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 March 31, 2000.
Commission File Number: 0-16375
----------------------------------
THERMOGENESIS CORP.
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(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
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(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 |X| No
The number of shares of the registrant's common stock, $.001 par value,
outstanding on April 25, 2000 was 24,769,584.
<PAGE>2
THERMOGENESIS CORP.
INDEX
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Page Number
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Part I Financial Information
Item 1. Financial Statements (Unaudited):
Balance Sheets at March 31, 2000 and June 30, 1999..................................3
Statements of Operations for the Three and Nine months ended March 31,
2000 and 1999...........................................................................5
Statements of Cash Flows for the Nine months ended March 31, 2000 and
1999....................................................................................6
Notes to Financial Statements...........................................................7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................................10
Item 3. Quantitative and Qualitative Disclosure About Market Risk. See
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Part II Other Information
Item 1. Legal proceedings........................................................................13
Item 2. Changes in Securities....................................................................13
Item 3. Default Upon Senior Securities...........................................................13
Item 4. Submission of Matters to a Vote of Security Holders......................................13
Item 5. Other Information........................................................................13
Item 6. Ehibits and Reports on Form 8-K..........................................................13
Signatures.......................................................................................14
</TABLE>
<PAGE>3
PART I FINANCIAL INFORMATION
THERMOGENESIS CORP.
Balance Sheets
(Unaudited)
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March 31, June 30,
ASSETS 2000 1999
------------- -------------
Current Assets:
Cash and cash equivalents $ 3,565,000 $ 2,327,000
Accounts receivable, net of allowance for doubtful
accounts of $95,000 ($95,000 at June 30, 1999) 747,000 1,204,000
Inventory 2,297,000 2,717,000
Other current assets 238,000 222,000
------------- -------------
Total current assets 6,847,000 6,470,000
Equipment, at cost less accumulated depreciation
of $1,685,000 ($1,216,000 at June 30, 1999) 1,160,000 1,457,000
Prepaid royalties, net of accumulated amortization
of $540,000 ($499,000 at June 30, 1999) 14,000 55,000
Other assets 55,000 151,000
------------- -------------
$ 8,076,000 $ 8,133,000
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>4
THERMOGENESIS CORP.
Balance Sheets (continued)
(Unaudited)
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March 31, June 30,
LIABILITIES AND SHAREHOLDER'S EQUITY 2000 1999
------------- -------------
Current liabilities:
Accounts payable $ 377,000 $ 639,000
Accrued payroll and related expenses 194,000 236,000
Accrued liabilities 351,000 539,000
------------- -------------
Total current liabilities 922,000 1,414,000
Commitments and contingencies --- ---
Shareholders' equity:
Series B convertible preferred stock, 4,080 shares authorized,
4,040 issued and outstanding 1,000 ---
Series A convertible preferred stock, 1,200,000 shares
authorized; 166,000 issued and outstanding (884,000 at
June 30, 1999) 1,000 1,000
Preferred stock, $.001 par value; 795,920 shares authorized;
no shares issued and outstanding --- ---
Common stock, $.001 par value; 50,000,000 shares
authorized; 24,769,584 issued and outstanding (18,925,669
at June 30, 1999) 25,000 21,000
Paid in capital in excess of par 42,744,000 37,442,000
Accumulated deficit (35,617,000) (30,745,000)
------------- -------------
Total shareholders' equity 7,154,000 6,719,000
------------- -------------
$ 8,076,000 $ 8,133,000
============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>5
THERMOGENESIS CORP.
Statements of Operations
(Unaudited)
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Three Months Ended Nine Months ended
March 31, March 31,
2000 1999 2000 1999
------------- ------------ ------------ -------------
Net revenues $ 927,000 $ 866,000 $ 3,188,000 $ 3,290,000
Cost of revenues 879,000 1,031,000 3,345,000 3,619,000
------------- ------------ ------------ -------------
Gross profit (loss) 48,000 (165,000) (157,000) (329,000)
------------- ------------ ------------ -------------
Expenses:
General and administrative 436,000 794,000 1,393,000 2,171,000
Sales and service 503,000 471,000 1,627,000 1,217,000
Research and development 309,000 513,000 1,171,000 1,507,000
Interest 4,000 16,000 12,000 113,000
------------- ------------ ------------ -------------
Total expenses 1,252,000 1,794,000 4,203,000 5,008,000
Interest income 25,000 31,000 49,000 52,000
------------- ------------ ------------ -------------
Net loss ($1,179,000) ($1,928,000) ($4,311,000) ($5,285,000)
============= ============ ============ =============
Per share data:
Net loss ($1,179,000) ($1,928,000) ($4,311,000) ($5,285,000)
Preferred stock discount 245,000 1,467,000 558,000 3,764,000
------------- ------------ ------------ -------------
Net loss to common stockholders ($1,424,000) ($3,395,000) ($4,869,000) ($9,049,000)
============= ============ ============ =============
Basic and diluted net loss per share ($.06) ($0.18) ($.23) ($.48)
============= ============ ============ =============
Shares used in computing per share
data 22,522,703 19,033,888 21,454,858 18,963,201
============= ============ ============ =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>6
THERMOGENESIS CORP.
Statements of Cash Flows
Nine months ended March 31,
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Cash flows from operating activities: 2000 1999
------------- -------------
Net loss ($4,311,000) ($5,285,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 510,000 506,000
Amortization of stock and options issued for services 45,000 92,000
Net change in operating assets and liabilities:
Accounts receivable 457,000 333,000
Inventory 420,000 (89,000)
Other current assets (16,000) 7,000
Other assets 96,000 (48,000)
Accounts payable (262,000) (330,000)
Accrued payroll and related expenses (42,000) (97,000)
Accrued liabilities (188,000) 26,000
------------- -------------
Net cash used in operating activities (3,291,000) (4,885,000)
------------- -------------
Cash flows used in investing activities:
Capital expenditures (172,000) (64,000)
------------- -------------
Cash flows from financing activities:
Issuance of convertible preferred stock 3,709,000 6,228,000
Exercise of stock options and warrants 992,000 4,000
------------- -------------
Net cash provided by financing activities 4,701,000 6,232,000
------------- -------------
Net increase in cash and cash equivalents 1,238,000 1,283,000
Cash and cash equivalents at beginning of period 2,327,000 1,975,000
------------- -------------
Cash and cash equivalents at end of period $ 3,565,000 $ 3,258,000
============= =============
</TABLE>
See accompanying notes to financial statements
<PAGE>7
THERMOGENESIS CORP.
Notes to Financial Statements
March 31, 2000
(Unaudited)
1. Interim Reporting
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 2000.
Summary of Significant Accounting Policies
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition." The Company is currently assessing the impact, if
any, that the SAB will have on its revenue recognition policy. The Company's
existing revenue recognition policy is to recognize revenue at the time the
customer takes title to the product, generally at the time of shipment. The SAB
could require the Company to recognize revenue upon installation of the
BioArchive System. The effect of the change, if any, must be recognized as a
cumulative effect of a change in accounting no later than the quarter ending
September 30, 2000. At the current time, it is not possible to determine the
effect this change will have on the results of operations of the Company.
Inventory
Inventory consisted of the following at:
March 31, 2000 June 30, 1999
-------------- -------------
Raw materials $ 1,203,000 $ 1,330,000
Work in process 307,000 363,000
Finished goods 787,000 1,024,000
-------------- -------------
$ 2,297,000 $ 2,717,000
============== =============
<PAGE>8
THERMOGENESIS CORP.
Notes to Financial Statements (Continued)
March 31, 2000
(Unaudited)
Series B Convertible Preferred Stock
On December 22, 1999, and January 4, 2000 the Company completed a private
placement of 4,040 shares of Series B Convertible Preferred Stock ("Series B")
raising an aggregate of $4,040,000, before direct expenses. The significant
features of the Series B are as follows:
Voting Rights - The holders of shares of Series B have no general voting
rights other than as accorded by law under certain circumstances that
effect Series B holders.
Liquidation Rights - In the event of liquidation or dissolution of the
Company, the Series B stockholders are entitled to priority over common
stockholders and in parity with Series A holders with respect to
distribution of Company assets or payments to stockholders. The liquidation
distribution is equal to $1,000 per share plus any accrued and unpaid
dividends.
Dividends - Dividends at the rate of $60 per annum per share of Series B
are payable in cash or, at the Company's option, may be added to the value
of the Series B subject to conversion and to the $1,000 per share
liquidation preference.
Conversion Rights - The Series B is currently limited in conversion to a
maximum of 4,236,000 shares. However, the current conversion price is a
fixed conversion price of $2.2719 which represents the average market price
of the Company's common stock for the ten days prior to the issuance of the
Series B. Commencing on June 22, 2000, the conversion price will be
adjusted on such date and every six months thereafter to be the lesser of
(a) 130% of the fixed conversion price as stated above, or (b) 90% of the
average market price for the ten days prior to such adjustment date. The
conversion price is subject to further adjustment under certain other
circumstances.
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 Series B was sold, amounted to
$777,000. Of the beneficial conversion feature, $292,000 is the amount
attributed to the current conversion price and is recorded in the preferred
stock discount at December 31, 1999. The remaining amount of the beneficial
conversion feature, $485,000 will be amortized over the six months ended
June 22, 2000, the initial reset date. The preferred stock discount for the
nine months ended March 31, 2000 includes $266,000 of amortization.
<PAGE>9
THERMOGENESIS CORP.
Notes to Financial Statements (Continued)
March 31, 2000
(Unaudited)
Series B Convertible Preferred Stock (continued)
Redemption - If the Company is in compliance with the terms of the Series B
agreements, the Company has the right at any time to redeem the Series B at
a premium (generally, 120% of the $1,000 per share liquidation value plus
accrued and unpaid dividends), and under certain circumstances, at the
market value of the common stock into which the Series B would otherwise be
convertible. Assuming the Company is in compliance with such agreements,
after the third anniversary of issuance, the Company may redeem the Series
B at its liquidation value plus accrued and unpaid dividends.
If certain events occur which are solely within the Company's control, the
holders of the Series B have the right to request that the Company
repurchase all or some of their Series B at the greater of the premium or
converted market value. These events include the following:
There is no closing bid price reported for the Company's common stock
for five consecutive trading days;
The Company's common stock ceases to be listed for trading on the
Nasdaq SmallCap Market;
The holders of the Seris B are unable, for 30 or more days (whether or
not consecutive) to sell their common stock issuable upon conversion
of the Series B preferred stock pursuant to an effective registration
statement; The Company defaults under any of the agreements relating
to the sale of the Series B;
Certain business combination events;
The adoption of any amendment to the Company's Certificate of
Incorporation materially adverse to the holders of the Series B
without the consent of the holders of a majority of the Series B; and
The holders of the Series B are unable to convert all of their shares
because of limitations under exchange or market rules that require
stockholder approval of certain stock issuances and the Company fails
to obtain such approval.
However, if any of these events occur which are not solely within the
Company's control, the Company can give a Control Notice to the Series B
shareholders which provides for certain adjustments to the conversion
price, in lieu of the Company repurchasing the Series B shares.
In addition, preferred shares are subject to certain transfer restrictions
and are entitled to certain registration rights.
<PAGE>10
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Nine months ended March 31, 2000 and 1999
The Company designs and sells medical devices which utilize its proprietary
thermodynamic technology for the processing of biological substances including
the cryopreservation, thawing and harvesting of blood components. During fiscal
1988 through 1999, the Company has focused on refining product design of the
Thermoline(TM) (blood plasma freezers and thawers) products and developing two
new technology platforms (BioArchive and CryoSeal Systems) and derivative
products which utilize sterile disposable containers for processing blood
components. The BioArchive system was launched at the end of fiscal 1998.
Beginning in late 1993, and with accelerated research and development efforts
from 1996 to 1999 totaling approximately $10 million, the Company completed
development of the BioArchive and CryoSeal technology platforms. Each of the
platforms will give rise to multiple medical devices targeted at a number of
surgical, intravenous and external wound healing applications. Also, the Company
spent approximately an additional $1 million on improvements, additional
accessories and beta test site support for the new products launched to date. To
achieve completion of the development and add experienced executive talent to
launch the products and move the Company to new levels of growth and revenues,
considerable capital resources were used. The Company is currently seeking
strategic alliance partners with substantially greater financial and marketing
resources than the Company in order to maximize the commercial value of the
CryoSeal and BioArchive platform products. To assist in these efforts, the
Company recently engaged Warburg Dillon Read LLC as financial advisors, chosen
for their superior investment banking experience and analyst coverage in the
field of Biomaterials.
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
Net Revenues:
Revenues for the three and nine months ended March 31, 2000 were $927,000 and
$3,188,000 compared to $866,000 and $3,290,000 for the three and nine months
ended March 31, 1999. The 7% increase for the three months ended March 31, 2000
is due to an increase in the sales of MicroCascade Plasma freezers which were
introduced in March 1999. The 3% decrease in year-to-date sales is primarily due
to the delay of expected orders for the BioArchive System. Six systems were sold
in the nine months ended March 31, 1999, which accounted for over 30% of that
period's revenues, compared to four systems and 22% of revenues in the nine
months ended March 31, 2000. However, quotations requested by potential
customers rose to a cumulative 47 BioArchive Systems for Cord Blood Banks in 27
countries.
<PAGE>11
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Nine months ended March 31, 2000 and 1999 (Cont'd)
Results of Operations (Cont'd)
Cost of Revenues:
Cost of revenues as a percent of net revenues was approximately 95% and 105% for
the three and nine months ended March 31, 2000, as compared to 119% and 110% for
the corresponding fiscal 1999 periods. The cost of revenues percentage decrease
is due to the mix of products sold, the inventory management procedures the
Company implemented over the past year and the Company's cost reduction efforts.
However, cost of revenues remains higher than expected primarily due to the
significant overhead costs associated with 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 $436,000 and $1,393,000 for the three
and nine months ended March 31, 2000 compared to $794,000 and $2,171,000 for the
fiscal 1999 periods, a decrease of 45% and 36%, respectively. The decreases were
primarily due to personnel reductions and transferring or allocating personnel
to other functions, namely sales and marketing and research and development.
Sales and Service Expenses:
Sales and service expenses for the three and nine months ended March 31, 2000
were $503,000 and $1,627,000 compared to $471,000 and $1,217,000 for the
comparable fiscal 1999 periods, an increase of 7% and 34%, respectively. The
percentage increase over the prior year declined in the third quarter as the
Company focused on bringing the sales and service expenses more in line with the
actual revenues produced while still funding activities to drive revenue and
ensure customer satisfaction.
Research and Development Expenses:
Research and development expenses for the three and nine months ended March 31,
2000 were $309,000 and $1,171,000 compared to $513,000 and $1,507,000 for the
corresponding fiscal 1999 periods, a decrease of 40% and 22%. These decreases
are primarily due to a continuing reduction in personnel due to the transfer of
the BioArchive and CryoSeal platforms to manufacturing. Even with these
reductions, R&D personnel made significant advancements in finalizing the
manufacturing transfer of the latest CryoSeal disposable, CP-2. The CP-2
produces both thrombin and fibrinogen (the two components of fibrin sealant)
from single-donor homologous or autologous plasma donations.
Liquidity and Capital Resources
Working capital increased by $869,000 from June 30, 1999 to March 31, 2000. The
increase was due to the net proceeds received from the Series B Convertible
Preferred Stock private placement and the exercise of options and warrants.
<PAGE>12
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Nine months ended March 31, 2000
Liquidity and Capital Resources (Cont'd)
As discussed in the Notes to Financial Statements, on December 22, 1999 and
January 4, 2000, the Company completed a private placement of 4,040 shares of
Series B Preferred Stock, raising an aggregate of $4,040,000, before commissions
and direct expenses.
The Company used $3,291,000 for operations for the nine months ended March 31,
2000. This was due to lower sales volume in relationship to fixed manufacturing
costs and added personnel to generate revenues. The report of independent
auditors on the Company's June 30, 1999 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 developed a plan to
address these issues and believes that its plan will enable the Company to
continue as a going concern through the end of calendar year 2000 without
additional financing. The plan includes the realization of revenues from the
commercialization of new products and the reduction of certain operating
expenses as required. Additionally, the Company is currently pursuing partnering
relationships with large corporations in connection with the products derived
from the BioArchive and CryoSeal technology platforms. 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. In the past, the Company has been able to obtain financing to
continue its operations and product development. There is no assurance that the
Company will be able to achieve additional financing or reach a strategic
relationship, or that such events will be on terms favorable to the Company.
The Company made the transition to the calendar year 2000 without "Year 2000"
interruptions. The Company did not incur any material costs to be "Year 2000"
compliant.
At March 31, 2000, the Company had no significant outstanding capital
commitments.
Quantitative and Qualitative Disclosures About Market Risk
All sales, domestic and foreign, are made in U.S. dollars and therefore currency
fluctuations are believed to have no impact on the Company's net revenues. The
Company has no long-term debt or investments and therefore is not subject to
interest rate risk.
<PAGE>13
PART II - OTHER INFORMATION
Item 1. Legal proceedings.
In December 1998, the Company was served with a civil action entitled
Metropolitan Creditors Service of Sacramento vs. THERMOGENESIS
CORPORATION, Sacramento Superior Court No. 98-AS-05815. The action
allegedly arises from the Company's vendor relationship with On-Time
Manufacturing, Inc., and relates to several invoices totaling
approximately $90,000 in the aggregate which On-Time Manufacturing,
Inc. claimed were owing, and which were allegedly assigned to
Metropolitan Creditors Service of Sacramento. The Company disputes the
claims and filed an answer to the complaint in December 1998. In
August 1999, Metropolitan Creditors Service of Sacramento sought to
amend the Complaint to include additional claims for breach of
contract, seeking compensatory and consequential damages in excess of
$1 million. The Company proceeded to arbitration on the claims,
including the breach of contract claims, and the arbitrator issued an
award of $2,625 to Metropolitan Creditors Association on one invoice
not encompassed by the contract, and ruled in the Company's favor on
all other claims. Metropolitan Creditors Service of Sacramento
rejected the arbitrator's award and elected to proceed to trial in
Superior Court. In January 2000, following conversion of the On- Time
bankruptcy proceeding to Chapter 7 liquidation, the Company and
Metropolitan Creditors attended a judicial settlement conference,
during which all claims were settled, without admission of liability
by either party. The settlement has received the Bankruptcy Court
approval in the On-Time bankruptcy proceeding, and the Company paid
$40,000 to the bankruptcy trustee on April 27, 2000.
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.
<PAGE>14
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 May 11, 2000
/s/ PHILIP H. COELHO
-------------------------------
Philip H. Coelho
Chief Executive Officer
(Principal Executive Officer)
/s/ RENEE RUECKER
-------------------------------
Renee Ruecker
Vice President of Finance
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR
THE PERIOD ENDED MARCH 31, 2000, FOR THERMOGENESIS CORP. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,565,000
<SECURITIES> 0
<RECEIVABLES> 842,000
<ALLOWANCES> 95,000
<INVENTORY> 2,297,000
<CURRENT-ASSETS> 238,000
<PP&E> 2,845,000
<DEPRECIATION> 1,685,000
<TOTAL-ASSETS> 8,076,000
<CURRENT-LIABILITIES> 922,000
<BONDS> 0
0
2,000
<COMMON> 25,000
<OTHER-SE> 7,127,000
<TOTAL-LIABILITY-AND-EQUITY> 8,076,000
<SALES> 3,188,000
<TOTAL-REVENUES> 3,237,000
<CGS> 3,345,000
<TOTAL-COSTS> 3,345,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 32,000
<INTEREST-EXPENSE> 12,000
<INCOME-PRETAX> (4,311,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,311,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,311,000)
<EPS-BASIC> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
