U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended December 31, 1997.
Commission File Number: 0-16375
__________________________
THERMOGENESIS CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3018487
(State of Incorporation) (I.R.S. Employer
Identification No.)
3146 GOLD CAMP DRIVE
RANCHO CORDOVA, CA 95670
(916) 858-5100
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $.001 Par Value Nasdaq SmallCap Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes <checked-box> No __
The number of shares of the registrant's common stock, $.001 par value,
outstanding on February 5, 1998 was 18,762,544.
_______________________________
<PAGE>
THERMOGENESIS CORP.
INDEX
PAGE NUMBER
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Balance Sheets at December 31, 1997
and June 30, 1997................................................... 3
Statements of Operations for the
Three and Six Months ended December 31, 1997 and 1996............... 5
Statements of Cash Flows for
the Three and Six Months Ended December 31, 1997 and 1996.......... 6
Notes to Financial Statements....................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................. 13
SIGNATURES................................................................ 14
<PAGE>
PART I FINANCIAL INFORMATION
THERMOGENESIS CORP.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1997 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents $4,782,841 $3,510,861
Accounts receivable, net of allowance for doubtful
accounts of $97,913 ($97,913 at June 30, 1997) 862,931 2,067,990
Inventory 3,198,204 2,579,368
Other current assets 264,189 247,819
Total current assets 9,108,165 8,406,038
Equipment, at cost less accumulated depreciation
of $868,387 ($670,269 at June 30, 1997) 1,383,444 1,358,747
Prepaid royalties, net of accumulated amortization
of $415,911 ($388,185 at June 30, 1997) 138,589 166,315
Other assets 233,517 256,626
$10,863,715 $10,187,726
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THERMOGENESIS CORP.
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
LIABILITIES AND SHAREHOLDER'S EQUITY 1997 1997
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities $1,009,258 $1,523,647
Accrued payroll and related expenses 164,666 274,008
Customer deposits 145,511 49,310
Current portion of capital lease obligations 144,336 151,836
Total current liabilities 1,463,771 1,998,801
Long-term capital lease obligations 101,126 164,283
Commitments --- ---
Shareholders' equity:
Preferred stock, $.001 par value;
2,000,000 shares authorized; no shares
issued and outstanding --- ---
Common stock, $.001 par value;
50,000,000 shares authorized;
18,756,919 issued and outstanding
(15,865,305 at June 30, 1997) 18,756 15,866
Paid in capital in excess of par 25,912,933 19,197,526
Accumulated deficit (16,632,871) (11,188,750)
Total shareholders' equity 9,298,818 8,024,642
$10,863,715 $10,187,726
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THERMOGENESIS CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
Net sales $815,992 $2,650,690 $1,527,092 $4,348,286
Cost of sales 1,386,575 1,513,956 2,481,632 2,487,921
Gross profit (loss) (570,583) 1,136,734 (954,540) 1,860,365
Expenses:
General and administrative 637,494 307,062 1,102,952 438,316
Selling and marketing 628,000 405,578 1,156,633 769,958
Research and development 1,120,727 625,432 2,202,542 1,194,167
Issuance of stock options for
services 21,000 14,000 42,000 28,000
Interest 13,716 15,208 26,142 36,447
Total expenses 2,420,937 1,367,280 4,530,269 2,466,888
Interest income 9,327 33,711 40,688 41,804
Net loss ($2,982,193) ($196,835) ($5,444,121) ($564,719)
Per share data:
Basic and diluted loss per share ($0.18) ($0.01) ($0.33) ($0.04)
Shares used in computing
per share data 16,899,943 14,511,000 16,386,166 13,755,000
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THERMOGENESIS CORP.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Cash flows from operating activities: 1997 1996
<S> <C> <C>
Net loss ($5,444,121) ($564,719)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 225,844 148,267
Issuance of stock options for inventory - - 414,426
Issuance of stock options for services 42,000 28,000
Net change in operating assets and liabilities:
Accounts receivable 1,205,059 (1,570,880)
Inventory (618,836) (173,809)
Other current assets (16,370) (177,537)
Other assets 23,109 13,946
Accounts payable and accrued liabilities (514,389) (253,831)
Accrued payroll and related expenses (109,342) (52,203)
Customer deposits 96,201 28,023
Net cash used in operating activities (5,110,845) (2,160,317)
Cash flows from investing activities:
Capital expenditures (222,815) (218,159)
Cash flows from financing activities:
Principal payments on long-term lease obligations (70,657) (25,100)
Exercise of stock options and warrants 206,301 --
Issuance of common stock 6,469,996 7,892,611
Net cash provided by financing activities 6,605,640 7,867,511
Net increase in cash and cash equivalents 1,271,980 5,489,035
Cash and cash equivalents at beginning of period 3,510,861 1,243,079
Cash and cash equivalents at end of period $4,782,841 $6,732,114
</TABLE>
See accompanying notes to financial statements
<PAGE>
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
1. Interim Reporting
These Financial Statements should be read in conjunction with the Company's
Annual Report (Form 10-K) for the year ended June 30, 1997. 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 sales. In the
opinion of management, all adjustments (which consist only of normally
recurring adjustments) necessary for a fair presentation of the Financial
Statements have been made. The results of operations for the six months ended
December 31, 1997 are not necessarily indicative of the results expected for
the full year.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share". Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. The adoption of Statement 128 had no impact on the basic and
diluted loss per share for the three and six months ended December 31, 1997 and
1996. In addition, the adoption of Statement 128 had no impact on net loss per
share amounts for all periods presented in the Selected Consolidated Financial
Data and the financial statements included in the Company's Annual Report (Form
10-K) for the year ended June 30, 1997.
INVENTORIES
Inventories are stated at the lower of cost (First-In, First-Out) or market and
consist approximately of the following:
DECEMBER 31, 1997 JUNE 30, 1997
Raw materials $ 2,285,528 $ 1,574,388
Work in process 614,957 525,067
Finished goods 297,719 479,913
Total $ 3,198,204 $ 2,579,368
Included in the December 31, 1997 inventory is $737,000 in raw materials and
work in process to manufacture the BioArchive System and CryoSeal System.
EQUITY
The Company completed a private financing on December 31, 1997, in which it
received $6,469,996 net of expenses. The proceeds from the offering were
received from the sale of 2,781,000 shares of common stock at $2.50 per share
and issued three year warrants to the purchasers representing the right to
acquire an additional 278,100 shares in the aggregate, at an exercise price of
$3.00 per share.
<PAGE>
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
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 ("Proprietary Technology"). Historically, the Company's primary
revenues have been from sales of its FDA Class I blood plasma freezers and
thawers ("Core Line Products") to hospitals, blood banks and blood transfusion
centers in 32 countries. The Company has under development five new FDA Class
II blood and/or tissue processing systems ("Pipe Line Products"), each
consisting of a thermodynamic device designed to process blood and/or tissues
through use of proprietary, sterile, disposable processing containers and
applicators.
During the fiscal years 1988 through 1994, the Company focused its research and
development efforts on refining Core Line Products. Since July 1994, the
Company has aggressively sought new applications for its Proprietary
Technology, which culminated in five FDA Class II products, two of which the
Company expects to market launch in fiscal 1998. The new FDA Class II products
are indicative of the Company's efforts to develop systems and processes for
therapeutic use in larger markets; products which by their inherent nature
require consumable disposable components for the processing of blood and/or
tissue.
The following is Management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and results of
operations during the period included in the accompanying financial statements.
RESULTS OF OPERATIONS
SALES AND REVENUES:
Net sales decreased for the three and six months ended December 31, 1997 by
approximately 69% and 65%, respectively, from the corresponding 1997 period.
The decrease in the fiscal 1998 periods is reflective of one time sales of
$2,300,000 of the Company's human blood plasma freezers to a single customer
during the six month period ended December 31, 1996. The Company also
experienced slower demand among other customers for the Company's core
line products and delays in the introduction of the Company's new FDA Class II
medical devices. The Company delivered the first two Beta BioArchive Systems
for use by IND/IDE sites in December 1997. Production has begun on the
CryoSeal CS-1 device and CP-1 processing container as the Company expects to
market and sell those products in Europe and Canada, pending FDA clearance for
marketing in the U.S. At this time, the Company is unable to project an FDA
clearance date that would be sooner than the first quarter of fiscal 1999.
<PAGE>
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
(CONT'D)
RESULTS OF OPERATIONS (CONT'D)
COST OF SALES:
Cost of sales as a percent of sales was approximately 170% and 163% for the
three and six months ended December 31, 1997, as compared to 57% for the
corresponding fiscal 1997 periods. Cost of sales increased as a percentage of
revenues as a result of four factors: 1) Labor costs for the start-up
production of the CryoSeal System and the BioArchive System; 2) Production
labor diverted to the upgrading of the manufacturing facility; 3) higher
warranty reserves for Pipe Line Products used in clinical studies; and 4)
Further, significant overhead costs incurred in building and maintaining an
infrastructure that is required to meet FDA regulatory requirements and
standards for production of Class II medical devices. Those costs include:
quality control, document control, production control, production management,
equipment, facilities and support personnel. The Company believes that the
increases in overhead expenses are consistent with the needs to manufacture the
two new Pipe Line products within the FDA guidelines and achieve ISO 9003
certification by June 1998.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the three and six months ended December
31, 1997 increased by 108% and 152% from the corresponding fiscal 1997 periods.
In November 1997, the Company made significant changes in senior management to
improve operations, replacing the Chief Operating Officer and Director of
Manufacturing. Approximately $200,000 of the increase was due to accrual of
severance payments to departing executives and signing bonuses for the new
President and the new Vice President of Manufacturing Operations. The
additional increase is also attributable to expansion of facilities, personnel
and additions to management that are required for the Company to manufacture
and market Class II medical devices and achieve ISO 9003 certification by June
1998.
SALES AND MARKETING EXPENSES:
Selling and marketing expenses for the three and six months ended December 31,
1997 increased by 55% and 50% over the corresponding fiscal 1997 periods. The
increase was primarily due to an increase in salaries for additional executives
and support personnel to plan and implement the expected market introduction of
the N{2} BioArchive System and the CryoSeal System.
<PAGE>
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1997
RESULTS OF OPERATIONS (CONT'D)
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses for the three and six months ended December
31, 1997 increased by 79% and 84% over the corresponding fiscal 1997 periods. A
significant portion of the increase was due to accelerated research and
development of these programs:(i) N{2} BioArchive System: a computerized
liquid nitrogen biological storage and retrieval system and (ii) CryoSeal
System: a system that harvests cryoprecipitated AHF from a donor's blood plasma
for use as an intravenous treatment for hemophilia and as an autologous
surgical tissue sealant and hemostatic agent. The Company also expensed the
cost of CryoSeal devices and surgical disposables during the period that were
utilized in the clinical surgery trials underway in Milan, Italy. Management
believes that research and development is essential to maintaining the
Company's market position and therefore, considers such expenses a continuing
cost of doing business.
ISSUANCE OF STOCK OPTIONS FOR SERVICES:
During the six months ended December 31, 1997, the Company recorded $42,000 of
consulting expense for issuance of stock options issued to two key advisors
related to the CryoSeal System development and market. The options are
exercisable at the fair market value as determined by the closing bid price for
the Company's common stock as quoted by the Nasdaq SmallCap market on the date
of grant. While the $42,000 is a non-monetary transaction, the Company has
recorded the estimated fair value of the options under generally accepted
accounting principles.
LIQUIDITY AND CAPITAL RESOURCES
During the six month periods ended December 31, 1997 and 1996, the Company had
consumed cash resources for operating activities. These resources were
primarily used to fund increases in inventory, and the net loss resulting from
marketing activities and product development. The increase in inventory was
primarily due to the purchase of materials for production of the BioArchive and
CryoSeal Systems.
Working capital increased by $1,237,157. The increase was primarily due to the
net proceeds received from the private financing.
The Company used $5,110,846 for operations for the six months ended December
31, 1997. This was due to increased research and development, lower sales
volume in relationship to manufacturing fixed costs and added personnel in
anticipation of new products production. The Company believes, based upon its
current business plan, its existing cash equivalents and/or future investment
capital, that it has adequate capital to satisfy its immediate current working
capital needs, for approximately 12 months. The Company is also pursuing bank
lines of credit to assist in product distribution. No assurances can be made,
however, that financing will be available to fully execute the Company's
business plan, or that it will be available on terms favorable to the Company.
<PAGE>
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1997
LIQUIDITY AND CAPITAL RESOURCES (CONT'D)
During the second quarter of fiscal 1998, the Company initiated a restructuring
of its operations to improve the sales and marketing expense trends noted
during the first six months of the fiscal year. The initial phase of the
restructuring involved replacing the Chief Operating Officer and Director of
Manufacturing, as discussed above and putting policies and procedures in place
to ensure that the Company transitions toward positive gross margins and
expenses that reflect a percentage of revenues consistent with other companies
in the medical device industry. In January 1998, the second phase of the
restructuring focused on the Sales and Marketing function to increase sales and
decrease the expenses of those departments. As part of this phase, the Vice
President of Marketing and the Director of Customer Service left the Company.
The third phase of the restructuring will focus on the manufacturing process
and decreasing the cost of sales of the Company's products.
The Company has entered into discussions with a foreign distributor to
accelerate launch and coverage of distribution of the CryoSeal System
throughout Europe.
At December 31, 1997, the Company has no significant outstanding capital
commitments.
BACKLOG
The Company's cancelable backlog at June 30, 1997 was $360,000, and was
$1,230,000 at December 31, 1997. The backlog at December 31, 1997 included
$865,000 in orders for the BioArchive System. The Company increased personnel
for the production of the two new products and is analyzing its current
facilities capacity to ensure that the backlog orders will be filled.
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF COMMON STOCK
GOVERNMENT REGULATION ASSOCIATED WITH PRODUCTS The European Economic Community
(EEC) is requiring medical devices that the Company manufactures to comply with
the Medical Device Directive and CE Marking requirements by June 14, 1998. In
order to achieve CE marking, the Company must be certified by a Notified Body
of the EEC countries to meet the EN 46000 quality standard
(APPLICATION OF ISO/EN 9000 TO THE MANUFACTURE OF MEDICAL DEVICES) In the six
months ended December 31, 1997, approximately 30% of the Company's revenues
were generated from European sales. The Company has established a plan to
achieve certification by June 14, 1998, however, there is no assurance that the
Company will receive certification.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Default Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K.
Form 8-K for event dated December 2, 1997
Announcing Closing of Equity Offering
Form 8-K for event dated December 31, 1997
Announcing Closing of Equity Offering.
<PAGE>
THERMOGENESIS CORP.
Signatures
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
THERMOGENESIS CORP.
(Registrant)
Dated February 11, 1998
S/PHILIP H. COELHO
Chief Executive Officer
(Principal Executive Officer and Principal
Financial Officer)
S/RENEE M. RUECKER
Director of Finance
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THERMOGENESIS CORP.'S FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 4,782,841
<SECURITIES> 0
<RECEIVABLES> 960,844
<ALLOWANCES> 97,913
<INVENTORY> 3,198,204
<CURRENT-ASSETS> 9,108,165
<PP&E> 2,251,831
<DEPRECIATION> 868,387
<TOTAL-ASSETS> 10,863,715
<CURRENT-LIABILITIES> 1,463,771
<BONDS> 0
0
0
<COMMON> 18,756
<OTHER-SE> 9,280,062
<TOTAL-LIABILITY-AND-EQUITY> 10,863,715
<SALES> 1,527,092
<TOTAL-REVENUES> 1,567,780
<CGS> 2,481,632
<TOTAL-COSTS> 2,481,632
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 51,862
<INTEREST-EXPENSE> 26,142
<INCOME-PRETAX> (5,444,121)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,444,121)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,444,121)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
