PROSPECTUS file #: 333-23097
424(b)(2)
THERMOGENESIS CORP.
4,379,590 shares of Common Stock
($.001 Par Value)
Warrants to Purchase 1,478,001 Shares
Of the 4,379,590 shares of Common Stock of THERMOGENESIS CORP.
("THERMOGENESIS" or the "Company") being offered (the "Offering"), 2,901,589
shares are being offered by certain stockholders of the Company (the "Selling
Stockholders"). Of the shares being offered by Selling Stockholders, 145,587
shares were issued pursuant to the Company's manufacturing/license agreement
with On-Time Manufacturing, Inc. and 2,756,002 shares were issued in connection
with the Company's private placement completed in November 1996. In addition,
the Company is registering the resale of 1,478,001 warrants ("Warrants") to
purchase 1,478,001 shares of Common Stock issuable upon exercise of those
Warrants. The Warrants were also issued by the Company in connection with the
private placement, and the warrants and shares underlying the warrants may be
sold in a secondary offering by the Selling Stockholders pursuant to this
Prospectus. See "The Company - Recent Financing"; "Selling Stockholders". At
June 30, 1996, the Company had an accumulated deficit of $6,382,928.
The shares of Common Stock and Warrants owned by the Selling Stockholders may
be offered for sale from time to time at market prices prevailing at such time
or at negotiated prices by the Selling Stockholders, and without payments of
any underwriting discounts or commission, except for usual and customary
selling commissions paid to brokers or dealers. THERMOGENESIS Common Stock is
traded and listed on the Nasdaq Stock Market, SmallCap Market, under the symbol
"KOOL". See "Description of Securities". The average of the high and low
price for the Company's Common Stock on April 17, 1997 was $3.25, as reported
on the Nasdaq SmallCap Market, and the Company does not, therefore, anticipate
the exercise of the Warrants. The Warrants are not traded on the Nasdaq
Market, and it is not anticipated that there will ever be any market for the
Warrants. The Company will not receive any proceeds from the sale of any
Common Stock or the resale of any Warrants by the Selling Stockholders. See
"SELLING STOCKHOLDERS". Expenses of the Offering, estimated to be $22,000,
will be paid in full by the Company.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGE 4
THESE ARE SPECULATIVE SECURITIES AND SHOULD BE PURCHASED
BY PERSONS ABLE TO BEAR THE RISK OF LOSS OF THEIR INVESTMENT
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING DISCOUNTS
PRICE TO WARRANT AND COMMISSIONS PROCEEDS TO THE
HOLDERS{(1)} COMPANY{(2)}
Per share. . $ 3.885 $ 0.00 $ 3.885
Total. . . . .. $5,742,033.80 $ 0.00 $ 5,742,033.80
(1) Represents exercise price to Warrant holders at $3.885 per share and
exercise price for placement agent Warrant at $3.885 per share for
100,000 shares of common stock.
(2) Represents proceeds to the Company assuming the exercise of Warrants to
purchase up to 1,378,001 shares of Common Stock at a price of $3.885 per
share, before other expenses of issuance and distribution estimated to be
$22,000. All expenses will be paid by the Company.
The date of this Prospectus is May 12, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-3 under the Securities Act of
1933 (the "Securities Act"), with respect to the Common Stock and Warrants
offered hereby. The Company is subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files periodic reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information
concerning the Company may be inspected and copies may be obtained (at
prescribed rates) at the Commission's Public Reference Section, 450 Fifth
Street, NW, Washington, D.C. 20549, and at the Commission's Regional offices at
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661
and 7 World Trade Center, New York, New York 10048. In addition, the
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy, and information statements, and other information regarding the issuers
that file electronically with the Commission. This Prospectus does not contain
all information set forth in the Registration Statement and Exhibits thereto
which the Company has filed with the Commission under the Securities Act and to
which reference is hereby made. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete and, in each instance, reference is made to the copy of such contract
or other document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or replaces such statement.
Any such statement shall not be deemed to constitute a part of this Prospectus,
except as so modified or replaced. There is incorporated herein by reference
the following documents previously filed with the Commission under the
Company's Exchange Act file number 0-16375:
(1) The Company's Annual Report on Form 10-KSB for the year ended June 30,
1996, amendment to Annual Report on Form 10-KSB/A1 filed October 28,
1996, and amendment to Annual Report on Form 10-KSB/A2 filed on May 8,
1997;
(2) The Company's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1996, and December 31, 1996, and amendment to Quarterly
Report on Forms 10-Q/A for the quarter ended December 30, 1996, filed on
May 8, 1997;
(3) The Company's Current Report on Form 8-K for the event date November
27, 1996;
(4) The Company's Current Report on Form 8-K for the event date March 27,
1997; and
(5) The Company's Proxy Statement for the Annual Meeting of Shareholders to
be held on May 29, 1997; and
(6) The Company's Form 8-A for the registration of the Company's Common Stock
pursuant to Section 12(g) of the Exchange Act.
In addition, all documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of the offering of the Common Stock offered hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on written or oral
request of any such person, a copy of any or all of the foregoing documents
incorporated herein by reference (other than exhibits to such documents).
Requests should be directed to: THERMOGENESIS CORP., 3146 Gold Camp Drive,
Rancho Cordova, California 95670, Attention: Secretary; telephone (916) 858-
5100.
<PAGE> 2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed information
and financial statements appearing elsewhere or incorporated by reference in
this Prospectus. This Prospectus contains forward-looking statements that are
subject to risks and uncertainties, including, but not limited to, delays
beyond the Company's control with respect to regulatory approvals, market
acceptance of new technologies, and other risks detailed in the section
entitled Risk Factors and elsewhere in the Company's filings with the
Securities and Exchange Commission. A glossary of certain technical terms used
in this Prospectus is located at the back of the Prospectus.
THE COMPANY
THERMOGENESIS CORP. (the "Company") is a bio-medical company that designs,
manufactures and distributes thermodynamic systems which utilize its
proprietary heat transfer technology for the storage, retrieval and processing
of blood products and biological tissues ("Proprietary Technology"). The
Company, originally incorporated in Delaware on September 26, 1986, as Insta
Cool Inc. of North America, changed its name to THERMOGENESIS CORP. in January
1995 to better reflect the thermodynamic segment of the biotechnology industry
which it began servicing. Historically, the Company's primary revenues have
been from sales of blood plasma freezers to hospitals, blood banks and blood
transfusion centers for rapid freezing of blood plasma. Currently, the Company
is manufacturing several categories of thermodynamic devices which are being
sold to the blood plasma industry under permission from the Food and Drug
Administration ("FDA"). Other potential applications and markets for the
Company's Proprietary Technology includes medical and pharmaceutical
applications, and industrial applications. During the fiscal years 1988
through 1995, the Company focused its efforts on research and development and
on refining product design and application. The Company has also continuously
sought new applications for its technology, including the design of a device
used for harvesting of fibrinogen rich cryoprecipitate for use as an
intravenous treatment of clotting protein deficient patients, or as a
hemostatic agent or tissue sealant in certain surgical and medical procedures.
See "The Company and Recent Events - Current Products and Development Efforts".
To date, the Company's revenues have been principally derived from sales of
blood plasma freezers and thawers to hospitals and blood banks throughout the
world. With total revenues for the fiscal year ended June 30, 1996 of
approximately $4.1 million, the Company has attained a dominant share of the
small, but medically important market for plasma thawers and freezers.
Revenues increased for the three and six months ended December 31, 1996, by
approximately 219% and 159%, respectively, from the corresponding 1995 period.
The sales increase was due primarily to a key customer order totaling
approximately $3,900,000, which order was substantially completed by the end of
December 1996. Additional revenue from the key customer will not be received
in 1997 unless new orders are placed.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock or
resale of Warrants by the Selling Stockholders. Assuming the Warrants are
exercised, the Company would receive approximately $5,742,034, which would be
used for continued research and development, and for general corporate purposes
and operations.
RISK FACTORS
For a discussion of considerations relevant to an investment in the Common
Stock and Warrants, see the section entitled "RISK FACTORS" beginning on page
4.
THE OFFERING
Pursuant to the terms of the private placement, the Company is registering the
Common Stock and Warrants offered by the Selling Stockholders, and the Common
Stock to be issued upon the exercise of outstanding Warrants issued as part of
the Units in the private placement. To the extent required under the federal
securities laws, this Prospectus may be used for resale of Common Stock upon
the exercise of the Warrants by the holders of such Warrants.
Common Stock Outstanding Before the Offering....................... 15,834,005
Common Stock Offered to Warrant Holders............................. 1,478,001
Common Stock Offered by Selling Stockholders........................ 2,901,589
Common Stock Outstanding After the Offering
Assuming Exercise of the Warrants................................. 17,312,006
Nasdaq Symbol............................................................ KOOL
<PAGE> 3
RISK FACTORS
An investment in the Common Stock described herein entails a number of very
significant risks. Because of these risks, funds should only be invested by
persons able to bear the risk of and withstand the loss of their entire
investment. Prospective investors should also consider the following before
making an investment decision.
LACK OF PROFITABILITY. Except for net income of $11,246 for the year ended
June 30, 1994 on net sales of $2,678,192, the Company has not been profitable
since inception. For the year ended June 30, 1996, the Company had a net loss
of $568,534 on net sales of $4,124,634 and an accumulated deficit at June 30,
1996, of $6,382,928. See "Annual Report on Form 10-KSB -- Financial
Statements". For the six months ended December 31, 1996, the Company had a net
loss of $564,719 on sales of $4,348,286.
DEPENDENCE UPON NEW PRODUCTS FOR FUTURE GROWTH. Historically, substantially
all of the Company's revenue has been from the sales of product related to the
freezing, thawing and storing of blood plasma. Because the Company expects the
blood plasma market to have limited growth, the future success of the Company
will be dependent upon new applications of its technology, including
application of products in the biotechnology market. The Company intends to
concentrate on developing novel thermodynamic blood processing systems such as:
(1) a cryoprecipitate processing device with disposable containers
("CryoSeal<trademark> System"); (2) a long-term blood sample storage, inventory
management and retrieval system ("JRC"); and (3) system for collecting,
processing, controlled-rate freezing and inventory management of thermolabile
products ("N{2} BioArchive<trademark> System"). See "The Company and Recent
Events - Current Products and Development Efforts." Although these three
potential products use technology related to the freezing, thawing and storage
of blood plasma, development of these products represents a departure from the
Company's current core business. Further, although the Company has had
encouraging discussions with experts in areas of application for these
potential products, development of each product is still in its development
phase and the Company has no contracts for sales of two of these three
products. No assurance can be given that all of these potential products can
be successfully developed, and if developed, that a market will develop for
them.
POSSIBLE NEED FOR ADDITIONAL FINANCING. Based on current sales and projected
development costs for products currently in development, the Company believes
that it will have sufficient working capital for its operations for the 1997
fiscal year. In the event actual sales of the Company's products do not meet
the Company's expectations in any given period, or development and production
costs increase significantly, the Company may need to secure additional
financing to complete and fully implement its business objectives. The Company
has been establishing a working relationship with its bank, and is working
towards securing a line of credit secured by its accounts receivable. There
can be no assurance that the Company will be able to obtain a working line of
credit or that it will be able to obtain one on terms that would be beneficial
to the Company. In the event that the Company's working capital forecast falls
short of its needs, additional equity financing would be required. The Company
currently has no plans to seek any additional equity financing and no assurance
can be given that such financing would be available if needed, and if
available, that it will be obtained on terms favorable to the Company.
Furthermore, delays in receipt of any required governmental approvals prior to
marketing products in development, or requirements for additional testing prior
to approval, may result in decreased revenues and increased development costs
that might require the Company to seek additional financing sooner. See "Risk
Factors -- Government Regulation Associated with Products".
LACK OF TESTING DATA. The Company has only initiated laboratory testing of its
CryoSeal<trademark> System and its N{2} BioArchive<trademark> System. There
can be no assurance that the testing can be successfully completed within the
Company's expected time frame and budget, or that the Company's products will
prove effective in the required clinical trials. If the Company is unable to
conclude successfully the clinical trials of its products in development, the
Company's business, financial condition and results of operation could be
adversely affected.
GOVERNMENT REGULATION ASSOCIATED WITH PRODUCTS. The majority of the Company's
products require clearance to market in the United States from the United
States Food and Drug Administration ("FDA") and from comparable agencies in
foreign countries, which may limit or circumscribe applications for U.S. or
foreign markets in which the Company's products may be sold. Further, if the
Company cannot establish that its product is substantially equivalent, or
superior, in safety and efficacy to a previously approved product in the United
States, delays may result in final clearance from the FDA for marketing its
products. No assurance can be given that FDA clearance to market in the United
States will be obtained, or that regulatory approval will be received in all
foreign countries. Although the standards established by the FDA are
generally more encompassing, the Company's products may also be required to
meet certain additional criteria or receive certain approvals from other
foreign governments for marketing and sales. See "The Company and Recent
Events - Government Regulation".
<PAGE> 4
NO ASSURANCE OF NEW PRODUCT ACCEPTANCE. The market acceptance of the Company's
new products in development will depend upon the medical community and third-
party payers accepting the products as clinically useful, reliable accurate and
cost effective compared to existing and future products or procedures. Market
acceptance will also depend on the Company's ability to adequately train
technicians on how to use the CryoSeal<trademark> System and the N{2}
BioArchive<trademark> System. Even if the Company's systems are clinically
adopted, the use may not be recommended by the medical profession or hospitals
unless acceptable reimbursement from health care and third-party payers is
available. Failure of either of these new systems to achieve significant
market share could have material adverse effects on the Company's long term
business, financial condition and results of operation. See "Annual Report on
Form 10-KSB - Description of Business"; "Risk Factors -- Uncertain Availability
of Third-Party Reimbursement".
UNCERTAIN AVAILABILITY OF THIRD-PARTY REIMBURSEMENT. In the United States,
hospitals, physicians and other health care providers that purchase medical
devices rely on third-party payers, principally Medicare, Medicaid, private
health insurance plans and other sources of reimbursement for costs of
procedures in which medical devices are used. With health care increasingly
relying on managed care systems through which to deliver their surgeries for a
fixed cost per person, which may be independent and different from the actual
costs for such care, substantial scrutiny may prevent the use of certain
procedures or medical devices based on the lack of reimbursement. Because the
Company's CryoSeal<trademark> System and N{2} BioArchive<trademark> System are
currently in final phases of development and have not yet received FDA
clearance or approval, there exists uncertainty regarding the availability of
third-party reimbursement. Failure to secure third-party reimbursement could
adversely affect the Company's revenues and market for the new products in
development. See "The Company and Recent Events -- Third-Party Reimbursement".
REIMBURSEMENT FOR MEDICAL DEVICES AND PROCEDURES. International market
acceptance of the Company's new products in development would also be
dependent, in part, upon the availability of reimbursement within prevailing
health care payment systems in each country. Reimbursement and health care
payment systems in international markets vary significantly by country, and
include both government sponsored health care (e.g. Japan) as well as private
insurance. There can be no assurance that reimbursement approvals will be
obtained in any given foreign market in a timely manner which could have a
material adverse effect on market acceptance of the Company's new products in
international markets.
RISK OF SOFTWARE DEFECTS. The Company's CryoSeal<trademark> System and N{2}
BioArchive<trademark> System currently in final development rely on computer
software components that direct the harvesting process of the
CryoSeal<trademark> System, and the controlled-rate freezing, storage and
retrieval robotics of the N{2} BioArchive<trademark> System. The software in
these devices, including updated versions in the future, may contain undetected
errors or failures. There can be no assurance that, despite testing by the
Company and customers, errors will not be found in the software during
continuous use, resulting in loss or delay in market acceptance, which could
have a material effect on the Company's business, financial condition and
results of operations.
RELIANCE ON PATENTS AND OTHER PROPRIETARY INFORMATION. The Company believes
that patent protection is important for products and potential segments of its
current and proposed business. The Company currently holds four (4) patents,
and has five (5) patents pending to protect the designs of an additional three
(3) products which the Company intends to market. See "Annual Report on Form
10-KSB". There can be no assurance, however, as to the breadth or degree of
protection afforded to the Company or the competitive advantage derived by the
Company from current patents and future patents, if any. Although the Company
believes that its patents and the Company's existing and proposed products do
not infringe upon patents of other parties, it is possible that the Company's
existing patent rights may be challenged and found invalid or found to violate
proprietary rights of others. In the event any of the Company's products are
challenged as infringing, the Company would be required to modify the design of
its product, obtain a license or litigate the issue. There is no assurance
that the Company would be able to finance costly patent litigation, or that it
would be able to obtain licenses or modify its products in a timely manner.
Failure to defend a patent infringement action or to obtain a license or
implementation of modifications would have a material adverse effect on the
Company's continued operations. See "Annual Report on Form 10-KSB --
Description of Business".
<PAGE> 5
TRADE SECRETS. The Company also relies in part on trade secrets and
proprietary know-how, and it employs various methods to protect its technology,
such as use of confidentiality agreements with employees, vendors, and
customers. However, such methods may not afford complete protection and there
can be no assurance that others will not obtain the Company's know-how, or
independently develop it.
DEPENDENCE ON KEY PERSONNEL AND OBTAINING ADDITIONAL ENGINEERING PERSONNEL.
The Company is dependent upon the experience and services of Philip H. Coelho,
President and Chief Executive Officer, and Charles de B. Griffiths, Vice
President, Marketing and Sales and Walter Ludt, Chief Operating Officer. The
loss of either person would adversely affect the Company's operations. The
Company has obtained key man life insurance covering Mr. Coelho in the amount
of $1,000,000 as some protection against this risk. Furthermore, to implement
its new product development, the Company will have to recruit and retain
additional experienced engineers. There is no assurance that the Company will
be able to find and retain engineers required to meet its self-imposed
deadlines for product development. See "The Company and Recent Events -
Employees".
PRODUCT LIABILITY AND UNINSURED RISKS. The Company maintains a general
liability policy which includes domestic and foreign product liability coverage
of $1,000,000 per occurrence and $2,000,000 per year in the aggregate.
Nevertheless, a partial or completely uninsured claim against the Company could
have a material adverse effect on the Company's financial condition and
operations.
NEGATIVE IMPACT ON TRADING VALUE OF COMMON STOCK. The Company has currently
more than 15,834,000 shares outstanding, including the shares registered hereby
on behalf of selling shareholders and excluding shares underlying warrants,
almost all of which are registered and trading. Because the trading market for
the Company's common stock is affected by numerous circumstances and events,
the Company can make no prediction on the effect the registration of the shares
of common stock hereby will have on that market. The number of shares being
registered by the Company hereby could have an adverse effect on the trading
value of its Common Stock in general. See "Description of Securities -
Registration Obligation".
LACK OF CASH DIVIDENDS. To date, the Company has not paid any cash dividends
on its Common Stock and does not expect to declare or pay any cash or other
dividends on its Common Stock in the foreseeable future.
<PAGE> 6
SUMMARY FINANCIAL INFORMATION
The following information has been summarized from the Company's financial
statements included in its Annual Report on Form 10-KSB for the year ended June
30, 1996, and Quarterly Reports on Form 10-Q for the quarters ended September
30, 1996, and December 31, 1996, incorporated by reference herein, and should
be read in conjunction with those financial statements and the related notes
thereto:
<TABLE>
<CAPTION>
For the Six Months Ended December 31, For the Year Ended June 30,
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: 1996 1995 1996 1995
Revenues $4,348,286 $1,681,982 $4,124,634 $3,311,880
Operating expenses $4,954,809 $1,972,518 $4,778,015 $3,704,193
Net loss $(564,719) $(281,843) $(568,534) $(88,296)
Net loss per common share $(0.04) $(0.03) $(0.05) $(0.01)
Weighted average shares outstanding 13,755,000 10,547,000 11,491,000 10,170,000
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
<S> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA: 1996 1995 1996 1995
Working Capital $11,325,245 $3,013,228 $3,620,939 $1,413,156
Total Assets $13,434,218 $4,350,229 $5,937,140 $2,662,839
Long Term Obligations $ 258,249 $ 168,730 $ 286,284 $ 14,456
Total Liabilities $ 1,259,718 $ 725,246 $1,562,829 $ 662,256
Stockholders' Equity $12,174,500 $3,624,983 $4,374,311 $2,000,583
</TABLE>
<PAGE> 7
THE COMPANY AND RECENT EVENTS
The Company was incorporated in Delaware on September 26, 1986 as Insta Cool
Inc. of North America, and subsequently merged with Refrigeration Systems
International, Inc., a California corporation. In January of 1995, the Company
changed its name to THERMOGENESIS CORP. to better reflect the thermodynamic
blood processing segment of the biotechnology industry that it hopes to service
through development of new products. The Company designs and sells products
and devices which utilize its proprietary thermodynamic technology for the
processing of biological substances including the cryopreservation, thawing,
and harvesting of blood components, and to a lesser extent for the preservation
of perishable foods ("Proprietary Technology"). Historically, the Company's
primary revenues have been from sales of blood plasma freezers and thawers to
hospitals, blood banks and blood transfusion centers. Currently, the Company
is manufacturing several categories of thermodynamic devices which are being
sold to the blood plasma industry under FDA permission to market in the United
States. Other potential applications and markets for the Company's Proprietary
Technology include medical and pharmaceutical applications, and industrial
applications. During the fiscal years 1988 through 1995, the Company has
focused its efforts on research and development and on refining product design
and application. The Company has also continuously sought new applications for
its products and technology, including the design of a device used for the
intraoperative harvesting of autologous fibrinogen rich cryoprecipitate for use
as a hemostatic agent or tissue sealant in certain surgical and medical
procedures. See "The Company and Recent Events - Current Products and
Development Efforts".
HISTORICAL
The Company's strategy is to develop superior blood processing devices for the
niche blood processing markets where new products could quickly establish
credibility for the Company's Proprietary Technology. The Company believed
that by concentrating its products to serve the blood plasma industry, many
customers, such as the Red Cross or other blood transfusion societies of
various countries, would validate the Company's Proprietary Technology for
rapid freezing of biological substances, more specifically blood plasma. Early
products which were designed for blood banks and hospitals, have received rapid
510(k) permission to market, and the Company sells directly and through its
distribution network in the 32 countries where its products are marketed. See
"Annual Report on Form 10-KSB -- Description of Business; Marketing and
Distribution".
From 1988 to 1992 the Company's products were designed to transfer heat by
causing heat transfer liquids to directly contact plastic sealed containers
within which resided various blood components. Early product designs used
liquids containing chloro-flouro-carbons ("CFC") which the Company phased out
in the fall of 1992. Thereafter, the Company developed an alternative heat
transfer method which automatically interposed a thin flexible membrane between
the heat transfer liquid and biological substances which process allowed for
use of non-CFC based heat transfer liquids.
Principal products initially developed by the Company and marketed to
hospitals, blood banks, and blood transfusion centers consisted of freezers and
thawers for blood plasma. The Company continued to design and develop various
freezer models and thawers for expanded applications, and these products remain
the core products of the Company's current business. To expand its market and
product use, the Company changed the focus of its research and development to
the design of new products that would be applied to different applications
within the blood industry, including surgical, pharmaceutical and medical
procedures that utilize freezing and thawing technology as part of standard
procedures. See "The Company and Recent Events - Current Products and
Development Efforts".
Having established a presence in markets where the need to freeze and thaw
blood tissues precisely and rapidly was valuable to the customer, the Company
began to focus its technology towards harvesting fibrinogen rich
cryoprecipitate from blood for use as a hemostatic agent and tissue adhesive
for medical and surgical use. Medical literature currently documents important
practical applications for fibrinogen rich cryoprecipitate in thirteen distinct
areas, including plastic surgery, thoracic surgery, cardiovascular surgery,
orthopaedic surgery, and ophthalmologic surgery. The Company's fibrinogen
collecting device with its disposable container sources the fibrinogen rich
cryoprecipitate from a patient's own blood ("autologous"), and is unique in
that aspect when compared to current sources of fibrinogen which generally rely
on homologous single donations or pooled plasma.
<PAGE> 8
RECENT FINANCING
In November 1996, the Company completed a private placement raising a total of
$8,268,006, before direct expenses, the net funds of which are being used for
general corporate purposes that include, but are not limited to, payment of
existing accounts payable and short-term debt, testing of products, continued
research and development, preclinical trials, production costs and inventory,
advertising and promotional materials related to new products in development,
working capital, and increased payroll due to the addition of personnel
necessary to bring the new products in development to market.
Assuming the exercise of all Warrants issued as part of the Units in the
private placement at $3.885 per share, the Company would receive an additional
$5,353,534, which would be used to support general operations and continued
research and development for additional products and markets. The Company does
not, however, anticipate that the Warrants will be exercised immediately, based
on the current trading price of $3.9375 on March 7, 1997. See "Use of
Proceeds". The Company will not receive any proceeds from the sale of Common
Stock offered by the Selling Stockholders in this Offering. See "Summary of
the Offering"; "Selling Stockholders".
As part of the private placement of the Units, the Company granted purchasers a
limited price protection provision for the warrants issued as part of the Units
to mitigate the effect of any potential market decline in the trading price of
the Company's Common Stock should the Company subsequently seek additional
financing at a price below the exercise price of the warrants. All warrants
issued as part of the Units will expire on November 27, 2003, unless exercised
prior to that date.
RESEARCH AND DEVELOPMENT EFFORTS
As of February 1997, the Company had five unique Class II medical systems under
development, each of which features not only a thermodynamic platform to
process blood products in a closed system, but use of various sterile,
disposable plastic containers and applicators that come into direct contact
with the blood product. These disposables must be replaced after each use,
thereby transforming each sale of the system into a higher margin revenue
stream stretching into the future. The Company is on schedule to complete
development of the first two of these Class II systems - CryoSeal<trademark>
and N{2} BioArchive<trademark> - by July, 1997, and has formed strategic
business relationships with major medical companies to assist its manufacturing
and marketing efforts. The following is a brief summary of the current Class
II medical systems in development.
CRYOSEAL<trademark> SYSTEM. The CryoSeal<trademark> System is a small, floor-
standing thermodynamic device and special blood processing container which
harvests and concentrates adhesive and clotting proteins and growth factors
from a donor or a surgical patient's own blood for use as intravenous treatment
of clotting protein deficient patients, or to form a superior hemostatic agent
and tissue sealant which the surgeon can use to stop surface bleeding, bond
tissues and augment or replace sutures. This "autologous" biological adhesive
contains the adhesive and/or clotting proteins -- fibrinogen, fibronectin, von
Willebrand's Factor, factor VIII, and the clot stabilizing protein, factor XIII
- -- as well as platelet derived growth factors (PDGF). The Company believes
that the CryoSeal<trademark> System will be an effective, safe and less
expensive alternative to the current commercial tissue sealant known as "Fibrin
Glue" which, the Company estimates has annual sales of $400 million in Europe
and Japan, but which has never been licensed by the FDA for sale in the United
States.
The medical literature documents important practical applications for Fibrin
Glue in thirteen distinct surgical areas, including plastic, thoracic,
cardiovascular, orthopaedic, and opthamalogic surgery. Commercially available
Fibrin Glue predominantly includes fibrinogen proteins which have been
harvested from plasma pooled from thousands of donors. Fibrin Glue is sold
outside the United States in kits which include a simple applicator and cost
the hospital $100 to $220 per milliliter, depending on the country. Although
Fibrin Glue sourced from pooled plasma has not yet been licensed by the FDA for
sale in the USA due to concerns over contamination by viruses such as HIV and
hepatitis, The Marketing Research Bureau's Report, "Market Assessment of the
Commercial Fibrin Sealant Market in the United States: 1996," estimates the
potential annual U.S. market for such a biological adhesive to be in excess of
$400 million. No assurances can be given that the Company will receive all
required approvals of its CryoSeal<trademark> System or that it will obtain
significant market share or revenues from the distribution of its system. See
"Risk Factors - Dependence on New Markets; Government Regulations Associated
with Products".
<PAGE> 9
The Company believes that there is a significant need for a tissue sealant that
fulfills the surgeon's requirement for effectiveness and ease of use while
accommodating the patient's justifiable fear of infection from a pooled plasma
product. Each surgical use of the Company's CryoSeal<trademark> System, which
can produce 8 to 10 ml of harvested clotting proteins
("CryoSealant<trademark>"), requires the use of two or more of the following
disposables which are integral components to the System:
CP-1: A sterile, plastic bag set for harvesting the proteins and growth
factors from the patient's blood plasma.
SA-1: A small, sterile, hand-held spray applicator for precisely
depositing CryoSealant<trademark> on large bleeding wound sites.
DA-1: A small, sterile, hand-held plastic line or dot applicator for
precisely depositing CryoSealant<trademark> on small or narrow
bleeding wound sites.
Preclinical studies with the CryoSeal<trademark> System are now taking place in
the United States and Canada under the direction of Dr. Dean Toriumi, a leading
specialist in reconstructive surgery at the Medical School of the University of
Illinois at Chicago, and Dr. Gail Rock, a leading specialist in hematology and
coagulation at the Ottawa Civic Hospital. The Company applied to the FDA for
510(k) clearance to market its CryoSeal<trademark> System for the initial
indication as a product for the intravenous treatment of clotting protein
deficient patients. The second and more critical stage of the regulatory
process will be to submit additional clinical findings to support the use of
the CryoSeal<trademark> System as a topical hemostatic and bonding agent during
surgery. The Company is currently in the process of identifying the specific
surgical protocols which would be the basis for clinical studies to expand the
approved applications of the CryoSeal<trademark> System.
N{2} BIOARCHIVE<trademark> SYSTEM. This System is a highly evolved method for
collecting, controlled-rate freezing, processing, storing and retrieving
biological thermolabile substances such as stem and progenitor cells, corneas,
heart valves, sperm cells, virus samples, biopsy specimens, cell lines and
blood, tissue and saliva samples for DNA matching. It features a liquid
nitrogen dewar equipped with a robotic insertion and retrieval arm with remote
optical bar code reading, controlled rate freezing and a computerized inventory
management system with proprietary disposable containers tailored to the
specific biological item.
The need to accurately validate that the freezing rate and storage and
retrieval of these precious biological tissues is paramount. For example:
Both sperm banks and prospective mothers need to be sure that the
implanted sperm has been correctly frozen and stored and then correctly
identified and retrieved from the thousands of similar inventory items.
Both police departments and suspects need to be assured that DNA-typed
blood, tissue or saliva samples have been correctly frozen and stored and
then correctly identified for forensic purposes.
Both pathologists and patients need to be assured that biopsy samples
have been correctly frozen and stored and then correctly identified and
retrieved from the thousands of similar inventory items.
Both transplant surgeons and patients need to be assured that the
genetically-typed stem cells for transplantation have been correctly
frozen and stored and then correctly identified and retrieved from the
thousands of similar inventory items.
The first biological substance for which N{2} BioArchive<trademark> disposables
have been designed is stem and progenitor cells from placental blood drawn from
blood within the placenta and umbilical cord that is normally discarded after
every birth. Placental stem and progenitor cells have been identified by
researchers as a superior replacement alternative to bone marrow for the
reconstitution of the immune system. Recent articles in THE NEW ENGLAND
JOURNAL OF MEDICINE verify the improvements in patient mortality that result
from the intrinsic advantages of cord blood stem cells over bone marrow stem
cells. For example, cord blood stem cells can be easily collected, frozen and
stored in "banks" for immediate use and cord blood stem cells are more tolerant
of a mismatch resulting in lower levels of graft vs. host disease for the
patient.
<PAGE> 10
For optimum therapeutic benefit, it will be necessary to harvest and inventory
many thousands of cryopreserved placental stem cell donations, all genetically
typed. In cooperation with a pioneer and leading expert in this field, Dr.
Pablo Rubinstein of the New York Blood Center ("NYBC"), the Company has
developed four disposable components that optimize the marriage of stem cell
collection with the N{2} BioArchive<trademark> System:
HR-1: A sterile plastic disposable for holding the placenta and
umbilical cord to facilitate the harvesting of the stem cell rich
placental blood.
SCP-1:A sterile plastic bag set for harvesting and cryopreserving the
stem cells in a closed system and transferring them to the
detachable freezing bag.
DI-1:A sterile, plastic disposable bag set for optimally preparing the
frozen stem cells for transfusion.
PC-1: A small disposable metal container to hold and protect the stem
cell freezing bag during storage in the N{2} BioArchive<trademark>
System and subsequent transport to the transplant site.
No assurances can be given that the Company's N{2} BioArchive<trademark>
System will be accepted by the market as new uses for the product are
implemented. See "Risk Factors - Dependence on New Markets; Government
Regulations Associated with Products".
JRC BLOOD SAMPLE STORAGE AND RETRIEVAL SYSTEM. The JRC System is a prototype
long-term storage freezer, computer inventory system and blood sample container
for use by the Japanese Red Cross for storing samples of all blood donations
that occur in Japan each year. The blood sample storage program has been
mandated by the Japanese government in an effort to comply with new product
liability laws in Japan. It is estimated that 6,600,000 blood donations occur
annually. The Company shipped the prototype JRC System to Daido-Hoxan, the
Company's Japanese distributor, in November 1996 for tests and performance
review. In February 1997, Daido Hoxan placed an order for five (5) of the
systems for installation at the five (5) JRC collection centers in Hokkaido as
a pilot program. No assurance can be given that the Company's Blood Sample
Storage and Retrieval System will ultimately be purchased in quantity by the
Japanese Government. See "Risk Factors - Dependence on New Markets; Government
Regulations Associated with Products".
A brief description of the other three Class II products under varying levels
of development, all of which utilize the same thermodynamic technology already
refined for the CryoSeal<trademark> System, are listed as follows:
MICROSEAL<trademark> SYSTEM. MicroSeal<trademark> is a bench top system that
requires less than 50 ml of blood, drawn in a syringe to harvest up to 1 ml of
CryoSealant<trademark> for the hundreds of thousands of microsurgeries that
occur each year that could benefit from a safe, effective biological tissue
sealant or hemostatic agent, such as: closing macular holes in the eye,
minimizing scarring in fallopian tube surgery, sealing excised cataract wounds,
bonding skin flaps in minor cosmetic surgery, and repairing ruptured eardrums.
CRYOFACTOR<trademark> SYSTEM. The CryoFactor<trademark> System is intended to
harvest a full array of autologous PDGF immersed in a solution of adhesive
proteins from a patient's own blood donation for the treatment of chronic
wounds such as diabetic and venous insufficiency ulcers and for the healing and
joining of severed nerves.
CRYOPLATELET<trademark> SYSTEM. The CryoPlatelet<trademark> System is intended
to cryopreserve blood platelets which retain their viability when thawed
utilizing novel freezing rates, proprietary disposable containers and
transfusable, biodegradable cryoprotectants. Currently, platelets cannot
successfully be frozen and remain viable, and, unfrozen, have a shelf life of
only five (5) days. As a result, 400,000 bags (10% of total bags produced in
the United States) are discarded annually due to outdating.
<PAGE> 11
GOVERNMENT REGULATION
All medical devices marketed after May 28, 1976, the date of the Medical Device
Amendments to the Food, Drug and Cosmetic Act ("FDCA"), must receive clearance
or approval from the FDA, unless exempt by regulation, prior to the marketing
or sale of such products or distribution in interstate commerce. Most of the
Company's products require FDA clearance through a premarket notification
process ("510(k) submission"). This regulatory process requires that the
Company demonstrate substantial equivalence to a product which was on the
market prior to May 28, 1976, or which has been found substantially equivalent
after that date. Today, the process of obtaining FDA clearance can be lengthy,
expensive, and generally requires submission of extensive preclinical data and,
in certain cases, in-use or clinical data, to support a finding of substantial
equivalence.
Under FDA regulations, medical devices are classified in one of three
categories: Class I, Class II or Class III devices, based on the health risk
posed by such device. Each class of device must comply with certain regulatory
requirements established by the FDA in order to ensure the safe and effective
use of the devices. Class I devices are subject to General Controls, which
includes a good manufacturing practices ("GMP") quality system, labeling, and
in some instance 510(k) submissions. Class II devices are also subject to the
General Controls, and in addition must comply with Special Controls established
at the discretion of the FDA. Special Controls may include application of
performance and safety standards, product type standards, clinical or in-use
studies, post-market surveillance and reporting, and other FDA guidelines
established at the time of product submission review. Class III devices are
higher risk devices that are generally associated with invasive procedures and
must receive FDA pre-market application ("PMA") approval prior to distribution.
The product development, preclinical and clinical testing, manufacturing,
labeling, distribution, sales, marketing, advertising and promotion of the
Company's research, investigational, and medical devices are subject to
extensive government regulation in the United States, and also in other
countries. Products manufactured in the United States which have not been
cleared by the FDA through a 510(k) submission, or which have not been approved
through the PMA process, must comply with the requirements of Section 801 of
the FDCA prior to export. Class I and Class II devices which are capable of
being cleared by the FDA under a 510(k) submission do not require FDA approval
for export; however, the Company's products must still comply with certain
safety and quality system requirements in foreign countries where the products
are proposed to be sold.
Non-compliance with applicable FDA requirements can result in fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, distribution, sales and marketing, or refusal of the
FDA to grant approval of a PMA or clearance of a 510(k). Actions by the FDA
might also include withdrawal of marketing approvals and criminal prosecution.
Such actions could have a material adverse effect on the Company's business,
financial condition, and results of operation.
THIRD-PARTY REIMBURSEMENT
In the United States, the Company's current core product lines of plasma
thawers and freezers, are purchased by community blood banks, the American Red
Cross and hospitals. The new products in development, however, will be
marketed to medical institutions, including hospitals and surgi-centers, and
used in surgical procedures, the costs for which the institutions will then
seek to have reimbursed by various third-party payors, such as Medicaid, other
government programs and private insurance plans. Third-party payors may deny
reimbursement if they determine that the device or procedure used in a
treatment is unnecessary, inappropriate, experimental or investigational, used
for a non-approved indication, or not cost-effective in light of other
procedures available. Accordingly, determination of clinical benefits by
physicians is an important factor in the Company's efforts to bring the new
products to market. Assuming regulatory approval, the Company's perceived
market for its new products in development could be materially adversely
affected by the failure of third-party payors to adopt policies of
reimbursement. In both the United States and other countries, governments and
third-party payors are increasingly challenging prices charged for medical
procedures. There can be no assurance that reimbursement for medical
procedures using the Company's new products in development will be available
or, if available, that the reimbursement rate will continue to be available.
<PAGE> 12
FACILITIES
The Company leases an approximately 17,000 square foot facility in Rancho
Cordova, California, under a lease that terminates in December 2002, subject
to the Company's right to renew for an additional five year term. The Company
also leases an approximately 11,200 square foot facility in Rancho Cordova,
California for manufacturing and production under a lease that terminates in
November 1999. The Company believes that its current facilities are adequate
to meet its requirements for the next few years.
For a more complete discussion of the Company and its business and other
properties, refer to the Company's Annual Report on Form 10-KSB, which is
incorporated herein by reference.
OFFICERS AND DIRECTORS
The following is a list of the executive officers, directors, and key employees
of the Company at March 1, 1997:
NAME AGE POSITION HELD
Philip H. Coelho 53 Chairman of the Board, President and CEO
Walter J. Ludt, III 53 Vice-President, Chief Operating Officer
and Chief Financial Officer
Charles de B. Griffiths 47 Vice-President Marketing and Sales,
Secretary
David C. Adams 39 Vice-President Business Development and
General Counsel
Michael Zmuda, PhD, RAC 59 Vice-President Regulatory Affairs and
Quality Assurance
Sid V. Engler(1) 55 Director
Noel K. Atkinson(1) 76 Director
KEY EMPLOYEES
Roger Kane 49 Director of Research and Development
Liddel Kam 46 Director of Quality Control and
Documentation
_________________________________
(1) Member of Audit Committee and Member of Compensation Committee
The following is the business background for the previous five years for the
officers and directors of the Company:
PHILIP H. COELHO. A Director since 1986, Mr. Coelho was named President of
the Company on September 1, 1989, and later became the Chief Executive Officer.
Prior to becoming President he was Vice President and Director of Research,
Development and Manufacturing since October 1, 1986. Mr. Coelho was President
of Castleton, Inc. from October, 1983 until December 31, 1986. Castleton
developed and previously licensed the Insta Cool Technology to the Company.
Mr. Coelho also serves as a member of the board of directors of Patient Media,
Inc. Mr. Coelho has a Bachelor of Science degree in Mechanical Engineering
from the University of California, Davis, and is either the inventor or co-
inventor on all issued and pending patents assigned to the Company.
<PAGE> 13
WALTER J. LUDT, III. A Director since 1996, Mr. Ludt rejoined the Company as
its Chief Operating Officer and Vice- President in February 1995, and was
appointed Chief Financial Officer in 1996. From March 1994 until February
1995, Mr. Ludt was a consultant (acting Chief Financial Officer) to the
Omohundro Company, a manufacturer of state of the art carbon fiber spars for
sail boats, where he was instrumental in raising $5,000,000 in capital and
restructuring $2,500,000 in bank debt. From June 1992 to February 1994, Mr.
Ludt was Vice President and Chief Financial Officer of Protel Technology, a
developer and marketer of sophisticated EDA software. Prior to June 1992, Mr.
Ludt was a Director, Chief Financial Officer, and Secretary of the Company.
Mr. Ludt holds a Bachelor of Science Degree in Business/Accounting from
California State University at Long Beach, and is a California Certified Public
Accountant.
CHARLES DE B. GRIFFITHS. A Director since 1989, Mr. Griffiths became the
Company's Director of International Sales in January 1990, and was appointed
Vice-president Marketing and Sales in 1993. He is a Chartered Accountant and
holds a degree in Economics from the University of Manchester, UK. From
January 1980 until December 1987 he had been the Managing Director of a number
of successful overseas manufacturing subsidiaries of the Cloride Group,
including a $25,000,000 joint venture with the government of Egypt which he
steered to profitability in its first year of operation. In his last
appointment with Cloride he was in charge of the Scandinavian manufacturing
operations based in Denmark and was concurrently responsible for all European
automotive marketing activities. Mr. Griffiths is an internationally oriented
businessman with appropriate experience in industrial marketing and
manufacturing enhanced by studies at Harvard and Cranfield Business Schools.
He conducted a consulting practice in the United Kingdom from January 1988
until December 1989.
DAVID C. ADAMS. Mr. Adams joined the Company at the end of November 1996 as
General Counsel, and filled the newly created position of Vice-President of
Business Development. Prior to joining the Company, Mr. Adams was in private
practice representing public and private corporations in the areas of
intellectual property, corporate finance, mergers and acquisitions, and
regulatory matters. Mr. Adams received his Bachelor of Arts Degree in
Psychology, with High Distinction, from the University of Colorado, Colorado
Springs in 1984, and his Juris Doctorate, with Distinction, from the University
of the Pacific, McGeorge School of Law in 1988.
MICHAEL ZMUDA. Dr. Zmuda joined the Company in February 1996 as Vice-President
of Regulatory Affairs and Quality Systems. After serving as Assistant
Professor of Pharmacology at Southern Illinois University School of Medicine
for five years, Dr. Zmuda worked at Baxter Travenol Laboratories, CD Medical,
Inc., and American Sterilizer Company ("AMSCO"). Prior to joining the Company,
Dr. Zmuda held the position of Director of Regulatory Affairs at AMSCO from
1989 through 1996 when AMSCO merged with Steris Corp. Dr. Zmuda received his
Bachelor of Arts degree in Psychology in 1969, and his Physical Doctorate in
Pharmacology in 1975, both from the University of Minnesota.
SID V. ENGLER. A Director since 1992, Mr. Engler was formerly the Senior Vice
President of Marketing of Liquid Carbonic, Inc. Canada, a subsidiary of CBI,
the world's largest supplier of commercial carbon dioxide, a position he held
since 1983. Mr. Engler joined Liquid Carbonic in May 1961 and has worked in
the areas of engineering, sales and marketing and management positions. When
Liquid Carbonic, Inc. was acquired in 1996, Mr. Engler became a consultant.
Mr. Engler's experience is primarily in the area of food chilling and freezing
and he holds several patents and has several patents pending in this area. He
graduated with a Bachelor of Science Degree in Mechanical Engineering from
Queens University in Kingston, Ontario, Canada.
NOEL K. ATKINSON. Director since 1989, has been engaged successfully in
general real estate brokerage and development since 1946. After retiring in
1979, Mr. Atkinson accepted selected consulting engagements until 1985 when he
founded a venture capital firm. His venture capital firm was a founding
investor in the Company and Ovutec, Inc. Mr. Atkinson also was a founder and
investor in the media with KCHH radio station in Northern California. Mr.
Atkinson completed five years of university level upper and lower division
courses in the field of structural engineering and architecture at the
University of Washington.
<PAGE> 14
KEY EMPLOYEES
ROGER KANE. Prior to joining the Company in December 1996, Mr. Kane worked as
the Director of Product Development and Manufacturing for Integrated Surgical
Systems, a position he had held since 1994. From 1993 through 1994, Mr. Kane
was a private consultant to a start up business that had designed a proprietary
anesthesia delivery system, and from 1986 through 1993, Mr. Kane served as Vice
President of Engineering for Bear Medical Systems in Southern California. Mr.
Kane received his Bachelor of Science Degree in Electrical Engineering from
Ohio State University in 1970, and his Masters Degree in Business
Administration from the University of Wisconsin in 1984.
LIDDELL KAM. Prior to joining the Company, Mr. Kam served as the Director of
Quality Assurance and Regulatory Compliance for Hayes Medical, Inc. For the
six year period prior to that, Mr. Kam served as the Regulatory Compliance
Specialist for Intermedics Orthopedics, Inc., as the Manager of Quality
Assurance and Regulatory Affairs for MicroAire Surgical Instruments, Inc.
Before that, Mr. Kam performed routine and special investigations of medical
device manufacturers for the FDA's Los Angeles and San Francisco District
Offices from 1977 through 1990. Mr. Kam received his Bachelor of Science
Degree in Physiology in 1972, and his Master of Science Degree in Physiology in
1975, both from the University of California, Davis.
EMPLOYEES
At fiscal year ended June 30, 1996, the Company employed fifty-four (54)
regular full time employees. In order to complete research and design, to
build, market and service the new products in development, the Company hired
additional engineers, production personnel, sales managers, and customer
support, and administrative employees. At March 1, 1997, the Company employed
sixty-nine (69) full time employees in the following categories:
CATEGORY NUMBER
Research & Design Engineering....................................16
Production & Manufacturing.......................................27
Regulatory Affairs & Quality Assurance............................4
Sales & Marketing................................................12
Finance, Accounting & Administration.............................10
The Company considers current staffing levels adequate at this time, but may
need to add additional personnel to meet shortened production times or to
handle increases in business. Similarly, any downturn in product markets or
sales might result in decreases in the number of full time employees.
SUMMARY OF THE OFFERING
The Company is registering 4,234,003 shares of Common Stock on behalf of the
Selling Stockholders, of which 1,478,001 shares of Common Stock are being
offered upon the exercise of outstanding Warrants including the placement agent
warrants. The Company is also registering the Warrants for resale. 2,756,002
shares of Common Stock and the Warrants were issued in connection with a
November 1996 private placement by the Company of 1,378,001 Units at $6 per
Unit, and the additional 145,587 shares offered were issued pursuant to the On-
Time Manufacturing Agreement. Each Unit consisted of two shares of Common
Stock and a Warrant to purchase an additional share of Common Stock at $3.885
per share. To the extent required under the federal securities laws, this
Prospectus may be used for resale of Common Stock upon the exercise of the
Warrants by the holders of such Warrants. See "The Company and Recent Events -
Recent Financing"; "Selling Stockholders".
<PAGE> 15
The Company will receive no proceeds from the sale of the 2,901,589 shares of
Common Stock that may be offered and sold from time to time by the Selling
Stockholders.
USE OF PROCEEDS
Assuming Warrants are exercised for the purchase of all 1,378,001 shares of
common stock underlying the Warrants issued as part of the Units, the Company
expects to receive $5,353,534 before deducting expenses of approximately
$22,000 associated with this Offering. In addition, if the placement agent
Warrants to acquire the additional 100,000 shares of Common Stock at $3.885 are
also exercised, the Company will receive an additional $388,500. The Company
intends to use any amounts received from the exercise of these Warrants for
continued research and development projects and for general corporate purposes.
As of March 7, 1997, the closing bid price for one share of Common Stock was
$3.9375. In light of the current market price for one share of Common Stock,
and the exercise price of the Warrants, it is unlikely that a holder of a
Warrant would exercise the Warrant in the immediate future.
SELLING STOCKHOLDERS
The following table identifies the Selling Stockholders, as of May 5, 1997, and
indicates (i) the nature of any material relationship that such Selling
Stockholders have had with the Company for the past three years, (ii) the
number of shares of Common Stock held by the Selling Stockholders, (iii) the
amount to be offered for the Selling Stockholders' account, and (iv) the number
of shares and percentage of outstanding shares of Common Stock to be owned by
the Selling Stockholders after the sale of the Common Stock offered by the
Selling Stockholders pursuant to this Offering. To the extent required under
the federal securities laws, this Prospectus may be used for resale of Common
Stock upon the exercise of the Warrants by the holders of such Warrants. The
Selling Stockholders are not obligated to sell their Common Stock or Warrants
offered by this Prospectus.
The Company has registered the resale of the Selling Stockholder Warrants and
the Selling Stockholders may sell their Warrants as part of this secondary
offering or through a private transaction, or may exercise the Warrants and
sell the Common Stock in a secondary offering pursuant to the terms of this
Prospectus. The table assumes that the Selling Stockholders have exercised
their Warrants and will sell the Common Stock in a secondary offering pursuant
to this Prospectus. The Company will receive proceeds upon the exercise of the
Warrants, but will not receive any proceeds from the sale of either the
Warrants or the Common Stock offered pursuant to this Prospectus. See "Use of
Proceeds".
Under the Exchange Act, any person engaged in a distribution of the shares of
Common Stock of the Company offered by this Prospectus may not simultaneously
engage in market making activities with respect to the Common Stock of the
Company during the applicable periods prior to the commencement of such
distribution. In addition, and without limiting the foregoing, each Selling
Stockholder may be subject to applicable provisions of the Exch and regulations
thereunder including, without limitation Regulation M.
The Warrants are not registered or listed for trading on the Nasdaq Market or
on any other exchange. With regard to the shares offered by the Selling
Stockholders such shares may be sold on the Nasdaq Stock Market or in private
transactions at prices to be determined at the time of sale. Such shares may
be offered through broker-dealers, acting on the Selling Stockholders' behalf,
who may offer the shares at then current market prices. Any sales may be by
block trade. The Selling Stockholders and any brokers, dealers or others who
participate with the Selling Stockholders in the distribution of such shares of
Common Stock may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions or fees received by such persons and any
profit on the resale of such shares purchased by such persons may be deemed to
be underwriting commissions or discounts under the Securities Act. Sales may
be made by all Selling Stockholders pursuant to the Registration Statement of
which this Prospectus is a part.
<PAGE> 16
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PRIOR TO SHARES TO BE SOLD{(1)} SHARES BENEFICIALLY OWNED AFTER
OFFERING OFFERING
<S> <C> <C> <C> <C> <C>
Number Percentage Number Number Percentage
Bruce Allen{(2)} 249,999 ~1.62% 249,999 0 *
B.D. & G. Investment 8,001 * 8,001 0 *
Partnership I{(2)}
Howard R. Berlin{(2)} 51,000 * 51,000 0 *
Herbert L. Camp{(2)} 37,500 * 37,500 0 *
Vincent T. Cavallo{(2)} 51,000 * 51,000 0 *
Cook & Cie, S.A.{(2)} 525,000 ~3.21% 525,000 0 *
Mary Cullen{(2)} 50,001 * 50,001 0 *
Michael N. Emmerman{(2)} 51,000 * 51,000 0 *
Mallory Factor{(2)} 120,000 * 120,000 0 *
Foundation Danonia{(2)} 180,000 ~1.15% 180,000 0 *
Foundation Zemara{(2)} 54,000 * 54,000 0 *
HAGC Partners, L.P.{(2)} 50,001 * 50,001 0 *
Norton Herrick{(2)} 125,001 * 125,001 0 *
John Hurford{(2)} 60,000 * 60,000 0 *
Erica Jesselson, Michael G. 100,000 * 100,000 0 *
Jesselson & Lucy Lang,
Executors for the Estate of
Ludwig Jesselson
Benjamin Jesselson{(3)} 25,000 * 25,000 0 *
Michael Jesselson{(3)} 25,000 * 25,000 0 *
Donald R. Keough{(2)} 87,750 * 87,750 0 *
Michael L. Keough{(2)} 9,750 * 9,750 0 *
Mahmood Khan{(2)} 30,000 * 30,000 0 *
R. Richard Leinhardt M.D. 12,501 * 12,501 0 *
P.C. Pension Trust{(2)}
Dan W. Lufkin{(2)} 60,000 * 60,000 0 *
Robert Marston{(2)} 60,000 * 60,000 0 *
Eugene Melnyk{(2)} 225,000 ~1.5% 225,000 0 *
<PAGE> 17
Martin E. Messinger{(2)} 105,000 * 105,000 0 *
MH Capital Partners{(2)} 51,000 * 51,000 0 *
Robert C. Miller{(2)} 7,500 * 7,500 0 *
Harold J. Newman{(2)} 90,000 * 90,000 0 *
On-Time Manufacturing, Inc. 145,587 * 145,587 0 *
Daniel P. Paduano{(2)} 51,000 * 51,000 0 *
Parallax Partners{(2)} 51,000 * 51,000 0 *
P.A.W. Offshore Fund, 225,000 ~1.5% 225,000 0 *
Ltd.{(2)}
Joseph E. Sheehan III - 75,000 * 75,000 0 *
Trust{(2)}
Zita M. Sheehan 75,000 * 75,000 0 *
- - Trust{(2)}
John Simon{(2)} 24,999 * 24,999 0 *
VanKan, Inc.{(2)} 126,000 * 126,000 0 *
Vernon International, 750,000 ~4.8% 750,000 0 *
Ltd.{(2)}
Windsor Partners, L.P.{(2)} 255,000 ~1.5% 255,000 0 *
Allen & Co. Inc.{(4)} 100,000 * 100,000 0 *
</TABLE>
FOOTNOTES TO TABLE
* Less than one percent.
(1)Includes Warrant rights to purchase Common Stock and to sell the Common
Stock in a secondary transaction pursuant to this Prospectus.
(2)Includes Warrants, immediately exercisable, to purchase one third of
the listed shares.
(3)Includes warrants to purchase 25,000 shares issued as part of the
placement of Units to the estate of Jesselson.
(4)Includes warrants to purchase 100,000 shares issued to the placement
agent.
DESCRIPTION OF SECURITIES
Pursuant to its Amended and Restated Certificate of Incorporation, the Company
is authorized to issue two classes of capital stock, designated as Common Stock
and Preferred Stock. The authorized Common Stock consists of 50,000,000
shares, $.001 par value, and the authorized Preferred Stock consists of
2,000,000 shares, $.001 par value.
As of February 26, 1997, the number of shares of Common Stock outstanding was
15,834,005. There are no shares of Preferred Stock outstanding.
<PAGE> 18
COMMON STOCK
Holders of shares of the Common Stock have full voting rights, one vote for
each share held of record. Subject to preferential rights of holders of any
series of Preferred Stock, holders of shares of Common Stock are entitled to
receive such dividends as may be declared by the Board of Directors out of
funds legally available therefor, and share pro rata in any distributions to
stockholders upon liquidation. The holders of shares of Common Stock have no
conversion, preemptive or other subscription rights. All of the outstanding
shares of Common Stock are, and the shares offered hereby will be, validly
issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors is authorized to establish, upon
authorization, a series or designation of Preferred Stock with rights,
preferences, privileges, and restrictions on such stock as the Board of
Directors may determine. The Company currently has no Preferred Stock
outstanding, and the Board of Directors has not established any rights,
preferences, privileges or restrictions on such stock.
OPTIONS
As of June 30, 1996, the Company had outstanding options to acquire 1,164,333
shares of Common Stock at exercise prices ranging from $1.64 to $4.25 per
share. Some of these options are subject to vesting, and in general, have a
five year exercise period.
WARRANTS
The Company issued warrants to purchase an aggregate of 42,500 shares of Common
Stock (post stock split) in connection with the private placement that
concluded in February 1993, of which approximately 17,500 warrants remain
unexercised. The remaining 17,500 warrants may be exercised any time before
February 5, 1998, at an exercise price of $1.20 per share. The exercise price
may be adjusted from time to time in the event the Company subdivides or
combines its outstanding Common Stock. The Company was obligated to register,
and did register the underlying Common Stock of the Warrants under the
Securities Act, upon the one-time request of holders of fifty percent (50%) of
those warrants.
As part of the placement agent's compensation in the 1995 private placement of
Units, additional Warrants to purchase 8.8 Units at an exercise price of
$30,000 per Unit were also issued, each Unit consisting of fifty thousand
(50,000) shares of Common Stock.
The Company issued Warrants (including the placement agent warrant) to purchase
an aggregate of 1,478,001 shares of Common Stock in connection with the private
placement of Units that was concluded in November 1996. The Warrants may be
exercised in whole or in part anytime before November 27, 2003. The 1,478,001
shares are issuable at an exercise price of $3.885 per share. The exercise
price may be adjusted from time to time in the event the Company subdivides or
combines its outstanding Common Stock. The Company is contractually obligated
to register the shares of Common Stock underlying the Warrants with the
Commission pursuant to the provisions of the Securities Act. See "The Company
and Recent Events - Recent Financing".
INVESTOR LOCK-UP
On-Time Manufacturing, Inc. was required to enter into an agreement not to
sell, directly or indirectly, the Common Stock included in the Offering for a
period of 180 days following the effective date of a registration statement
registering its shares for resale.
REGISTRATION OBLIGATION
As part of the private placement of the Units, the Company agreed to register
the shares of Common Stock and shares of Common Stock underlying the Warrants
issued as part of the Units for resale under the Securities Act by filing with
the Commission a registration statement on Form S-3, and similarly was
obligated under the contract with On-Time Manufacturing, Inc. to register its
shares of common stock (the "Registration Obligation"). The Company complied
with its obligation to file the registration statement. The Company paid all
expenses necessary to prepare and file the registration statement. See "The
Company and Recent Events - Recent Financing".
<PAGE> 19
VOTING RIGHTS; DIVIDENDS
The holders of Common Stock will be entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders. Further, the
holders of Common Stock will be entitled to receive ratable dividends when and
as declared by the Board of Directors from funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company, the
holders of Common Stock will be entitled to share ratably in all assets
remaining after payment to holders of any series of preferred stock or of any
other senior securities outstanding at such time. It is anticipated that the
Company will not be declaring dividends in the near future.
CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Amended and Restated Certificate of Incorporation provides for
the indemnification of directors and officers for certain acts to the fullest
extent permitted by Delaware Law. Further, the Company's bylaws provide
authority for the Company to maintain a liability insurance policy which
insures directors or officers against any liability incurred by them in their
capacity as such.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by final adjudication.
TRANSFER AGENT
American Securities Transfer & Trust, Inc., 938 Quail Street, Suite 101,
Lakewood, Colorado 80215-5513, is the transfer agent for the Company's Common
Stock.
EXPERTS
The financial statements of THERMOGENESIS CORP. appearing in THERMOGENESIS
CORP.'s Annual Report (Form 10-KSB) for the year ended June 30, 1996, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Selling Stockholders
through this Prospectus will be passed upon for the Company by David C. Adams,
General Counsel and Vice President of Business Development. Mr. Adams
beneficially owned 120,000 options to acquire shares of Common Stock as of May
5 1997.
<PAGE> 20
GLOSSARY OF CERTAIN TECHNICAL TERMS
<PAGE>
THIS PAGE INTENTIONALLY
LEFT BLANK
<PAGE>
GLOSSARY OF CERTAIN TECHNICAL TERMS
510(K): formal notification to the Food and Drug Administration ("FDA") by
manufacturers of Class I or Class II devices to obtain clearance to market the
medical device. The device must be substantially equivalent to devices
manufactured prior to 1976.
AUTOLOGOUS: autogenous; related to self; originating within an organism itself,
as an autograft or autotransfusion.
CLASS II MEDICAL SYSTEM: those devices for which general controls alone are
insufficient to assure safety and effectiveness and for which mandatory
performance standards must be developed by the FDA.
COAGULATION: 1) the process of clot formation. 2) in surgery, the disruption
of tissue by physical means to form an amorphous residuum, as in
electrocoagulation and photocoagulation.
CORE LINE PRODUCTS: (1) device for the ultra-rapid cryopreservation of human
blood plasma, (2) portable device for the ultra-rapid cryopreservation of human
blood plasma, (3) device for the rapid thawing of frozen plasma for hospital
patient care, (4) device for the hermetic sealing of blood tissue containers,
(5) "smart" blood collection monitor, (6) Vial BioArchive{TM} System for the
Japanese Red Cross.
CRYOPRECIPITATE: any precipitate that results from cooling, as cryoglobulin or
antihemophilic factor.
CRYOPRESERVATION: the maintaining of the viability of excised tissue or organs
by storing at very low temperatures.
CRYOSEAL{TM}: system for harvesting fibrinogen-rich cryoprecipitate from a
donor's blood plasma, a blood component that is currently licensed by the FDA
for the treatment of clotting protein deficient patients.
DEWAR: container which keeps its contents at a constant and generally low
temperature by means of two external walls between which a vacuum is
maintained.
FACTOR VIII: antihemophilic factor (AHF): a relatively storage-labile factor
participating only in the intrinsic pathway of blood coagulation. Deficiency
of this factor, when transmitted as a sex-linked recessive trait, causes
classical hemophilia (hemophilia A). More than one molecular form of this
factor has been discovered. Called also antihemophilic globulin (AHG) and
antihemophilic factor A.
FACTOR XIII: fibrin stabilizing factor (FSF): a factor that polymerizes fibrin
monomers so that they become stable and insoluble in urea, thus enabling fibrin
to form a firm blood clot. Deficiency of this factor produces a clinical
hemorrhagic diathesis. Called also fibrinase and Laki-Lorand factor (LLF). The
inactive form is also known as protransglutaminase and the active form as
transglutaminase.
FIBRONECTIN: an adhesive glycoprotein: one form circulates in plasma, acting as
an opsonin; another is a cell-surface protein which mediates cellular adhesive
interactions. Fibronectins are important in connective tissue, where they
cross-link to collagen, and they are also involved in aggregation of platelets.
HEMATOLOGY: that branch of medical science which treats of the morphology of
the blood and blood forming tissues.
HEMOSTATIC: 1) checking the flow of blood; 2) an agent that arrests the flow of
blood.
MACULAR: pertaining to or characterized by the presence of macules; pertaining
to the macula retinae.
N{2} BIOARCHIVE: system for controlled rate freezing, storage and retrieval and
inventory management of biological samples which require LN{2} storage
temperatures, such as placental, stem and progenitor cells.
PIPELINE PRODUCTS: (1) CryoSeal{TM} System, thermodynamic processor, (2) LN{2}
BioArchive{TM} System, computerized LN{2} dewar with robotic arm, (3)
CryoFactor{TM} System, thermodynamic processor, (4) MicroSealant{TM} System,
bench top thermodynamic processor, (5) CryoPlatelet{TM} System, thermodynamic
processor.
<PAGE> G-1
PLATELET DERIVED GROWTH FACTOR (PDGF): a substance contained in the alpha
granules of platelets and capable of inducing proliferation of vascular
endothelial cells, vascular smooth muscle cells, fibroblasts and glia cells;
its action contributes to the repair of damaged vascular walls.
PROGENITOR: a parent or ancestor.
THERMOLABILE: easily altered or decomposed by heat.
VON WILLEBRAND'S FACTOR: the attribute of Factor VIII necessary for the
adhesion of platelets to vascular elements. Deficiency of this factor results
in the prolonged bleeding time seen in von Willebrand's disease.
<PAGE> G-2
