 $ 6,735,000
============ =============
See accompanying notes to financial statements.
5
THERMOGENESIS CORP.
Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Net revenues $ 2,033,000 $ 945,000 $ 4,563,000 $ 3,256,000
Cost of revenues 1,706,000 903,000 4,057,000 3,421,000
------------- ------------- ------------- -------------
Gross profit (loss) 327,000 42,000 506,000 (165,000)
------------- ------------- ------------- -------------
Expenses:
General and administrative 464,000 436,000 1,319,000 1,393,000
Selling and service 487,000 497,000 1,498,000 1,619,000
Research and development 476,000 309,000 1,346,000 1,171,000
------------- ------------- ------------- -------------
Total operating expenses 1,427,000 1,242,000 4,163,000 4,183,000
Interest expense 208,000 4,000 243,000 12,000
Interest income 30,000 25,000 89,000 49,000
------------- ------------- ------------- -------------
Net loss ($1,278,000) ($1,179,000) ($3,811,000) ($ 4,311,000)
============= ============= ============= =============
Per share data:
Net loss before preferred stock dividend
or discount and cumulative effect of
accounting change ($1,278,000) ($1,179,000) ($3,811,000) ($ 4,311,000)
Preferred stock dividend or discount (19,000) (245,000) (92,000) (558,000)
Cumulative effect of accounting change -- -- (580,000) --
------------- ------------- ------------- -------------
Net loss to common stockholders ($1,297,000) ($1,424,000) ($4,483,000) ($ 4,869,000)
============= ============= ============= =============
Basic and diluted net loss per share
before cumulative effect of accounting
change ($0.05) ($0.06) ($0.15) ($0.23)
Cumulative effect of accounting change -- -- ($0.02) --
------------- ------------- ------------- -------------
Basic and diluted net loss per common
share ($0.05) ($0.06) ($0.17) ($0.23)
============= ============= ============= =============
Shares used in computing per share data 27,128,028 22,522,703 26,389,540 21,454,858
============= ============= ============= =============
See accompanying notes to financial statements.
6
THERMOGENESIS CORP.
Statements of Cash Flows
Nine months ended March 31, 2001 and 2000
Cash flows from operating activities: 2001 2000
------------- ------------
Net loss ($3,811,000) ($4,311,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, amortization and accretion 537,000 510,000
Amortization of stock and options issued for services -- 45,000
Net change in operating assets and liabilities:
Accounts receivable (799,000) 457,000
Inventory 431,000 420,000
Other current assets 44,000 (16,000)
Other assets (41,000) 96,000
Accounts payable 333,000 (262,000)
Accrued payroll and related expenses 90,000 (42,000)
Accrued liabilities 72,000 (188,000)
------------- -----------
Net cash used in operating activities (3,144,000) (3,291,000)
------------- -----------
Cash flows used in investing activities:
Capital expenditures (201,000) (172,000)
Sales of short-term investments 1,740,000 --
------------- -----------
Net cash provided by (used in) investing activities 1,539,000 (172,000)
------------- -----------
Cash flows from financing activities:
Proceeds from short-term debt 2,075,000 --
Payments on capital lease obligations (6,000) --
Issuance of convertible preferred stock -- 3,709,000
Exercise of stock options and warrants 316,000 992,000
------------- -----------
Net cash provided by financing activities 2,385,000 4,701,000
------------- -----------
Net increase in cash and cash equivalents 780,000 1,238,000
Cash and cash equivalents at beginning of period 810,000 2,327,000
------------- -----------
Cash and cash equivalents at end of period $ 1,590,000 $ 3,565,000
============= ============
See accompanying notes to financial statements
7
THERMOGENESIS CORP.
Notes to Financial Statements
March 31, 2001
(Unaudited)
1. 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.
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. 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 nine month period ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 2001.
Summary of Significant Accounting Policies
On November 16, 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-27,
"Application of EITF Issue No. 98-5, "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" to
Certain Convertible Instruments". EITF 00-27 requires that any beneficial
conversion feature associated with a convertible instrument be calculated using
the intrinsic value of a conversion option after first allocating the proceeds
received to the convertible instrument and any other detachable instruments
included in the exchange (such as detachable warrants). As a result of adopting
EITF 00-27, the Company has recorded a charge to accumulated deficit of
$580,000, in the quarter ended December 31, 2000, as the cumulative effect of a
change in accounting for the embedded beneficial conversion feature associated
with the Series B Preferred Stock financing which occurred in December 1999.
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition." The Company is currently assessing the impact, if
any, that the SAB will have on its revenue recognition policy. The Company's
existing revenue recognition policy is to recognize revenue at the time the
customer takes title to the product, generally at the time of shipment. However,
when a company is required to install a product, SAB No. 101 may require that
revenue recognition be deferred until installation is complete. Since the
Company generally installs the BioArchive systems it sells, management is
assessing whether the Company practices may require the revenue recognition of
the entire system to be delayed until the installation occurs. The effect of the
change, if any, must be recognized as a cumulative effect of a change in
accounting no later than the quarter ending June 30, 2001.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133
("FAS 133"), Accounting for Derivative Instruments and Hedging Activities, as
amended, which became effective for the Company for the quarter ended September
30, 2000. The adoption of FAS 133 did not have a significant impact on the
financial position or results of operations of the Company.
8
THERMOGENESIS CORP.
Notes to Financial Statements (Continued)
March 31, 2001
(Unaudited)
Inventory
Inventory consisted of the following at:
March 31, 2001 June 30, 2000
--------------- --------------
Raw materials $921,000 $ 1,051,000
Work in process 202,000 295,000
Finished goods 721,000 929,000
--------------- --------------
$1,844,000 $ 2,275,000
=============== ==============
Subsequent Event - Shareholders' Equity
The Company completed a private financing on April 27, 2001, in which it
received $7,099,000 before expenses. The proceeds from the offering were
received from the sale of 3,944,047 shares of common stock at $1.80 per share
and issued five year warrants to the purchasers representing the right to
acquire an additional 788,809 shares in the aggregate, at an exercise price of
$2.88 per share.
Short-term debt and related party transaction
In December 2000, the Company completed a debt financing for a total of
$2,075,000. The debt matures on September 19, 2001 or on the fifth day following
an equity or debt financing of at least $1,000,000, whichever first occurs. The
interest rate is 10% per annum. The holders of the debt received warrants
representing the right to acquire 20,000 shares of common stock for each
$100,000 loaned for an exercise price of $1.625. The warrants vest immediately
and expire in December 2005. The fair value assigned to the warrants, as
determined using the Black-Scholes model, amounted to $465,000, which represents
a discount to the short-term debt. The discount is being accreted to interest
expense over the life of the debt. For the quarter ended March 31, 2001,
interest expense includes $155,000 for the amortization of the warrants. The
unamortized discount at March 31, 2001 was $286,000. Additionally, a contingent
beneficial conversion feature of $548,000 associated with the holders right to
participate in a future equity offering has been calculated at the date of issue
and is subject to change based on future events. The contingent beneficial
conversion feature will be recognized in interest expense when the equity
offering occurred, the quarter ended June 30, 2001. Of the $2,075,000 financed,
$560,000 was received from members of the Company's board of directors or
officers.
Stockholder note receivable
In October 2000, the Company entered into a note receivable with the Company's
Chief Executive Officer and Chairman of the Board for $425,000. The principal
amount of the note represents the amount due to the Company for the exercise of
options for 200,000 shares of common stock at an exercise price of $2.13. The
note is a full recourse note, bears interest at 6.3% and is due October 31,
2001.
9
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Nine months ended March 31, 2001 and 2000
Forward-Looking Statements
This report contains forward-looking statements which are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
The forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from the forward-looking statements. When
used in this report, the words "anticipate," "believe," "estimate," "expect" and
similar expressions as they relate to the Company or its management are intended
to identify such forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results expressed
in, or implied by these forward-looking statements. The Company wishes to
caution readers of the important factors, among others, that in some cases have
affected, and in the future could affect the Company's actual results and could
cause actual consolidated results for fiscal year 2001, and beyond, to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company. These factors include without limitation, the ability to
obtain capital and other financing in the amounts and the times needed to
complete clinical trials and product marketing for new products, market
acceptance of new products, regulatory approval and time frames for such
approval of new products and new claims for existing products, realization of
forecasted income and expenses, initiatives by competitors, price pressures, and
the risk factors listed from time to time in the Company's SEC reports,
including, in particular, the factors and discussion in the Company's Form 10-K
for its last fiscal year.
Introduction
The Company designs, manufactures and distributes equipment to process
therapeutically valuable blood components including stem cells and surgical
sealants. Initially the Company developed medical devices for ultra rapid
freezing and thawing of blood components, which the Company manufactures and
distributes in their respective niche markets in blood banks and hospitals.
During fiscal 1988 through 2000, 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) which
micro manufacture therapeutic doses of proteins or stem cells from single units
of blood.
Beginning in late 1993, and with accelerated research and development efforts
from 1996 to 1999, the Company completed development of the BioArchive and
CryoSeal technology platforms. The platforms combine an "intelligent" micro
manufacturing device with sterile disposable processing containers to produce
therapeutic doses of proteins or stem cells for different transplant or surgical
applications. To achieve completion of these sophisticated systems and
regulatory approval 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.
10
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations for the
Three and Nine months ended March 31, 2001 and 2000 (Cont'd)
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
Net Revenues:
Revenues for the three and nine months ended March 31, 2001 were $2,033,000 and
$4,563,000 compared to $945,000 and $3,256,000 for the three and nine months
ended March 31, 2000 an increase of 115% and 40%, respectively. The increase in
revenues was primarily a result of increases in the sale of BioArchive and
ThermoLine products. BioArchive revenues increased $693,000 or 221% and $900,000
or 120% for the three and nine months ended March 31, 2001 over the comparable
periods in the prior year. The number of BioArchive units sold during the nine
months ended March 31, 2001 more than doubled over the nine months ended March
31, 2000, nine versus four. ThermoLine revenues increased $348,000 or 57% and
$500,000 or 22% for the three and nine months ended March 31, 2001 over the
comparable periods in the prior year. The increase is primarily due to increased
sales to Europe. Specifically, the distributor to Russia accounted for 33% of
the freezer sales for this quarter due to the return of the economy in Russia.
Cost of Revenues:
Cost of revenues as a percent of net revenues was approximately 84% and 89% for
the three and nine months ended March 31, 2001, as compared to 96% and 105% for
the corresponding fiscal 2000 periods. The cost of revenues percentage decrease
is due to the mix of products sold, the inventory management procedures the
Company implemented over the past year and the Company's cost reduction efforts.
However, cost of revenues remains higher than expected primarily due to the
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 its two new products.
General and Administrative Expenses:
General and administrative expenses were $464,000 and $1,319,000 for the three
and nine months ended March 31, 2001 compared to $436,000 and $1,393,000 for the
fiscal 2000 periods, an increase of 6% for the quarter and a decrease of 5% for
the nine months ended March 31, 2001, respectively. The slight increase for the
quarter ended March 31, 2001 is primarily due to fees associated with retaining
an investment banker to assist the Company in securing strategic alliances.
Selling and Service Expenses:
Selling and service expenses for the three and nine months ended March 31, 2001
were $487,000 and $1,498,000 compared to $497,000 and $1,619,000 for the
comparable fiscal 2000 periods, a decrease of 2% and 7%, respectively. The
decreases were primarily the result of cost control measures focused on travel
and the use of outside consultants.
11
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations for the
Three and Nine months ended March 31, 2001 (Cont'd)
Results of Operations (Cont'd)
Research and Development Expenses:
Research and development expenses for the three and nine months ended March 31,
2001 were $476,000 and $1,346,000 compared to $309,000 and $1,171,000 for the
corresponding fiscal 2000 periods, an increase of 54% and 15%. The pre clinical
trials for the CryoSeal Fibrin Sealant system accounted for approximately
$85,000 of the increase over the quarter ended March 31, 2000. The additional
increase is due to the addition of personnel engaged in regulatory and quality
system activities. The Company received the CE Mark of Conformity for the
CryoSeal Fs System's CP-2 plasma processing disposable and FS Applicator System
in March 2001.
Interest Expense:
Interest expense for the three and nine months ended March 31, 2001 was $208,000
and $243,000 compared to $4,000 and $12,000 for the corresponding fiscal 2000
periods. The increase is due to the debt financing which occurred in December
2000. The amortization of the warrants, which is a non cash charge, accounted
for $155,000 of the interest expense for the quarter ended March 31, 2001.
Liquidity and Capital Resources
Working capital decreased by $2,920,000 from June 30, 2000 to March 31, 2001.
This decrease was primarily due to funding of the manufacturing infrastructure,
operating expenses, the research and development costs for the testing required
to obtain the CE mark on the CryoSeal CP-2 disposable, the costs associated with
the CryoSeal Fibrin Sealant pre clinical trials and preparing for the market
launch in Europe of the CryoSeal Fibrin Sealant system.
The Company used $3,144,000 for operations for the nine months ended March 31,
2001. This was primarily due to funding operating expenses, including research
and development costs for the testing required to obtain the CE mark on the
CryoSeal CP-2 disposable, and the costs associated with the CryoSeal Fibrin
Sealant pre clinical trials. The report of independent auditors on the Company's
June 30, 2000 financial statements includes an explanatory paragraph indicating
there is substantial doubt about the Company's ability to continue as a going
concern. The Company believes that it has developed a viable plan to address
these issues and that its plan will enable the Company to continue as a going
concern through the end of calendar year 2001. 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 consummation of long term debt or equity financings. 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 that such events will be on terms
favorable to the Company.
12
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations for the
Three and Nine months ended March 31, 2001 (Cont'd)
Liquidity and Capital Resources (Cont'd)
The Company completed a private financing on April 27, 2001, in which it
received $7,099,000 before expenses. The proceeds from the offering were
received from the sale of 3,944,047 shares of common stock at $1.80 per share
and issued five year warrants to the purchasers representing the right to
acquire an additional 788,809 shares in the aggregate, at an exercise price of
$2.88 per share.
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 March 31, 2001, the Company had 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 long-term investments and therefore is not
subject to interest rate risk
13
PART II - OTHER INFORMATION
Item 1. Legal proceedings.
None.
Item 2. Changes in Securities.
On April 27, 2001, the Company, pursuant to a private placement to certain
institutional and accredited investors ("Private Placement") sold 3,944,047
shares of common stock at $1.80 per share and issued five year warrants
representing the right to acquire an additional 788,809 shares of common stock,
in the aggregate, at an exercise price of $2.88 per share, for gross proceeds of
approximately $7,099,000, before deducting expenses in the offering. The
offering was made directly by the Company without a placement agent, and the
Company will use the proceeds for execution of human clinical trials through an
independent Clinical Research Organization to support claims for its CryoSeal
Fibrin Sealant (FS) System as well as for the expansion of marketing of the
BioArchive System and other general working capital. The Private Offering was
made in reliance on the exemptions under Sections 4(2) and 4(6) of the
Securities Act of 1933, as amended, and Rule 506 of Regulation D, promulgated by
the Securities and Exchange Commission, and comparable exemptions for sales
under state securities laws. Pursuant to the terms of the offering, the Company
is obligated to register the shares of common stock issued, and shares of common
stock issuable upon conversion of the warrants, for resale by the investors.
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
4.1 Warrant [Form]
10.1(t) Unit Purchase Agreement [Form]
(b) Reports on Form 8-K.
None.
14
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 10, 2001
PHILIP H. COELHO
------------------------------------
Philip H. Coelho
Chief Executive Officer
(Principal Executive Officer)
RENEE M. RUECKER
------------------------------------
Renee M. Ruecker
Vice President of Finance
(Principal Financial and Accounting
Officer)