U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1998.
Commission File Number: 0-16375
__________________________
THERMOGENESIS CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3018487
(State ofIncorporation) (IRS 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 October 30, 1998 was 18,928,765.
_______________________________
<PAGE>
THERMOGENESIS CORP.
INDEX
PAGE NUMBER
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Balance Sheets at September 30, 1998
and June 30, 1998............................................ 3
Statements of Operations
for the Three Months ended September 30, 1998 and 1997...... 5
Statements of Cash Flows for
the Three Months Ended September 30, 1998 and 1997.......... 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 ......................... 11
SIGNATURES........................................................ 12
2
<PAGE>
PART I FINANCIAL INFORMATION
THERMOGENESIS CORP.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1998 1998
<S> <C> <C>
Current Assets:
Cash and cash equivalents $393,158 $1,975,042
Accounts receivable, net of allowance for doubtful
accounts of $95,000 ($97,910 at June 30, 1998) 1,130,462 1,280,327
Inventory 2,416,069 2,456,565
Other current assets 212,088 180,214
Total current assets 4,151,777 5,892,148
Equipment, at cost less accumulated depreciation
of $983,470 ($861,750 at June 30, 1998) 1,582,621 1,679,201
Prepaid royalties, net of accumulated amortization
of $457,500 ($443,637 at June 30, 1998) 97,000 110,863
Other assets 112,362 117,030
$5,943,760 $7,799,242
</TABLE>
See accompanying notes.
3
<PAGE>
THERMOGENESIS CORP.
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
LIABILITIES AND SHAREHOLDER'S EQUITY 1998 1998
<S> <C> <C>
Current liabilities:
Accounts payable $1,255,500 $1,301,141
Accrued payroll and related expenses 352,450 345,875
Accrued warranty reserves 229,506 237,440
Current portion of capital lease obligations 77,412 105,151
Other current liabilities 196,950 179,224
Total current liabilities 2,111,818 2,168,831
Long-term portion of capital lease obligations 52,544 57,519
Commitments and contingencies
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;
18,925,669 issued and outstanding
(18,925,669 at June 30, 1998) 18,926 18,926
Paid in capital in excess of par 26,304,511 26,293,511
Accumulated deficit (22,544,039) (20,739,545)
Total shareholders' equiy 3,779,398 5,572,892
$5,943,760 $ 7,799,242
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE>
THERMOGENESIS CORP.
Statements of Operations
(Unaudited)
Three Months Ended September 30,
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
Net sales $1,098,683 $711,100
Cost of sales 1,279,297 1,095,057
Gross loss (180,614) (383,957)
Expenses:
General and administrative 711,509 465,458
Selling and marketing 397,175 528,633
Research and development 514,656 1,081,815
Issuance of stock options for services 11,000 21,000
Interest 8,067 12,426
Total expenses 1,642,407 2,109,332
Interest income 18,527 31,361
Net loss ($1,804,494) ($2,461,928)
Per share data:
Basic and diluted net loss per share ($0.10) ($0.16)
Shares used in computing per share data 18,925,669 15,872,388
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
THERMOGENESIS CORP.
Statements of Cash Flows
Three Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from operating activities: 1998 1997
Net loss ($1,804,494) ($2,461,928)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 135,583 106,923
Amortization of stock options issued for
services 11,000 21,000
Net change in operating assets and liabilities:
Accounts receivable 149,865 1,010,155
Inventory 40,496 (874,492)
Other current assets (31,874) (56,771)
Other assets 4,668 19,183
Accounts payable (45,641) 10,230
Accrued payroll and related expenses 6,575 43,858
Accrued warranty reserves (7,934) (34,575)
Other current liabilities 17,726 139,052
Net cash used in operating activities (1,524,030) (2,077,365)
Cash flows from investing activities:
Capital expenditures (25,140) (165,870)
Net cash used in investing activities (25,140) (165,870)
Cash flows from financing activities:
Principal payments on long-term lease obligations (32,714) (34,808)
Exercise of stock options and warrants - 47,875
Net cash provided by(used in)financing activities (32,714) 13,067
Net decrease in cash and cash equivalents (1,581,884) (2,230,168)
Cash and cash equivalents at beginning of period 1,975,042 3,510,861
Cash and cash equivalents at end of period $ 393,158 $1,280,693
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE>
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(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, 1998. 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 three months
ended September 30, 1998 are not necessarily indicative of the results expected
for the full year.
INVENTORIES
Inventories are stated at the lower of cost (First-In, First-Out) or market and
consist approximately of the following:
SEPTEMBER 30, 1998 JUNE 30, 1998
Raw materials $1,238,614 $ 1,313,792
Work in process 271,891 282,946
Finished goods 905,564 859,827
Total $2,416,069 $ 2,456,565
7
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THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
The Company's core business was principally the sale of ultra-rapid blood
plasma freezing and thawing systems, until the fourth quarter of fiscal 1998
when the Company launched its BioArchive Stem Cell System. The Company's
revenues previously have been from sales of its core line blood plasma freezers
to blood banks and blood plasma thawers to hospitals and transfusion centers.
All core line blood plasma freezer and thawer products are FDA Class I medical
devices purchased as capital equipment.
Approximately five years ago, management initiated a plan to develop two new
Biopharmaceutical drug micro manufacturing platforms, the BioArchive Platform
and the CryoSeal Platform. Biopharmaceutical drugs are composed of the body's
naturally occurring proteins, enzymes, growth factors, hormones and progenitor
cells and are utilized for the treatment of human disease or serious medical
condition. Each of these two platforms are expected to generate several micro
manufacturing systems which utilize single use, sterile disposables that are
expected to provide an ongoing revenue stream with system use. Products
developed under the micro manufacturing platforms will compete in markets that
exceed $100 million annually. The Company initially focused it's efforts on
three products from these platforms. The BioArchive Stem Cell System was
launched in the fourth quarter of fiscal 1998, and the CryoSeal AHF System and
CryoSeal AFG System will be launched in fiscal 1999. Both the BioArchive and
the CryoSeal platform products are regulated under the FDA Class II
designation. Accordingly, the Company incurred significant expenditures to
develop these products and create the manufacturing, marketing and management
infrastructure required to produce and market these Class II products.
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 increased for the three months ended September 30, 1998 by
approximately 55% from the respective fiscal 1998 quarter. The increase in the
fiscal 1999 quarter was due to sales of the BioArchive Stem Cell System, which
accounted for over 30% of the current quarter's sales.
8
<PAGE>
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (CONT'D)
RESULTS OF OPERATIONS (CONT'D)
COST OF SALES:
Cost of sales as a percent of sales was approximately 116% for the three months
ended September 30, 1998, as compared to 154% for the corresponding fiscal 1998
period. The cost of sales percentage decrease was due to the increase in sales
volume and the Company's cost reduction efforts. However, cost of sales
remains higher than sales primarily due to the 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. The Company has built up the infrastructure in anticipation of the two
new products, only one of which has generated revenues in the first quarter of
fiscal 1999.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses for the three months ended September 30,
1998 increased by 53% from the corresponding fiscal 1998 period. This increase
was due to the last phase of restructuring within the senior management team;
approximately $100,000 of the increase was due to the severance payment accrual
to a departing executive. Additionally, the increase was due to increased
salaries from personnel added during fiscal 1998 to oversee the growth expected
from development of the BioArchive and CryoSeal platforms.
SALES AND MARKETING EXPENSES:
Selling and marketing expenses for the three months ended September 30, 1998
decreased by 25% from the corresponding fiscal 1998 period and 40% from the
fourth quarter of fiscal 1998. The decrease was primarily due to the
restructuring of the sales and marketing departments during fiscal 1998, which
was designed to bring these expenses in line proportionately with sales levels
as well as to increase the focus on the marketing skills needed for successful
launch of the BioArchive and CryoSeal systems. The restructuring included
hiring a Director of Corporate Marketing in September 1998 to drive revenue
generation by the new product launches.
RESEARCH AND DEVELOPMENT EXPENSES:
Research and development expenses for the three months ended September 30, 1998
decreased by 52% from the corresponding fiscal 1998 period. This represents
the third consecutive quarter with decreased expenses signifying that the
transfer to manufacturing has been completed. This significant decrease is
indicative of the Company's transition from development of the BioArchive and
CryoSeal systems to production and market launch. In recognition of this
transition, the Company restructured the Research and Development function in
the first quarter of fiscal 1999, terminating certain employees and
transferring others to the manufacturing function. Management believes they
have the proper staffing to oversee the development of the additional products
which will be generated from the BioArchive and CryoSeal platforms.
9
<PAGE>
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 (Cont'd)
RESULTS OF OPERATIONS (CONT'D)
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased by $1,683,358. The decrease in cash was primarily due
to funding of the manufacturing infrastructure, marketing operations and
management team required in anticipation of the product launch of the new
products -- CryoSeal AFG, CryoSeal AHF and BioArchive.
The Company used $1,524,030 for operations for the three months ended September
30, 1998. This was primarily due to lower sales volume in relationship to fixed
manufacturing costs and added personnel in anticipation of the new products
market launch. Cash resources were significantly diminished at the end of the
first quarter, and remaining resources are insufficient to permit the Company
to fully execute on its business plan to move towards FDA clinical trials on
new products, and may be insufficient to maintain the infrastructure and
management that the Company deems necessary to launch the new products and move
the Company to its new growth levels. The report of independent auditors on
the Company's June 30, 1998 financial statements includes an explanatory
paragraph indicating there is substantial doubt about the Company's ability to
continue as a going concern. The Company has undertaken efforts to locate and
secure adequate resources to allow it to execute on its plan, including
possible equity and debt financing. Although the Company believes that its
plan will be realized, there is no assurance that these events will occur. The
financial statements do not include any adjustments to reflect the
uncertainties related to the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the inability of
the Company to continue as a going concern.
At September 30, 1998, the Company has no significant outstanding capital
commitments.
10
<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.
None.
11
<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 November 6, 1998
S/PHILIP H. COELHO
Philip H. Coelho, Chief Executive Officer
and Chairman of the Board
(Principal Executive Officer)
S/JAMES H. GODSEY
Dr. James H. Godsey, President/COO
and Director
S/RENEE M. RUECKER
Renee M. Ruecker, V.P. Finance
(Principal Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANIES FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
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<RECEIVABLES> 1225462
<ALLOWANCES> 95000
<INVENTORY> 2416069
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<DEPRECIATION> 983470
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<TOTAL-LIABILITY-AND-EQUITY> 5943760
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