UNITED STATES
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, 2004.
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition from ___________ to __________.
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.)
2711 Citrus Rd.
Rancho Cordova, CA 95742
(916) 858-5100
(Address of principal executive offices, including zip code, and
telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section13 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
The number of shares of the registrant's common stock, $0.001 par value,
outstanding on October 29, 2004 was 44,989,057.
_______________________________
THERMOGENESIS CORP.
INDEX
Page Number
-----------
Part I Financial Information
Item 1. Financial Statements (Unaudited):
Balance Sheets at September 30, 2004 and June 30, 2004.........3
Statements of Operations for the
Three Months ended September 30, 2004 and 2003.................5
Statements of Cash Flows for
the Three Months ended September 30, 2004 and 2003.............6
Notes to Financial Statements..................................7
Item 2. Management's Discussion and Analysis of
Financial Condition & Results of Operations...................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk....15
Item 4. Controls and Procedures.......................................15
Part II Other Information
Item 1. Legal Proceedings.............................................16
Item 2. Changes in Securities.........................................16
Item 3. Default Upon Senior Securities................................16
Item 4. Submission of Matters to a Vote of Security Holders...........16
Item 5. Other Information.............................................16
Item 6. Exhibits and Reports on Form 8-K..............................16
Signatures ..............................................................17
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
- ----------------------------------------
THERMOGENESIS CORP.
Balance Sheets
(Unaudited)
September 30, June 30,
2004 2004
--------------------- ---------------------
ASSETS
Current Assets:
Cash and cash equivalents $14,961,000 $16,612,000
Accounts receivable, net of allowance for
doubtful accounts of $50,000
($61,000 at June 30, 2004) 2,257,000 3,107,000
Inventory 2,890,000 2,470,000
Other current assets 557,000 582,000
--------------------- ---------------------
Total current assets 20,665,000 22,771,000
Equipment, at cost less accumulated depreciation
of $2,461,000 ($2,383,000 at June 30, 2004) 1,244,000 1,146,000
Other assets 198,000 197,000
--------------------- ---------------------
$22,107,000 $24,114,000
===================== =====================
See accompanying notes to financial statements.
3
THERMOGENESIS CORP.
Balance Sheets (Continued)
(Unaudited)
September 30, June 30,
2004 2004
-------------------- -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,408,000 $1,709,000
Accrued payroll and related expenses 218,000 287,000
Deferred revenue 171,000 142,000
Accrued liabilities 552,000 835,000
-------------------- -------------------
Total current liabilities 2,349,000 2,973,000
Long-term portion of capital lease obligations and note
payable 18,000 21,000
Deferred revenue 107,000 152,000
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000
shares authorized; Series A convertible
preferred stock, 1,077,540 shares issued,
110,000 outstanding (126,000 outstanding at
June 30, 2004) ($1,071,000 aggregate
involuntary liquidation value at
September 30, 2004) -- --
Common stock, $0.001 par value; 50,000,000
shares authorized; 44,986,723 issued and
outstanding (44,711,871 at June 30, 2004) 45,000 45,000
Paid in capital in excess of par 81,069,000 80,413,000
Deferred stock compensation (112,000) --
Accumulated deficit (61,369,000) (59,490,000)
-------------------- -------------------
Total stockholders' equity 19,633,000 20,968,000
-------------------- -------------------
$22,107,000 $24,114,000
==================== ===================
See accompanying notes to financial statements.
4
THERMOGENESIS CORP.
Statements of Operations
(Unaudited)
Three Months Ended
September 30,
2004 2003
---------------------- ----------------------
Net revenues $2,397,000 $2,143,000
Cost of revenues 1,617,000 1,554,000
---------------------- ----------------------
Gross profit 780,000 589,000
---------------------- ----------------------
Expenses:
Selling, general and administrative 1,434,000 1,136,000
Research and development 1,269,000 699,000
---------------------- ----------------------
Total operating expenses 2,703,000 1,835,000
Interest and other expense 2,000 9,000
Interest and other income 46,000 16,000
---------------------- ----------------------
Net loss ($1,879,000) ($1,239,000)
====================== ======================
Per share data:
Basic and diluted net loss per common share ($0.04) ($0.03)
====================== ======================
Shares used in computing per share data 44,923,844 39,460,449
====================== ======================
See accompanying notes to financial statements.
5
THERMOGENESIS CORP.
Statements of Cash Flows
Three Months ended September 30, 2004 and 2003
2004 2003
------------------- -------------------
Cash flows from operating activities:
Net loss ($1,879,000) ($1,239,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Stock compensation expense 80,000 20,000
Depreciation and amortization 78,000 58,000
Loss on retirement of equipment -- 10,000
Net change in operating assets and liabilities:
Accounts receivable 850,000 (107,000)
Inventory (543,000) (223,000)
Other current assets 25,000 179,000
Other assets (1,000) 5,000
Accounts payable (301,000) 73,000
Accrued payroll and related expenses (69,000) 62,000
Deferred revenue (16,000) (28,000)
Accrued liabilities (283,000) (21,000)
------------------- -------------------
Net cash used in operating activities (2,059,000) (1,211,000)
------------------- -------------------
Cash flows from investing activities:
Capital expenditures (53,000) (459,000)
------------------- -------------------
Net cash used in investing activities (53,000) (459,000)
------------------- -------------------
Cash flows from financing activities:
Payments on capital lease obligations (3,000) (7,000)
Exercise of stock options and warrants 464,000 112,000
------------------- -------------------
Net cash provided by financing activities 461,000 105,000
------------------- -------------------
Net decrease in cash and cash equivalents (1,651,000) (1,565,000)
Cash and cash equivalents at beginning of period 16,612,000 6,815,000
------------------- -------------------
Cash and cash equivalents at end of period $14,961,000 $5,250,000
=================== ===================
Supplemental non-cash flow information:
Transfer of inventory to equipment $123,000 --
=================== ===================
See accompanying notes to financial statements
6
THERMOGENESIS CORP.
Notes to Financial Statements
September 30, 2004
(Unaudited)
Interim Reporting
- -----------------
The accompanying unaudited financial statements have been prepared in accordance
with U.S. 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 accounting principles generally accepted in the United States 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, 2004 are not necessarily indicative of the results that may
be expected for the year ended June 30, 2005.
The balance sheet at June 30, 2004, has been derived from the audited financial
statements at that date but does not include all the information and footnotes
required by accounting principles generally accepted in the United States for
complete financial statements.
Summary of Significant Accounting Policies
- ------------------------------------------
The Company recognizes revenue including multiple element arrangements, in
accordance with the provisions of SAB No. 104 and EITF 00-21. Revenue
arrangements with multiple elements are divided into separate units of
accounting if certain criteria are met, including whether the delivered item has
value to the customer on a stand-alone basis and whether there is objective and
reliable evidence of the fair value of the undelivered items. Revenue is
recognized as specific elements indicated in sales contracts are executed. If an
element is essential to the functionality of an arrangement, the entire
arrangement's revenue is deferred until that essential element is delivered. The
fair value of each undelivered element that is not essential to the
functionality of the system is deferred until performance or delivery occurs.
The fair value of an undelivered element is based on vendor specific objective
evidence or third party evidence of fair value as appropriate. If an undelivered
element exists, the Company will determine the fair value of the undelivered
element and subtract the fair value of the undelivered element from the total
consideration under the arrangement. The residual amount is the Company's
estimate of the fair value of the delivered element. Costs associated with
inconsequential or perfunctory elements in multiple element arrangements are
accrued at the time of revenue recognition. The Company accounts for training
and installation as a separate element of a multiple element arrangement. The
Company therefore recognizes the fair value of training and installation
services upon their completion when the Company is obligated to perform such
services. For licensing agreements pursuant to which the Company receives
up-front licensing fees for products or technologies that will be provided by
the Company over the term of the arrangements, the Company defers the up-front
fees and recognizes the fees as revenue on a straight-line method over the term
of the respective contracts.
7
THERMOGENESIS CORP.
Notes to Financial Statements (Continued)
September 30, 2004
(Unaudited)
Summary of Significant Accounting Policies (Continued)
- ------------------------------------------------------
Revenues from the sale of the Company's products are recognized upon transfer of
title. The Company generally ships products F.O.B. shipping point at its office.
There is no conditional evaluation on any product sold and recognized as
revenue. All foreign sales are denominated in U.S. dollars. The Company's
foreign sales are generally through distributors. There is no right of return
provided for distributors. For sales of products made to distributors, the
Company considers a number of factors in determining whether revenue is
recognized upon transfer of title to the distributor, or when the distributor
places the product with an end-user. These factors include, but are not limited
to, whether the payment terms offered to the distributor are considered to be
non-standard, the distributor history of adhering to the terms of its
contractual arrangements with the Company, the level of inventory maintained by
the distributor, whether the Company has a pattern of granting concessions for
the benefit of the distributor, or whether there are other conditions that may
indicate that the sale to the distributor is not substantive. The Company
currently recognizes revenue on the sell-in method with its distributors.
Shipping and handling fees billed to customers are included in product and other
revenues, while the related costs are included in cost of product and other
revenues. Service revenue which is included in net revenues, generated from
contracts for providing maintenance of equipment is amortized over the life of
the agreement. All other service revenue is recognized at the time the service
is completed. Amounts billed in excess of revenue recognized are recorded as
deferred revenue on the balance sheet.
Inventory
- ---------
Inventory consisted of the following at:
September 30, 2004 June 30, 2004
------------------ -------------
Raw materials $1,713,000 $1,448,000
Work in process 615,000 769,000
Finished goods 1,123,000 755,000
Reserve (561,000) (502,000)
------------------ -------------
$2,890,000 $2,470,000
================== =============
Included in the Company's inventory reserve at September 30, 2004 and June 30,
2004 was $310,000 and $320,000, respectively, related to CryoSeal(R) FS System
inventory products which is based on inventory levels in excess of current
demand for the product. The remainder of the reserve relates to the
BioArchive(R) System and ThermoLine(TM) inventory which have been identified as
slow-moving or potentially obsolete.
Warranty
- --------
The Company offers a one-year warranty for parts only on all of its products.
The Company estimates the costs that may be incurred under its basic limited
warranty and records a liability in the amount of such costs at the time product
revenue is recognized. Factors that affect the Company's warranty liability
include the number of installed units, historical and anticipated rates of
warranty claims, and cost per claim. The Company periodically assesses the
adequacy of its recorded warranty liabilities and adjusts the amounts as
necessary.
8
THERMOGENESIS CORP.
Notes to Financial Statements (Continued)
September 30, 2004
(Unaudited)
Warranty (Continued)
- --------------------
Changes in the Company's product liability during the period are as follows:
July 1, 2004 balance $281,000
Warranties issued during the period 30,000
Settlements made during the period (39,000)
Changes in liability for pre-existing
warranties during the period (18,000)
---------
September 30, 2004 balance $254,000
=========
Stock-Based Compensation
- ------------------------
The Company has adopted the disclosure provision for stock-based compensation of
SFAS No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 148,
"Accounting for Stock-Based Compensation -Transition and Disclosure", which was
released in December 2002 as an amendment of SFAS No. 123, but continues to
account for such items using the intrinsic value method as outlined under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."
The Company uses the Black-Scholes option pricing model to determine the fair
value of the equity instruments issued (which were determined to be more
reliably measurable than the fair value of consideration received) using the
stock price and other measurement assumptions as of the date a commitment for
performance by the counterparty to earn the equity instrument was reached. The
fair value of the equity instruments issued is recognized in the same period as
if the Company had paid cash for the services.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting periods. The Company's pro forma
information is as follows:
Three Months Ended
September 30,
2004 2003
------------------ -------------------
Net loss, as reported ($1,879,000) ($1,239,000)
Add: stock-based employee
compensation expense included in
reported net loss, net of related
tax effects 70,000 --
Deduct: total stock-based employee
compensation expense determined
under fair value method for all awards,
net of related tax effects (387,000) (113,000)
------------------ -------------------
Pro forma net loss ($2,196,000) ($1,352,000)
================== ===================
Basic and diluted net loss per share
As reported ($0.04) ($0.03)
Pro Forma ($0.05) ($0.03)
9
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three Months Ended September 30, 2004 and 2003
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 2005, 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 at 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 biologic products such as concentrated stem
cells from umbilical cord blood, fibrin sealant and thrombin from placental/cord
blood, peripheral blood, blood plasma 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 specific blood components to patients in need. We believe our
future continued growth will depend on our success in developing increased
awareness of the therapeutic benefits of our existing and future products.
Consequently, our research and development efforts are critical to the future
growth and profitability of our Company.
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, each of which will give rise to multiple medical
products targeted at a number of different surgical and transplant indications.
To achieve completion of these research projects, pursue regulatory clearance
for the developed products and add experienced executive talent to launch the
products required the consumption of considerable capital resources.
Prior to the development of our BioArchive and CryoSeal products, our revenue
was derived principally from the sale of our blood plasma freezers and thawers.
With the launch of our BioArchive System, we have realized significant revenue
increases due to the sale of that equipment and the recurring sale of
disposables used in the BioArchive Systems worldwide. We anticipate similar
revenue increases from disposable sales related to the CryoSeal System as the
installed base of units increase, however there is no assurance that this will
occur.
10
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three Months Ended September 30, 2004 and 2003 (Continued)
Introduction (Continued)
- ------------------------
Our BioArchive Systems and related products are purchased predominantly by
specialized cord blood stem cell banks. The sales in prior years were dependent
on the very significant costs associated with starting up new stem cell banks as
the science evolved. In more recent periods governmental funding and more
clinical and public awareness of the therapeutic benefits from this stem cell
treatment, have shortened the sales cycle and increased demand for our products.
Consistent with the perception that governmental backing and funding will
accelerate the demand for the products, the Company has incurred expenses to
promote federal financing to increase the inventory of high quality cord blood
units manufactured by a network of FDA-approved cord blood banks. Although
legislation appropriating $10 million passed in January 2004 and additional
authorizing legislation is pending, there is no certainty that the authorizing
legislation will ultimately pass or that if it passes, it will result in a
corresponding increase in our revenues due to cord blood banks who receive the
funds deciding to purchase our BioArchive System.
The Company's CryoSeal FS System produces autologous fibrin sealant from a
single unit of human plasma. Our CryoSeal System is still in U.S. clinical
trials, and there are no sales in the U.S. pending completion of the trial and
the required FDA approval following pre-market application ("PMA") submission.
The Company has received CE approval for the system enabling its sale and use in
Europe, although sales into individual countries under cost reimbursement
structures often requires some supporting clinical usage. We have, through our
distribution partner in Europe, undertaken many of those clinical studies and,
upon completion, will pursue a more aggressive marketing plan. In Japan, our
distributor, Asahi Medical Co. Ltd., has recently completed enrollment in their
pivotal clinical trials and is expected to file their PMA soon. In Canada, field
trials are underway to provide a cost justification for federal reimbursement to
hospitals that use the product. In Brazil, field trials have begun to establish
training and demonstration with selected customers. Several similar field trials
are at various stages throughout Europe.
The Company's new product development efforts are focused on two products this
year, the DAC (TM) System for semi-automated separation of blood into components
and the Thrombin Processing Device ("TPD"). The TPD is a stand-alone disposable
which produces autologous thrombin from approximately 11ml of the patient's
plasma. Thrombin is used for topical hemostatis and releasing growth factors
from platelets. The Company anticipates releasing the TPD in Europe in the third
quarter of fiscal 2005. In order to sell in the U.S., the Company requires FDA
clearance which is being pursued.
The DAC System is an innovative product which semi-automates the separation of
whole blood. The System includes a compact battery powered device and a
proprietary disposable bag set. We expect the DAC System disposable processing
bag set to generate recurring revenues to the Company. Included in the set is a
25 ml freezing bag which can be archived in the BioArchive System. The Company
has submitted an application for FDA clearance to market the DAC System. The
Company anticipates beta site market launch in the third quarter of fiscal 2005.
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.
11
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three Months Ended September 30, 2004 and 2003 (Continued)
Critical Accounting Policies
- ----------------------------
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to bad debts, inventories, warranties,
contingencies and litigation. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its financial
statements.
Revenue Recognition:
The Company recognizes revenue in accordance with the provisions of SAB No. 104
and EITF 00-21. For licensing arrangements pursuant to which the Company
receives up-front licensing fees for products or technologies that will be
provided by the Company over the term of the arrangements, the Company defers
the upfront fees and recognizes the fees as revenue on a straight-line method
over the term of the respective contracts. For sales of products made to
distributors, the Company considers a number of factors in determining whether
revenue is recognized upon transfer of title to the distributor, or when the
distributor places the product with an end-user. These factors include, but are
not limited to, whether the payment terms offered to the distributor are
considered to be non-standard, the distributor's history of adhering to the
terms of its contractual arrangements with the Company, the level of inventories
maintained by the distributor, whether the Company has a pattern of granting
concessions for the benefit of the distributor, or whether there are other
conditions that may indicate that the sale to the distributor is not
substantive. The Company currently recognizes revenue on the sell-in method with
its distributors.
Allowance for Doubtful Accounts:
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of the Company's customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required, which would be charged against earnings.
Warranty:
The Company provides for the estimated cost of product warranties at the time
revenue is recognized. While the Company engages in extensive product quality
programs and processes, including actively monitoring and evaluating the quality
of its component suppliers, the Company's warranty obligation is affected by
product failure rates, material usage and service delivery costs incurred in
correcting a product failure. Should actual product failure rates, material
usage or service delivery costs differ from the Company's estimates, revisions
to the estimated warranty liability would be required.
12
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three Months Ended September 30, 2004 and 2003 (Continued)
Critical Accounting Policies (Continued)
- ----------------------------------------
Inventory Reserve:
The Company plans inventory procurement and production based on orders received,
forecasted demand and supplier requirements. The Company writes down its
inventories for estimated obsolescence or unmarketable inventories equal to the
difference between the cost of inventories and its net realizable value based
upon estimates about future demand from our customers and distributors and
market conditions. Because some of the Company's products are highly dependent
on government and third-party funding, current customer use and validation, and
completion of regulatory and field trials, there is a risk that we will forecast
incorrectly and purchase or produce excess inventory. As a result, actual demand
may differ from forecasts, and such a difference may have a material adverse
effect on future results of operations due to required write-offs of excess or
obsolete inventory. This inventory risk may be further compounded for the
CryoSeal family of products because they are at initial market introduction and
market acceptance will depend upon the customer accepting the products as
clinically useful, reliable, accurate and cost effective compared to existing
and future products and completion of required clinical or field acceptance
trials.
Results of Operations
- ---------------------
Results of Operations for the Three Months Ended September 30, 2004 as Compared
to the Three Months Ended September 30, 2003
Net Revenues:
Net revenues for the three months ended September 30, 2004 were $2,397,000
compared to $2,143,000 for the three months ended September 30, 2003 an increase
of $254,000 or 12%. BioArchive product line revenues were $1,621,000 for the
three months ended September 30, 2004, compared to $1,402,000 for the three
months ended September 30, 2003, an increase of $219,000 or 16%. There were five
BioArchives shipped in the first quarter fiscal 2005. Four were recognized in
revenue upon shipment and one is being accounted for as an operating lease.
There were four BioArchives recognized in revenue in the first quarter of fiscal
2004. Included in the BioArchive product line revenues noted above was $713,000
generated from the sales of disposables for the first quarter of fiscal 2005, an
increase of $150,000 or 27% over the prior year first quarter. Revenues
generated by the CryoSeal product line for the three months ended September 30,
2004 were $106,000 compared to $43,000 for the three months ended September 30,
2003. Three CryoSeal devices were sold in the first quarter of fiscal 2005; none
were sold in the first quarter of fiscal 2004. The three devices were sold to
our distributor in Europe. ThermoLine revenues were $562,000 for the first
quarter of fiscal 2005, a decrease of $66,000 from the first quarter of 2004.
The decrease is due to a reduction in freezer units covered under a service
contract with ZLB, formerly Aventis. Additionally, the Company was notified by
ZLB that the last month of the service contract would be October 2004. The
monthly revenue associated with this service contract is currently $30,000.
13
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three Months Ended September 30, 2004 and 2003 (Continued)
Results of Operations (Continued)
- ---------------------------------
The following represents the Company's cumulative BioArchive devices placed into
the following geographies:
September 30,
2004 2003
---------- -----------
United States 19 17
Asia 40 30
Europe 24 16
Rest of World 14 7
---------- -----------
97 70
========== ===========
Cost of Revenues:
Cost of revenues as a percent of revenues was approximately 67% for the three
months ended September 30, 2004, as compared to 73% for the corresponding fiscal
2004 period. The decrease in the cost of revenues percentage is primarily due to
the volume increase of BioArchive disposables. The volume increase in BioArchive
disposables, specifically canisters, increased the gross margin by approximately
$90,000.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses for the three months ended
September 30, 2004 increased $298,000 or 26% from the corresponding fiscal 2004
period. The increase is due to additional positions in both accounting and the
European sales force, salary increases from year to year and an increase in
professional fees due to outside accounting and consulting fees in connection
with the Sarbanes-Oxley Act of 2002.
Research and Development Expenses:
Included in this line item are Engineering, Regulatory Affairs, Scientific and
Clinical Affairs.
Research and development expenses for the three months ended September 30, 2004
increased $570,000 or 82% from the corresponding fiscal 2004 period. The
increase is due to an increase in personnel, specifically, engineering and
clinical affairs, including the new Vice President of Research and Development
and design and development services for new product development of the DAC
System. Personnel were added to our electrical, software and mechanical
engineering staff to assure that ongoing product development efforts meet our 3
Year Business Plan milestones. The costs associated with the Cryoseal FS human
clinical trials were $283,000 for the quarter ended September 30, 2004.
14
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three Months Ended September 30, 2004 and 2003 (Continued)
Liquidity and Capital Resources
- -------------------------------
At September 30, 2004, the Company had a cash balance of $14,961,000, and
working capital of $18,316,000. This compares to a cash balance of $16,612,000
and working capital of $19,798,000 at June 30, 2004. The cash was used to fund
operations and other cash needs of the Company. This was offset by the exercise
of stock options and warrants of $464,000. 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 $72
million, net of expenses, through common and preferred stock financings and
option and warrant exercises. As of September 30, 2004, the Company has no
off-balance sheet arrangements.
Net cash used in operating activities for the three months ended September 30,
2004 was $2,059,000, primarily due to the net loss of $1,879,000. Inventory
utilized $543,000 of cash as a result of purchasing materials and building up
inventory in order to ensure a more even manufacturing workload throughout the
year. Accounts payable utilized $301,000 in cash due to payments to vendors for
the CryoSeal clinical trials and the Enterprise Resource Planning ("ERP")
system. Accrued liabilities utilized $283,000 of cash primarily due to the
payment of commissions to distributors and a decrease in warranty reserves.
At September 30, 2004, the Company has $1.9 million outstanding in cancelable
orders to purchase inventory, supplies and services for use in normal business
operations and no significant outstanding capital commitments. Additionally, the
Company has a contract with an OEM vendor to purchase $8.7 million of inventory
through fiscal 2009.
Backlog
- -------
The Company's cancelable backlog at September 30, 2004 was $264,000.
Item 3. 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 significant long-term debt or investments and therefore is not
subject to interest rate risk.
Item 4. Controls and Procedures
- -------------------------------
The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer along with the Company's Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures (as defined by Exchange Act Rule 13a-15(e)) as of the end of our
first fiscal quarter pursuant to Exchange Act Rule 13a-15(b). Based upon that
evaluation, the Company's Chief Executive Officer along with the Company's Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in ensuring that information required to be disclosed
by us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
15
PART II - OTHER INFORMATION
Item 1. Legal proceedings.
In the normal course of operations, the Company may have
disagreements or disputes with vendors or employees. These
disputes are seen by the Company's management as a normal
part of business, and there are no pending actions currently
or no threatened actions that management believes would have
a significant material impact on the Company's financial
position, results of operations or cash flows.
Item 2. Changes in Securities and Use of Proceeds.
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
31.1 Certification by the Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification by the Principal Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32 Certification of Principal Executive Officer and
Principal Financial Officer pursuant to Section 906 of
the Sarbanes Oxley Act of 2002.
(b) Reports on Form 8-K
A report on Form 8-K for the event dated September 10,
2004 was filed on September 10, 2004 announcing the
fourth quarter and year-end results for the fiscal year
ending June 30, 2004.
16
THERMOGENESIS CORP.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THERMOGENESIS CORP.
(Registrant)
Dated: November 8, 2004 /s/ Philip H. Coelho
--------------------------------------------
Philip H. Coelho
Chief Executive Officer
(Principal Executive Officer)
/s/ Renee M. Ruecker
--------------------------------------------
Renee M. Ruecker
Chief Financial Officer
(Principal Financial and Accounting Officer)
17