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, 1998.
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 January 22, 1999 was 18,930,685.
_______________________________
<PAGE>
THERMOGENESIS CORP.
INDEX
PAGE NUMBER
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Balance Sheets at December 31, 1998
and June 30, 1998................................................3
Statements of Operations for the
Three and Six Months ended December 31, 1998 and 1997........... 5
Statements of Cash Flows for
the Three and Six Months Ended December 31, 1998 and 1997....... 6
Notes to Financial Statements................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 9
PART II OTHER INFORMATION
Item 1. Legal proceedings............................................ 12
Item 2. Changes in Securities........................................ 12
Item 3. Default Upon Senior Securities............................... 12
Item 4. Submission of Matters to a Vote of Security Holders.......... 12
Item 5. Other Information............................................ 13
Item 6. Exhibits and Reports on Form 8-K ............................ 13
SIGNATURES........................................................... 14
2
<PAGE>
PART I FINANCIAL INFORMATION
THERMOGENESIS CORP.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1998 1998
<S> <C> <C>
Current Assets:
Cash and cash equivalents $4,460,707 $1,975,042
Accounts receivable, net of allowance for doubtful
accounts of $95,000 ($97,910 at June 30, 1998) 1,018,204 1,280,327
Inventory 2,017,487 2,456,565
Other current assets 230,040 180,214
Total current assets 7,726,438 5,892,148
Equipment, at cost less accumulated depreciation
of $1,094,091 ($861,750 at June 30, 1998) 1,486,669 1,679,201
Prepaid royalties, net of accumulated amortization
of $471,363 ($443,637 at June 30, 1998) 83,137 110,863
Other assets 178,743 117,030
$ 9,474,987 $7,799,242
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
THERMOGENESIS CORP.
BALANCE SHEETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
LIABILITIES AND SHAREHOLDER'S EQUITY 1998 1998
<S> <C> <C>
Current liabilities:
Accounts payable $1,032,043 $1,301,141
Accrued payroll and related expenses 357,611 345,875
Short-term debt 450,000 ---
Accrued warranty reserves 262,993 237,440
Current portion of capital lease obligations 55,698 105,151
Other current liabilities 216,376 179,224
2,374,721 2,168,831
Long-term portion of capital lease obligations 47,596 57,519
Commitments and contingencies --- ---
Redeemable convertible preferred stock, 1,200,000 shares
authorized; 816,000 issued and outstanding ($5,100,000
aggregate involuntary liquidation value at December 31, 4,733,576 ---
1998)
Shareholders' equity:
Preferred stock, $.001 par value;
800,000 shares authorized; no shares
issued and outstanding --- ---
Common stock, $.001 par value;
50,000,000 shares authorized;
18,930,685 issued and outstanding
(18,925,669 at June 30, 1998) 18,931 18,926
Paid in capital in excess of par 28,693,546 26,293,511
Accumulated deficit (26,393,383) (20,739,545)
Total shareholders' equity 2,319,094 5,572,892
$9,474,987 $7,799,242
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THERMOGENESIS CORP.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $1,325,510 $815,992 $2,425,855 $1,527,092
Cost of sales 1,308,940 1,386,575 2,604,431 2,481,632
Gross profit (loss) 16,570 (570,583) (178,576) (954,540)
Expenses:
General and administrative 665,320 637,494 1,361,698 1,102,952
Selling and marketing 349,462 628,000 746,428 1,156,633
Research and development 452,841 1,120,727 962,558 2,202,542
Issuance of stock options for
services 15,000 21,000 26,000 42,000
Interest 88,430 13,716 96,303 26,142
Total expenses 1,571,053 2,420,937 3,192,987 4,530,269
Interest income 2,179 9,327 14,765 40,688
Net loss ($1,552,304) ($2,982,193) ($3,356,798) ($5,444,121)
Per share data:
Net loss ($1,552,304) ($2,982,193) ($3,356,798) ($5,444,121)
Preferred stock discount (2,297,040) -- (2,297,040) --
Net loss to common stockholders ($3,849,344) ($2,982,193) ($5,653,838) ($5,444,121)
Basic and diluted net loss per share ($0.20) ($0.18) ($0.30) ($0.33)
Shares used in computing
per share data 18,930,045 16,899,943 18,927,857 16,386,166
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
THERMOGENESIS CORP.
Statements of Cash Flows
Six Months Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Cash flows from operating activities: 1998 1997
<S> <C> <C>
Net loss ($3,356,798) ($5,444,121)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation, amortization and accretion 331,067 225,844
Issuance of stock or stock options for services 32,000 42,000
Net change in operating assets and liabilities:
Accounts receivable 262,123 1,205,059
Inventory 439,078 (618,836)
Other current assets (49,826) (16,370)
Other assets (61,713) 23,109
Accounts payable (269,098) (859,513)
Accrued payroll and related expenses 11,736 (109,342)
Accrued warranty reserves 25,553 147,285
Other current liabilities 37,152 294,040
Net cash used in operating activities (2,598,726) (5,110,845)
Cash flows from investing activities:
Capital expenditures (39,809) (222,815)
Cash flows from financing activities:
Principal payments on long-term lease obligations (59,376) (70,657)
Proceeds from short-term debt 450,000 ---
Issuance of redeemable convertible preferred stock 4,733,576 ---
Exercise of stock options and warrants --- 206,301
Issuance of common stock --- 6,469,996
Net cash provided by financing activities 5,124,200 6,605,640
Net increase in cash and cash equivalents 2,485,665 1,271,980
Cash and cash equivalents at beginning of period 1,975,042 3,510,861
Cash and cash equivalents at end of period $4,460,707 $4,782,841
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(UNAUDITED)
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 six months ended
December 31, 1998 are not necessarily indicative of the results expected for
the full year.
SHORT-TERM DEBT AND RELATED PARTY TRANSACTION
In November 1998, the Company completed a debt financing for a total of
$450,000. The debt matures on May 19, 1999 or on the fifth day following an
equity placement by the Company, whichever first occurs. The interest rate is
10% per annum, payable quarterly. The holders of the debt received three year
warrants representing the right to acquire 10,000 shares of common stock for
each $50,000 loaned for a purchase price of $1.50 per share. The debt was
repaid by January 31, 1999. The warrants expire in November 2001. Of the
$450,000 financed, $200,000 was received from members of the Company's board of
directors.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
On December 30, 1998, 816,000 shares of Redeemable Convertible Preferred Stock
("Preferred Stock") were sold in the initial closing of a private placement for
net proceeds after payment of placement fees and expenses of $4,733,576. The
final closing occurred on January 14, 1999 for 261,540 additional shares and
net proceeds of $1,523,000. The significant features of the Preferred Stock are
as follows:
Voting Rights - The holders of shares of Preferred Stock are entitled to
voting rights equal to the number of shares of common stock to be issued
upon conversion of the Preferred Stock. Additionally, so long as in
excess of 35% of the original amount of Preferred Stock remains
outstanding, the holders of the Preferred Stock shall be entitled, voting
as a separate class, to elect one director, who shall be one of the
authorized number of directors of the Corporation.
Liquidation Preferences - In the event of liquidation or dissolution of
the Company, the preferred stockholders are entitled to priority over
common stockholders with respect to distribution of Company assets or
payments to stockholders. The liquidation preference is equal to $6.25
per share compounded annually at 8% per share per year.
Redemption - The Preferred Stock shall be redeemable upon the request of
any holder of Preferred Stock at any time following the fifth anniversary
of the date of issuance. The redemption price shall be the liquidation
preference as stated above. The excess of the redemption value over the
carrying value will be accreted using the interest method over five years.
7
<PAGE>
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
(UNAUDITED)
REDEEMABLE CONVERTIBLE PREFERRED STOCK (continued)
Conversion Rights - Holders of the Preferred Stock have the right to
convert the preferred stock at the option of the holder, at any time, into
shares of common stock of the Company at the conversion rate of one
preferred share for five shares of common stock. The conversion rate is
subject to adjustment for changes in the Company's capital structure which
would otherwise have a dilutive effect on the conversion rate.
Beneficial Conversion Feature - The value assigned to the Beneficial
Conversion Feature, as determined using the quoted market price of the
Company's common stock on the date the Preferred Stock was sold, amounted
to $2,297,040 on December 31, 1998, which represents a discount to the
value of the Preferred Stock.
Automatic Conversion - At the option of the Company, each share of
Preferred Stock may be converted into shares of Common Stock at the
conversion rate of 1:5 provided that the shares of the Company's common
stock trade at an average price equal to or greater than $5 per share for
30 consecutive trading days.
Dividends - The holders of Preferred Stock shall be entitled to receive
dividends at the same rate and at the same time as any dividends declared
on the Company's common stock.
Preemptive Rights - Each holder of Preferred Stock has been granted
preemptive rights entitling such holder to purchase any new issue of the
Company's stock in order to maintain their ownership percentage in the
Company.
In addition, preferred shares are subject to certain transfer restrictions and
are entitled to certain registration rights.
8
<PAGE>
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 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
principal revenues were previously 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 a 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. This quarter marked the international
launch of the CryoSeal AFG system to three international distributors. The
BioArchive Stem Cell System was launched in the fourth quarter of fiscal 1998,
and the CryoSeal AHF System will be launched in fiscal 1999. 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:
Sales for the three and six months ended December 31, 1998 were $1,325,510 and
$2,425,855 compared to $815,992 and $1,527,092 for the three and six months
ended December 31, 1997, an increase of 62% and 59%, respectively. Also, sales
for the quarter ended December 31, 1998 reflected a 20% increase over the prior
quarter. The increase in sales for these periods is due to increased sales in
all three of the Company's product lines. The international market launch of
the CryoSeal AFG system accounted for 6% of the quarter's revenues. Systems
were delivered to China, Japan and Europe. The increase in the BioArchive
product line was due to both sales of units (five were sold in the six months
ended December 31, 1998, two were sold in the corresponding fiscal 1998 period)
and sales of disposable products associated with the BioArchive systems. The
increase in core-line sales was primarily due to customer service revenue
associated with service contracts, repairing units and replacement parts.
9
<PAGE>
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31,1998 AND 1997 (CONT'D)
RESULTS OF OPERATIONS (CONT'D)
COST OF SALES:
Cost of sales as a percent of sales was approximately 99% and 107% for the
three and six months ended December 31, 1998, a significant decline as compared
to 170% and 163% 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 expected
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 its two new
products.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses were $665,320 and $1,361,698 for the three
and six months ended December 31, 1998 compared to $637,494 and $1,102,952 for
the fiscal 1998 periods. The increase for the six months ended December 31,
1998 was primarily 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.
SALES AND MARKETING EXPENSES:
Selling and marketing expenses for the three and six months ended December 31,
1998 were $349,462 and $746,428, a significant decline as compared to $628,000
and $1,156,633 for the comparable fiscal 1998 periods, a decrease of 44% and
35%. These decreases were 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 at the end of the first quarter to drive revenues.
RESEARCH AND DEVELOPMENT EXPENSES:
Research and develoment expenses for the three and six months ended December 31,
1998 were $452,841 and $962,558 compared to $1,120,727 and $2,202,542 for
the corresponding fiscal 1998 periods, a decrease of 60% and
56%. These significant decreases are 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.
10
<PAGE>
THERMOGENESIS CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1998
RESULTS OF OPERATIONS (CONT'D)
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by $1,628,400 from June 30, 1998 to December 31,
1998. The increase was due to the net proceeds received from the private
placement.
As discussed in the Notes to Financial Statements, on December 30, 1998,
816,000 shares of Redeemable Convertible Preferred Stock ("Preferred Stock")
were sold in the initial closing of a private placement for net proceeds after
payment of placement fees and expenses of $4,733,576. The final closing
occurred on January 14, 1999 for 261,540 additional shares and net proceeds of
$1,523,000.
The Company used $2,598,726 for operations for the six months ended December
31, 1998. This was due to lower sales volume in relationship to manufacturing
fixed costs and operating expenses incurred in maintaining the infrastructure
necessary to develop, market and manage the two new Class II products. 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. The Company is also
pursuing bank lines of credit to assist in product distribution. No assurances
can be made, however, that revenues from operations will be adequate short-term
to fully execute the Company's business plan, or that debt or future financing
will be available on terms favorable to the Company.
Management does not anticipate that the Company will incur any material costs
to be "Year 2000" compliant. The Company has completed an assessment of its
internal systems and products and determined that substantially all of the
Company's systems and products operate using third party software that is
compliant, or operate using Company product software which is Year 2000
compliant. The Company has formed a task force to identify and address
potential year 2000 issues with significant vendors, customers and other third
parties. To date, no significant issues have been identified. The Company
intends to complete its Year 2000 assessments and any required remediation
programs by the fourth quarter of fiscal 1999.
At December 31, 1998, the Company has no significant outstanding capital
commitments.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal proceedings.
On November 8, 1998, Metropolitan Creditors Service of Sacramento, assignee of
On-Time Manufacturing, filed an action in the Sacramento Superior Court
(METROPOLITAN CREDITORS SERVICE OF SACRAMENTO VS. THERMOGENESIS CORP., CASE NO.
98AS05815) alleging monies owed from product delivered by the assignor, On-Time
Manufacturing. The amounts claimed related to products delivered pursuant to
invoices dated in 1997, and totaled approximately $90,000 in the aggregate.
The Company has answered the complaint disputing the claims, and intends to
fully defend the action. Notwithstanding the Company's position on the
dispute, a reserve was previously recorded on the Company's books and
management does not anticipate that the dispute will have any material impact
on operations or financial condition.
Item 2. Changes in Securities.
None.
Item 3. Default Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
American Securities Transfer & Trust, Inc. reports the following totals for all
the proposals voted on at the Annual Meeting shareholders held February 2,
1998.
Proposal #1 ELECTION OF DIRECTORS For Withhold
PHILIP H. COELHO 15,373,632 273,682
HUBERT HUCKEL 15,250,293 278,367
PATRICK McENANY 15,125,388 521,926
JAMES GODSEY 15,368,947 397,021
Proposal #2 Amendment to Certificate of Incorporation to Effect 1:4 Stock
Consolidation
For Against Abstain
13,244,556 2,356,345 46,413
Proposal #3 Approval of Equity Transaction in Excess of 20% of Outstanding
Shares
For Against Abstain
9,950,074 1,913,633 153,180
12
<PAGE>
All proposals submitted to stockholders for approval were passed, and the Board
of Directors was granted discretion with respect to the appropriate timing for
the announcement of the stock consolidation. After the proposed stock
consolidation was submitted to stockholders, the trading price of the Company's
common stock improved significantly. Due to the improved stock performance and
other changed circumstances, the Board of Directors may determine in the near
future to resubmit the proposed stock consolidation to stockholders and seek
further approval to either withdraw the proposed consolidation or decrease the
proposed ratio of the consolidation to one-for-two.
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K.
None.
13
<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 10, 1999
S/PHILIP H. COELHO
Chief Executive Officer
(Principal Executive Officer)
S/RENEE M. RUECKER
Vice President of Finance
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-Q FOR QUARTER ENDED 12-31-98 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,460,707
<SECURITIES> 0
<RECEIVABLES> 1,018,204
<ALLOWANCES> 95,000
<INVENTORY> 2,017,487
<CURRENT-ASSETS> 7,726,438
<PP&E> 2,580,760
<DEPRECIATION> 1,094,091
<TOTAL-ASSETS> 9,474,987
<CURRENT-LIABILITIES> 2,374,721
<BONDS> 0
4,733,576
0
<COMMON> 18,931
<OTHER-SE> 2,570,163
<TOTAL-LIABILITY-AND-EQUITY> 9,474,987
<SALES> 2,425,855
<TOTAL-REVENUES> 2,440,620
<CGS> 2,604,431
<TOTAL-COSTS> 2,604,431
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 24,089
<INTEREST-EXPENSE> 96,303
<INCOME-PRETAX> (3,356,798)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,356,798)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,356,798)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
