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 September 30, 2001.
Commission File Number: 0-16375
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THERMOGENESIS CORP.
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(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
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(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 October 25, 2001 was 31,806,436.
3
THERMOGENESIS CORP.
INDEX
Page Number
Part I Financial Information
Item 1. Financial Statements (Unaudited):
Balance Sheets at September 30, 2001 and June 30, 2001..............................3
Statements of Operations for the Three Months
ended September 30, 2001 and 2000...................................................5
Statements of Cash Flows for the Three Months
ended September 30, 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 Disclosures About Market Risk. See Management's Discussion
and Analysis of Financial Condition and Results of Operations.
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
4
PART I FINANCIAL INFORMATION
THERMOGENESIS CORP.
Balance Sheets
(Unaudited)
September 30, June 30,
ASSETS 2001 2001
------------- -----------
Current Assets:
Cash and cash equivalents $3,548,000 $3,544,000
Short term investments 799,000 1,822,000
Accounts receivable, net of allowance for doubtful
accounts of $84,000 ($84,000 at June 30, 2001) 703,000 1,369,000
Inventory 2,700,000 1,843,000
Other current assets 295,000 96,000
------------- -----------
Total current assets 8,045,000 8,674,000
Equipment, at cost less accumulated depreciation
of $2,093,000 ($1,974,000 at June 30, 2001) 745,000 811,000
Other assets 67,000 68,000
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$8,857,000 $9,553,000
============= ===========
See accompanying notes.
5
THERMOGENESIS CORP.
Balance Sheets (continued)
(Unaudited)
September 30, June 30,
LIABILITIES AND STOCKHOLDER'S EQUITY 2001 2001
-------------- --------------
Current liabilities:
Accounts payable $ 899,000 $ 709,000
Accrued payroll and related expenses 258,000 182,000
Deferred revenue 46,000 233,000
Other current liabilities 1,080,000 452,000
-------------- --------------
Total current liabilities 2,283,000 1,576,000
Long-term portion of capital lease obligations 42,000 45,000
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock, $0.001 par value,
1,200,000 shares authorized; 158,000 issued and outstanding
(158,000 at June 30, 2001) -- --
Preferred stock, $0.001 par value; 800,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $0.001 par value; 50,000,000 shares
authorized; 31,806,436 issued and outstanding
(31,794,769 at June 30, 2001) 32,000 32,000
Paid in capital in excess of par 52,410,000 52,397,000
Stockholder note receivable (425,000) (425,000)
Accumulated deficit (45,485,000) (44,072,000)
-------------- --------------
Total stockholders' equity 6,532,000 7,932,0000
-------------- --------------
$ 8,857,000 $ 9,553,000
============== ==============
See accompanying notes.
6
THERMOGENESIS CORP.
Statements of Operations
(Unaudited)
Three Months Ended September 30,
2001 2000
-------------- -------------
(Restated)
Net revenues $ 1,517,000 $ 864,000
Cost of revenues 1,269,000 915,000
-------------- -------------
Gross profit (loss) 248,000 (51,000)
Expenses:
General and administrative 486,000 415,000
Selling and service 607,000 478,000
Research and development 601,000 435,000
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Total expenses 1,694,000 1,328,000
-------------- -------------
Interest expense 3,000 3,000
Interest income 36,000 33,000
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Net loss before cumulative effect of accounting change
under SAB 101 ($1,413,000) ($1,349,000)
Cumulative effect of accounting change under SAB 101 -- (282,000)
-------------- -------------
Net loss ($1,413,000) ($1,631,000)
============== =============
Per share data:
Net loss before preferred stock dividend ($1,413,000) ($1,631,000)
Preferred stock dividend -- (50,000)
-------------- -------------
Net loss applicable to common stockholders ($1,413,000) ($1,681,000)
============== =============
Basic and diluted net loss per share before cumulative
effect of accounting change ($0.04) ($0.06)
Cumulative effect of accounting change under SAB 101 -- (0.01)
-------------- -------------
Basic and diluted net loss per common share ($0.04) ($0.07)
============== =============
Shares used in computing per share data 31,802,547 25,448,760
============== =============
Pro forma amounts assuming the accounting change
under SAB 101 is applied retroactively:
Net loss applicable to common stockholders ($1,413,000) ($1,399,000)
============== =============
Basic and diluted net loss per share ($0.04) ($0.06)
============== =============
See accompanying notes
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THERMOGENESIS CORP.
Statements of Cash Flows
Three Months Ended September 30, 2001 and 2000
2001 2000
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(Restated)
Cash flows from operating activities:
Net loss ($1,413,000) ($1,631,000)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 119,000 181,000
Net change in operating assets and liabilities:
Accounts receivable 666,000 (41,000)
Inventory (857,000) 4,000
Other current assets (199,000) 48,000
Other assets 1,000 (54,000)
Accounts payable 190,000 56,000
Accrued payroll and related expenses 76,000 81,000
Deferred revenue (187,000) 204,000
Other current liabilities 628,000 (25,000)
------------ ------------
Net cash used in operating activities (976,000) (1,177,000)
------------ ------------
Cash flows from investing activities:
Capital expenditures (53,000) (82,000)
Maturities of short-term investments 1,023,000 1,530,000
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Net cash provided by (used in) investing activities 970,000 1,448,000
------------ ------------
Cash flows from financing activities:
Exercise of stock options and warrants 13,000 273,000
Payments on capital lease obligations (3,000) (2,000)
------------ ------------
Net cash provided by financing activities 10,000 271,000
------------ ------------
Net increase in cash and cash equivalents 4,000 542,000
Cash and cash equivalents at beginning of period 3,544,000 810,000
------------ ------------
Cash and cash equivalents at end of period $ 3,548,000 $ 1,352,000
============ ============
See accompanying notes.
8
THERMOGENESIS CORP.
Notes to Financial Statements
September 30, 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 three month period ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 2002.
Summary of Significant Accounting Policies
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements," and effective July 1, 2000,
the Company changed its method of accounting for revenue recognition for
BioArchive systems and certain licensing agreements. Previously, the Company
recognized revenue for BioArchive units upon the delivery of the equipment to
the customers. The costs of training and installation were accrued in the same
period the installation and training was performed and the related training and
installation revenue was recognized. Under the new accounting method for
BioArchive systems adopted retroactive to July 1, 2000, the Company now
recognizes revenue for BioArchive systems upon completion of training and
installation of the equipment at the end-user's site. Furthermore, due to
business customs in Japan and the Company's interpretation of Japanese law, all
significant equipment sales to Japan are recognized upon customer acceptance,
which occurs after the completion of training and installation. Previously, the
Company recognized revenue for licensing agreements when payment was received
and the Company performed all services required under the agreements. Under the
new accounting method which was adopted retroactive to July 1, 2000 for
licensing agreements pursuant to which the Company receives up-front licensing
fees for products of technologies that will be provided by the Company over the
term of the arrangements, the Company now defers the up- front fees and
recognizes the fees as revenue on a straight-line method over the term of the
respective contracts. The cumulative effect of the change on prior years
resulted in an increase in the net loss of $282,000 (net of income taxes of $0),
which is included in the net loss before the cumulative effect of a change in
accounting principle for the year ended June 30, 2001, and $13,000 has been
included in deferred revenue as of June 30, 2001. The $282,000 is comprised of
revenues of $664,000 less cost of revenues of $382,000. The effect of the change
on the year ended June 30, 2001 was to decrease the net loss before the
cumulative effect of the accounting change by $179,000 ($0.01 per share). The
$179,000 is comprised of revenues of $272,000 less cost of revenues of $93,000.
For the three months ended September 30, 2000, the Company recognized $219,000
in revenue that was included in the cumulative effect adjustment as of July 1,
2000. The effect of that revenue and related cost of revenue of $136,000 in the
first quarter was to reduce the net loss by $83,000 during that period. The
unaudited pro forma amounts presented in the statement of operations were
calculated assuming the accounting change was made retroactively to prior
periods.
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THERMOGENESIS CORP.
Notes to Financial Statements
September 30, 2001
(Unaudited)
Recent Accounting Pronouncements
On June 29, 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 eliminates the pooling-of-interests method of accounting
for business combinations. Under SFAS No. 142, goodwill and indefinite lived
intangible assets are no longer amortized but are reviewed annually, or more
frequently if impairment indicators arise, for impairment. Intangible assets
whose lives are not indefinite are amortized over their useful lives, and
reviewed for impairment in accordance with SFAS No. 121. We will adopt SFAS Nos.
141 and 142 on July 1, 2002. We do not anticipate that the adoption of SFAS Nos.
141 and 142 will have a significant impact on our financial statements.
Inventory
Inventory consisted of the following at:
September 30, 2001 June 30, 2001
------------------- -------------
Raw materials $ 1,600,000 $ 929,000
Work in process 282,000 238,000
Finished goods 818,000 676,000
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$ 2,700,000 $1,843,000
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Subsequent Event - Stockholder note receivable
In October 2000, the Company entered into a note receivable with the Company's
Chief Executive Officer (CEO) 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. In October 2001, the CEO elected to surrender the 200,000
shares of common stock in exchange for cancellation of the note receivable. The
transaction was approved by the compensation committee of the Company's board of
directors.
10
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three Months Ended September 30, 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 results for fiscal year 2002, 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 and manufactures medical devices and disposables used for
the distributed manufacturing of biotherapeutic products from umbilical cord
blood, blood plasma, fibrin sealant and other related blood products. Initially
the Company developed its ThermoLine products for ultra rapid freezing and
thawing of blood components, which the Company distributes to blood banks and
hospitals. After extensive research and development, two new technology
platforms (the BioArchive System and the CryoSeal System) have evolved products
which provide new biotherapeutic products to patients in need.
Beginning in late 1993, and with accelerated research and develoment efforts
from 1996 to 1999, the Company completed development of the BioArchive and
CryoSeal technology platforms, each of which will give rise to multiple medical
devices targeted at a number of different medical and surgical applications. 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 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.
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THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three Months Ended September 30, 2001 and 2000 (Cont'd)
Results of Operations
Net Revenues:
Net revenues for the three months ended September 30, 2001 were $1,517,000
compared to $864,000 for the three months ended September 30, 2000 an increase
of 76%. There were three BioArchive installations in the quarter ended September
30, 2001 versus one in the comparable period in the prior year. The
installations plus disposables sold to existing customers produced an increase
in BioArchive revenues of $550,000 or 314%. The Company has more personnel
working the BioArchive product line, versus one sales person two years ago. The
increase in installations is a result of the additional personnel moving the
BioArchive customers through the pipeline. The increase in Freezer sales of
$90,000 or 72% in the first quarter of fiscal 2002 versus the comparable period
of the prior year is attributable to replacement of the older freezers in our
installed base.
Cost of Revenues:
Cost of revenues as a percent of revenues was approximately 84% for the three
months ended September 30, 2001, as compared to 106% for the corresponding
fiscal 2001 period. The cost of revenues percentage decrease is due to the mix
of products sold and the Company's ability to significantly increase revenues
while maintaining a consistent overhead structure.
General and Administrative Expenses:
General and administrative expenses for the three months ended September 30,
2001 increased $71,000 or 17% from the corresponding fiscal 2001 period. This
increase is primarily the result of professional fees.
Selling and Service Expenses:
Selling and service expenses for the three months ended September 30, 2001 were
$607,000 versus $478,000 for the three months ended September 30, 2000. Selling
and service expenses increased 27% while revenues increased 76%. The increase in
selling and service expenses is primarily due to expenses for the Company's main
trade show which occurred earlier in fiscal 2002 than in fiscal 2001 and
salaries and travel expenses related to increasing revenues in the BioArchive
product line and launching the CryoSeal FS product line in Europe.
Research and Development Expenses:
Research and development expenses for the three months ended September 30, 2001
increased $166,000 or 38% from the corresponding fiscal 2001 period. The
increase is primarily due to the costs associated with completing the CryoSeal
FS pre-clinical trials. The Company filed its IDE application with the FDA in
August 2001.
12
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three Months Ended September 30, 2001 and 2000 (Cont'd)
Liquidity and Capital Resources
Our cash balance at September 30, 2001 was consistent with the balance at June
30, 2001. However, $1,023,000 of short-term investments was used to fund
operations and other cash needs of the Company. In addition to product revenues
we have primarily financed our operations through the private placement of
equity securities. Since its inception, the Company has raised approximately $44
million, net of expenses, through common and preferred stock financings and
option and warrant exercises.
Net cash used in operating activities for the three months ended September 30,
2001 was $976,000. The expenditures were the result of completing the CryoSeal
FS pre-clinical trials and increasing the resources in sales, marketing and
service to ensure a successful launch of the CryoSeal FS system in Europe and
Canada. Inventory utilized $857,000 of cash as a result of purchasing materials
for BioArchive systems and freezers to ship in the second quarter in order to
continue our revenue growth. Other current liabilities provided $628,000 due to
the receipt of the 25% deposit from Aventis Bio-Services, Inc. for their
approximately $2,600,000 order. Other current assets utilized $199,000 of cash
primarily due to a $125,000 prepayment to a Clinical Research Organization (CRO)
for services with respect to the Company's CryoSeal FS human clinical trials.
The report of independent auditors on the Company's June 30, 2001 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 fiscal year 2002. The plan includes the realization of revenues from the
commercialization of new products, the consummation of debt or equity financings
and the reduction of certain operating expenses as required. 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.
At September 30, 2001, the Company has no significant outstanding capital
commitments.
Backlog
The Company's cancelable backlog at September 30, 2001 was $3,079,000. A
purchase order from Aventis Bio-Services, Inc. that includes 30 MP2200 and 4
MP1100 freezers remaining to ship accounted for $2.5 million of the backlog.
There were purchase orders from customers for two BioArchive systems totaling
$434,000.
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.
None.
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.
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 November 13, 2001
/s/ PHILIP H. COELHO
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Philip H. Coelho, Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
/s/ RENEE M. RUECKER
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Renee M. Ruecker, V.P. Finance
(Principal Financial and Accounting Officer)