SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K/A-1
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended June 30, 1999 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:
Title of each class registered Name of each exchange 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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment of this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing sale price on September 17, 1999, was
$45,567,219.
The number of shares of the registrant's common stock, $.001 par value,
outstanding on September 17, 1999, was 20,803,032.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive proxy
statement for the registrant's annual meeting of stockholders to be held on
December 16, 1999.
<PAGE>2
ITEM 6. SELECTED FINANCIAL DATA
THERMOGENESIS CORP.
FIVE-YEAR REVIEW OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Summary of
Operations 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $5,004,890 $4,396,891 $6,614,044 $4,124,634 $3,311,880
Cost of revenues (4,325,228) (5,523,496) (4,326,964) (1,759,659) (2,096,116)
-----------------------------------------------------------------------------------
Gross profit 679,662 (1,126,605) 2,287,080 2,364,975 1,215,764
General and
administrative (2,924,090) (2,132,985) (1,370,401) (426,318) (334,028)
Selling and
marketing (1,750,972) (2,369,010) (2,143,523) (1,173,254) (827,269)
Research and
development (2,004,798) (3,858,077) (3,562,280) (1,317,330) (446,780)
Other income 80,527 69,509 114,372 84,847 304,017
Other expense (179,233) (133,627) (131,070) (101,454) -
-----------------------------------------------------------------------------------
Net loss ($6,098,904) ($9,550,795) ($4,805,822) ($568,534) ($88,296)
===================================================================================
Basic and diluted net
loss per share ($0.52) ($0.54) ($0.32) ($0.05) ($0.01)
===================================================================================
Balance Sheet Data 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
Cash $2,327,165 $1,975,042 $3,510,861 $1,243,079 $ 325,965
Working capital 5,054,940 3,665,798 6,407,237 3,589,057 1,413,156
Total assets 8,133,264 7,799,242 10,187,726 5,937,140 2,662,839
Total liabilities 1,414,620 2,226,350 2,163,084 1,562,829 662,256
Total shareholders'
equity 6,718,644 5,572,892 8,024,642 4,374,311 2,000,583
</TABLE>
<PAGE>3
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page Number
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.........................................F-1
Balance Sheets at June 30, 1999 and 1998...................................................F-2
Statements of Operations for the years ended June 30, 1999, 1998, and 1997.................F-4
Statements of Shareholders' Equity for the years ended June 30, 1999, 1998 and 1997........F-5
Statements of Cash Flows for the years ended June 30, 1999, 1998 and 1997..................F-6
Notes to Financial Statements..............................................................F-7
</TABLE>
<PAGE>F-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders THERMOGENESIS CORP.
We have audited the accompanying balance sheets of THERMOGENESIS CORP. as of
June 30, 1999 and 1998, and the related statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended June 30,
1999. Our audits also included the financial statement schedule listed in the
Index at Item 14(a)(2). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of THERMOGENESIS CORP. at June 30,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended June 30, 1999, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
The accompanying financial statements have been prepared assuming that
THERMOGENESIS CORP. will continue as a going concern. As more fully described in
Note 1, the Company has incurred recurring operating losses and has an
accumulated deficit of $30,745,189 as of June 30, 1999. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. 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 outcome of this
uncertainty.
ERNST & YOUNG LLP
Sacramento, California
August 13, 1999
<PAGE>F-2
THERMOGENESIS CORP.
Balance Sheets
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $2,327,165 $1,975,042
Accounts receivable, net of allowance for doubtful
accounts of $95,000 ($97,910 at June 30, 1998) 1,203,539 1,280,327
Inventory 2,716,927 2,456,565
Other current assets 221,929 180,214
---------- ----------
Total current assets 6,469,560 5,892,148
Equipment, at cost less accumulated depreciation
of $1,216,253 ($861,750 at June 30, 1998) 1,457,459 1,679,201
Prepaid royalties, net of accumulated amortization of
$499,089 ($443,637 at June 30, 1998) 55,411 110,863
Other assets 150,834 117,030
---------- ----------
$8,133,264 $7,799,242
========== ==========
</TABLE>
See accompanying notes.
<PAGE>F-3
THERMOGENESIS CORP.
Balance Sheets (Continued)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 639,649 $ 1,301,141
Accrued payroll and related expenses 236,317 345,875
Accrued liabilities 538,654 579,334
----------- ------------
Total current liabilities 1,414,620 2,226,350
Commitments and contingencies
Shareholders' equity:
Convertible preferred stock, $.001 par value,
1,200,000 shares authorized; 884,000 issued and
outstanding ($5,746,000 aggregate involuntary
liquidation value at June 30, 1999) 884 --
Preferred stock, $.001 par value; 800,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.001 par value; 50,000,000 shares
authorized: 20,597,532 issued and outstanding
(18,925,669 at June 30, 1998) 20,598 18,926
Paid in capital in excess of par 37,442,351 26,293,511
Accumulated deficit (30,745,189) (20,739,545)
----------- ------------
Total shareholders' equity 6,718,644 5,572,892
----------- ------------
$ 8,133,264 $ 7,799,242
=========== ============
</TABLE>
See accompanying notes.
<PAGE>F-4
THERMOGENESIS CORP.
Statements of Operations
<TABLE>
<CAPTION>
Years ended June 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net revenues $ 5,004,890 $ 4,396,891 $ 6,614,044
Cost of revenues 4,325,228 5,523,496 4,326,964
------------- ------------ ------------
Gross profit (loss) 679,662 (1,126,605) 2,287,080
Expenses:
General and administrative 2,924,090 2,132,985 1,370,401
Selling and marketing 1,750,972 2,369,010 2,143,523
Research and development 2,004,798 3,858,077 3,562,280
Issuance of stock options for services 56,000 64,000 56,000
Interest and other 123,233 69,627 75,070
------------- ------------ ------------
Total expenses 6,859,093 8,493,699 7,207,274
Interest and other income 80,527 69,509 114,372
------------- ------------ ------------
Net loss ($6,098,904) ($9,550,795) ($4,805,822)
============= ============ ============
Per share data:
Net loss (6,098,904) (9,550,795) (4,805,822)
Convertible preferred stock discount 3,906,740 -- --
------------- ------------ ------------
Net loss to common stockholders ($10,005,644) ($9,550,795) ($4,805,822)
============= ============ ============
Basic and diluted net loss per share ($0.52) ($0.54) ($0.32)
============= ============ ============
Shares used in computing per share data 19,242,310 17,629,876 14,805,000
============= ============ ============
</TABLE>
See accompanying notes.
<PAGE>F-5
THERMOGENESIS CORP.
Statements of Shareholder's Equity
<TABLE>
<CAPTION>
Paid in Total
Preferred Common capital in Accumulated shareholders'
Stock Stock excess of par deficit equity
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996 $12,709 $10,744,530 ($6,382,928) $ 4,374,311
Issuance of 254,750 common shares
for exercise of warrants and options 255 681,101 - 681,356
Issuance of 145,586 common
shares for inventory 146 444,151 - 444,297
Issuance of 2,756,002 common
shares in private placement 2,756 7,271,744 - 7,274,500
Amortization of options issued
previously for services - 56,000 - 56,000
Net loss - - (4,805,822) (4,805,822)
------- ----------- ------------ -----------
Balance at June 30, 1997 15,866 19,197,526 (11,188,750) 8,024,642
Issuance of 273,650 common shares
for exercise of warrants and options 273 601,853 - 602,126
Issuance of 2,786,714 common
shares in private placement 2,787 6,430,132 - 6,432,919
Amortization of options issued
previously for services - 64,000 - 64,000
Net loss - - (9,550,795) (9,550,795)
------------ ----------- ------------ -----------
Balance at June 30, 1998 18,926 26,293,511 (20,739,545) 5,572,892
Issuance of 1,750 common shares for
exercise of options 2 4,189 - 4,191
Issuance of 1,077,540 convertible
preferred shares in private placement $1,078 - 6,226,264 - 6,227,342
Convertible preferred stock discount - - 3,604,740 (3,604,740) -
Amortization of options issued
previously for services - - 56,000 - 56,000
Issuance of 142,413 common shares
for services - 142 186,981 - 187,123
Issuance of 90,000 common stock
warrants - - 70,000 - 70,000
Convertible preferred stock accretion - - 302,000 (302,000) -
Issuance of 967,700 common shares
upon conversion of preferred stock (194) 968 (774) - -
Issuance of 560,000 common shares - 560 699,440 - 700,000
Net loss - - - (6,098,904) (6,098,904)
====== ======= =========== ============ ===========
Balance at June 30, 1999 $ 884 $20,598 $37,442,351 ($30,745,189) $ 6,718,644
====== ======= =========== ============ ===========
</TABLE>
See accompanying notes.
<PAGE>F-6
THERMOGENESIS CORP.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended June 30
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($6,098,904) ($9,550,795) ($4,805,822)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 548,472 440,454 312,077
Issuance of common stock for services 257,123 - -
Issuance of common stock for inventory - - 444,297
Amortization of stock options issued for services 56,000 64,000 56,000
Net changes in operating assets and liabilities
Accounts receivable 76,788 787,663 (626,842)
Inventory (416,268) (79,436) (442,170)
Other current assets (41,715) 13,480 (203,642)
Other assets (33,804) 139,596 (116,645)
Accounts payable (661,492) (136,407) 579,651
Accrued payroll and related expenses (109,558) 71,867 89,348
Accrued liabilities (40,680) 127,806 (100,744)
----------- ----------- -----------
Net cash used in operating activities (6,464,038) (8,121,772) (4,814,492)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (115,372) (449,092) (873,582)
----------- ----------- -----------
Net cash used in investing activities (115,372) (449,092) (873,582)
----------- ----------- -----------
Cash flows from financing activities:
Exercise of stock options and warrants 4,191 602,126 681,356
Issuance of convertible preferred stock 6,227,342 - -
Issuance of common stock 700,000 6,432,919 7,274,500
=========== =========== ===========
Net cash provided by financing activities 6,931,533 7,035,045 7,955,856
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 352,123 (1,535,819) 2,267,782
Cash and cash equivalents at beginning of year 1,975,042 3,510,861 1,243,079
=========== =========== ===========
Cash and cash equivalents at end of year $ 2,327,165 $ 1,975,042 $ 3,510,861
=========== =========== ===========
Supplemental cash flow information:
Cash paid during the year for interest $ 31,968 $ 47,511 $ 75,070
=========== =========== ===========
Supplemental non-cash flow information:
Equipment acquired by capital lease obligations $ - $ - $ 32,000
=========== =========== ==========
</TABLE>
See accompanying notes.
<PAGE>F-7
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization and Business
THERMOGENESIS CORP. ("the Company") was incorporated in Delaware in July 1986.
The Company designs and sells 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
core line products and developing a pipeline of two technology platforms and
derivative products which utilize sterile disposable containers for processing
blood components. The BioArchive system was launched in fiscal 1998.
Basis of Presentation
The Company has incurred recurring operating losses and has an accumulated
deficit of $30,745,189 as of June 30, 1999. 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 believes that it has developed a viable
plan to address these issues and that its plan will enable the Company to
continue as a going concern through the end of fiscal year 2000. This plan
includes the realization of revenues from the commercialization of new products,
the consummation of debt or equity financings in amounts sufficient to fund
further growth, and the reduction of certain operating expenses as necessary.
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.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market and includes the cost of
material, labor and manufacturing overhead. Cost is determined on the first-in,
first-out basis.
<PAGE>F-8
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies (Continued)
Equipment
Depreciation is computed under the straight-line method over the useful lives of
2-10 years.
Prepaid Royalties
Prepaid royalties are amortized on a straight-line basis over an estimated
useful life of 10 years.
Stock Based Compensation
The Company has adopted the disclosure provision for stock-based compensation of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", but continues to account for such items using the intrinsic value
method as outlined under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees".
Revenue Recognition
Revenues from the sale of the Company's products are recognized at the time of
shipment. All foreign sales are denominated in U.S. dollars.
Credit Risk
The Company manufactures and sells thermodynamic devices principally to the
blood component processing industry and performs ongoing evaluations of the
credit worthiness of its customers. The Company believes that adequate
provisions for uncollectible accounts have been made in the accompanying
financial statements.
Income Taxes
The liability method is used for accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. The Company used the flow-through method to account for
income tax credits.
Net Loss per Share
Net loss per share is computed by dividing the net loss by the weighted average
number of common shares outstanding. Common stock equivalents have not been
included because the effect would be anti-dilutive.
<PAGE>F-9
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
1. Summary of Significant Accounting Policies (Continued)
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share" (SFAS 128). SFAS 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. SFAS 128 was
adopted during the year ended June 30, 1998, and had no impact on the basic and
diluted net loss per share for the years ended June 30, 1997 and 1996.
Comprehensive Income
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" (SFAS 130) which establishes standards for reporting disclosure of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. SFAS 130, which is
effective for fiscal years beginning after December 15, 1997, requires
reclassification of financial statements for earlier periods to be provided for
comparative purposes. SFAS 130 was adopted during the year ended June 30, 1999,
and did not have a significant impact on the Company's existing disclosures.
Segment Disclosure
In June 1997, the FASB issued Statement No. 131, "Disclosure about Segments of
an Enterprise and Related Information" (SFAS 131) which establishes standards
for the way that public business enterprises report information about operating
segments. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. SFAS 131 was adopted during
the year ended June 30, 1999, and did not have a significant impact on the
Company's existing disclosures.
Reclassifications
Certain amounts in the prior years financial statements have been reclassified
to conform with the 1999 presentation.
2. Inventory
Inventory consisted of the following at June 30:
1999 1998
---- ----
Raw materials $1,329,457 $1,313,792
Work in process 363,331 282,946
Finished goods 1,024,139 859,827
---------- ----------
$2,716,927 $2,456,565
========== ==========
<PAGE>F-10
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
3. Equipment
Equipment consisted of the following at June 30:
1999 1998
---- ----
Construction in progress $ 48,903 $ -
Office equipment 294,198 368,248
Computers and purchased software 1,001,405 1,051,974
Machinery and equipment 1,043,661 841,407
Leasehold improvements 285,545 279,322
----------- -----------
2,673,712 2,540,951
Less accumulated depreciation and amortization (1,216,253) (861,750)
----------- -----------
$ 1,457,459 $ 1,679,201
=========== ===========
4. Accrued Liabilities
Accrued liabilities consisted of the following at June 30:
1999 1998
---- ----
Accrued warranty reserves $162,992 $237,440
Accrued legal reserves 228,328 76,500
Capital lease obligations 56,738 162,670
Other accrued liabilities 90,596 102,724
-------- --------
$538,654 $579,334
======== ========
<PAGE>F-11
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Commitments and Contingencies
Royalty Commitment
In July 1990 the Company acquired the Proprietary Technology including but not
limited to all patents, drawings, know-how, trademarks and trade names and
prepaid all future royalties for a total consideration which was recorded at
$554,500. This amount represents the present value of the future royalty payment
obligation. The consideration was comprised of $50,000 cash, a 10% four year
convertible note for $200,000 and 900,000 shares of the Company's common stock.
The transaction has been accounted for as a prepayment of future royalties and
is being amortized on a straight line basis over an estimated useful life of 10
years.
Operating Leases
The Company leases its manufacturing and corporate facilities and certain
equipment pursuant to operating leases. The annual future cash obligations under
these leases are as follows:
2000 268,921
2001 247,302
2002 134,213
---------
Total $ 650,436
=========
Rent expense was $310,381, $275,076 and $221,986 for the years ended June 30,
1999, 1998 and 1997.
Capital Leases
The Company leases certain equipment under capital leases. The following amounts
are included in equipment as assets under these capital leases as of June 30:
1999 1998
---- ----
Cost $520,140 $520,140
Less: accumulated amortization 356,055 248,280
-------- --------
Net assets under capital leases $164,085 $271,860
======== ========
The future minimum lease payments under these capital leases are $72,640, less
amount representing interest of $15,902 as of June 30, 1999.
<PAGE>F-12
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
5. Commitments and Contingencies (continued)
Contingencies
The Company is presently engaged in various legal actions arising in the
ordinary course of its business. In the opinion of management, the Company has
adequate reserves with respect to these matters so that the ultimate resolution
will not have a material adverse effect on the financial position of the Company
or its results of operations.
6. Shareholders' Equity
Convertible Preferred Stock
In January 1999 the Company completed a private placement of 1,077,540 shares of
Convertible Preferred Stock, raising $6,227,342, net of commissions and direct
expenses. Commissions of 7% of the gross proceeds and warrants to purchase
200,000 shares of common stock at $1.70 per share were issued to the placement
agent. 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 - When issued, the Preferred Stock contained redemption rights
which allowed the Preferred Stock to be redeemable upon the request of any
holder of at any time following the fifth anniversary of the date of
issuance. The redemption price shall be the liquidation preference as
stated above. However, on July 30, 1999, the common stockholders voted to
remove the redemption rights associated with the Preferred Stock. Removal
of the redemption rights allows the Preferred Stock to be included as
Stockholders Equity. The excess of the Preferred Stock's redemption price
over its carrying value is being accreted by periodic charges to
accumulated deficit from the date of issuance through July 31, 1999.
<PAGE>F-13
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Shareholders' Equity (Continued)
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. As of June
30, 1999, 193,540 shares of Preferred Stock have been converted.
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 $3,604,740, 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.
In addition, preferred shares are subject to certain transfer restrictions and
are entitled to certain registration rights.
Common Stock
The Company completed a private financing on December 31, 1997, in which it
received $6,432,919 net of expenses. The proceeds from the offering were
received from the sale of 2,786,714 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. No warrants have been exercised as of June 30, 1999.
The Company completed a minimum equity offering of units in a private placement
on November 27, 1996, in which it received proceeds of $7,274,500, net of
expenses. The proceeds from the offering were received from the sale of
1,378,001 units at $6.00 per unit. Each unit consisted of two shares of common
stock and a seven year warrant representing the right to acquire one additional
share of common stock at an exercise price of $3.1624 per share. No warrants
have been exercised as of June 30,1999.
<PAGE>F-14
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Shareholders' Equity (Continued)
Common Stock (continued)
On July 30, 1996, the Company entered into an agreement with a vendor to produce
up to $2,500,000 of product for the Company. Under the terms of the agreement,
the vendor can elect to receive payment in restricted common stock of the
Company at a 25% discount from the market price on the date the election to
receive stock is made. During fiscal 1997, the Company issued 145,586 shares of
common stock for this product, and recorded these transactions at the estimated
fair value of $444,297 on the date of the transaction and recorded the 25%
discount from market price as operating expense. The Company is not obligated to
purchase product that is not required or at a price that is not competitive and
built to all required standards.
As of June 30, 1999, the Company had 9,339,429 shares of common stock reserved
for future issuance.
Warrants
As part of the placement agent's compensation in the 1999 private placement of
convertible preferred stock, warrants to purchase 200,000 shares of common stock
at an exercise price of $1.70 were issued.
The warrants expire in January 2004.
As part of a short-term debt agreement entered into in November 1998, the
Company issued warrants to purchase 90,000 shares of common stock at an exercise
price of $1.50. The warrants expire in November 2001. The estimated fair value
of the warrants on the date of issue, $70,000, has been included in interest
expense.
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 $60,000
per unit were also issued, each unit consisting of twenty-five thousand (25,000)
shares of common stock. The warrants expire in December 2000.
In conjunction with the placement of Series C Preferred stock in 1993, the
placement agent, Paradise Valley Securities, received warrants to purchase
shares of the Company's common stock at $1.20 per share. There were 5,625 and
37,500 warrants converted in fiscal 1998 and 1997, respectively.
Stock Options
On July 31, 1996, and May 29, 1996, the Company issued options to purchase
200,000 and 100,000 shares, respectively, of the Company's common stock for
consulting services. The exercise price is equal to the fair market value as
determined by the closing bid price for the Company's common stock on the date
of grant. The Company has recorded stock compensation expense recognizing the
estimated fair value of the options of $56,000, $64,000 and $56,000 for the
years ended June 30, 1999, 1998 and 1997, respectively.
<PAGE>F-15
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Shareholders' Equity (Continued)
Stock Options (continued)
The Company has issued options to purchase shares of common stock pursuant to
its Amended 1994 Stock Option Plan (1994 Plan), under which a maximum of
1,450,000 options may be granted. Options are granted at prices which are equal
to 100% of the fair market value on the date of grant, and expire over a term
not to exceed ten years. Options generally vest ratable over a three year
period. During fiscal 1998, the Stockholders of the Company approved the 1998
Employee Equity Incentive Plan ("1998 Plan") with 798,000 shares underlying that
plan.
The Company has also issued options to directors, employees and consultants as
compensation for services. These options vest and are exercisable over a variety
of periods as determined by the Company's Board of Directors.
A summary of stock option activity for the three years ended June 30, 1999,
follows:
Number of Weighted-Average
Options Exercise
Outstanding Price Per Share
----------- ---------------
Balance at June 30, 1996 1,164,333 $2.23
Options granted 1,184,000 3.16
Options cancelled (344,501) 3.31
Options exercised (37,250) 1.98
---------
Balance at June 30, 1997 1,966,582 2.61
Options granted 509,000 3.01
Options cancelled (232,225) 3.09
Options exercised (268,025) 2.22
---------
Balance at June 30, 1998 1,975,332 2.71
Options granted 178,500 2.30
Options cancelled (530,332) 2.41
Options exercised (1,750) 2.08
---------
Balance at June 30, 1999 1,621,750 2.76
=========
<PAGE>F-16
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Shareholders' Equity (Continued)
Stock Options (Continued)
The following table summarizes information about stock options outstanding at
June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Average
Range of Number Exercise Weighted
Exercise Outstanding Contractual Average Number Weighted
Prices Remaining Life Exercise Price Exercisable Average Price
<S> <C> <C> <C> <C> <C>
$1.16 - $1.90 7,750 2.01 years $1.65 6,750 $1.61
$2.13 - $3.00 1,234,000 1.80 years $2.52 959,609 $2.47
$3.13 - $4.50 380,000 2.11 years $3.56 315,333 $3.63
---------- ----------
Total 1,621,750 1.87 years $2.76 1,281,692 $2.75
========= =========
</TABLE>
SFAS 123 requires the use of option valuation models to provide supplemental
information regarding options granted after June 30, 1995. Pro forma information
regarding net loss and net loss per share shown below was determined as if the
Company had accounted for its employee stock options under the fair value method
of that statement.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options. The Company's employee stock options have
characteristics significantly different from those of traded options such as
vesting restrictions and extremely limited transferability. In addition, the
assumptions used in option valuation models (see below) are highly subjective,
particularly the expected stock price volatility of the underlying stock.
Because changes in these subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not provide
a reliable single measure of the fair value of its employee stock options.
<PAGE>F-17
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. Shareholders' Equity (Continued)
Stock Options (Continued)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting periods. The pro forma effect on net loss
for fiscal 1996 through 1999 is not representative of the pro forma effect on
operations in future years because it does not take into consideration pro forma
compensation expense related to grants made prior to July 1, 1995. The Company's
pro forma information is as follows for the years ended June 30:
1999 1998 1997
---- ---- ----
Net Loss
As reported ($6,098,904) ($9,550,795) ($4,805,822)
Pro Forma (6,594,368) (10,217,657) (5,325,270)
Net loss per share
As reported ($0.52) ($0.54) ($0.32)
Pro Forma ($0.55) (0.58) (0.36)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option- pricing model with the following weighted average
assumptions: expected volatility of 92%; an expected life of 3 years; a
risk-free interest rate of 5.62% and no expected dividends. The weighted average
grant date fair value of options granted during the years ended June 30, 1999,
1998 and 1997 was $1.70, $1.69 and $1.80, respectively.
7. Major Customers and Foreign Sales
During the fiscal year ended June 30, 1999, sales from a significant customer
totaled $524,837 or 12% of net sales; foreign sales were approximately 44% of
net sales. During the fiscal year ended June 30, 1998 there was no single
customer which represented 10% of net sales; foreign sales were approximately
50% of net sales. During the fiscal year ended June 30, 1997, sales from a
significant customer totaled $4,044,489 or 61% of net sales and foreign sales
were 15% of net sales.
<PAGE>F-18
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. Income Taxes
The reconciliation of federal income tax attributable to operations computed at
the federal statutory tax rates of 34% to income tax expense is as follows for
the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax benefit $(2,074,000) $(3,290,000) $(1,630,000)
Net operating loss with no tax benefit 2,074,000 3,290,000 1,630,000
----------- ----------- -----------
Total federal income tax $ - $ - $ -
=========== =========== ===========
</TABLE>
At June 30, 1999, the Company had net operating loss carryforwards for federal
and state income tax purposes of approximately $25,585,000 and $7,500,000,
respectively, that are available to offset future income. The federal and state
loss carryforwards expire in various years between 2002 and 2019, and 2000 and
2004, respectively.
At June 30, 1999, the Company has research and experimentation credit
carryforwards of approximately $293,000 for federal tax purposes that expire in
various years between 2002 and 2019 and $174,000 for state income tax purposes
that do not have an expiration date. In addition, the Company has approximately
$15,000 in other state tax credits.
Significant components of the Company's deferred tax assets and liabilities for
federal and state income taxes are as follows:
June 30, 1999 June 30, 1998
------------- -------------
Deferred tax assets
Net operating loss carryforwards $ 9,145,000 $ 7,109,000
Income tax credits 418,000 102,000
Capitalized research costs 292,000 -
Other 358,000 374,000
------------- -------------
Total deferred taxes 10,213,000 7,585,000
Valuation allowance (10,213,000) (7,585,000)
------------- -------------
Net deferred taxes $ - $ -
============= =============
<PAGE>F-19
THERMOGENESIS CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. Income Taxes (Continued)
Because of the "change of ownership" provisions of the Tax Reform Act of 1986, a
portion of the Company's federal net operating loss and credit carryovers may be
subject to an annual limitation regarding their utilization against taxable
income in future periods.
9. Employee Retirement Plan
The Company sponsors an Employee Retirement Plan, generally available to all
employees, in accordance with Section 401(k) of the Internal Revenue Code.
Employees may elect to contribute up to the Internal Revenue Service annual
contribution limit. Under this Plan, at the discretion of the Board of
Directors, the Company may match a portion of the employees' contributions. No
Company contributions have been made to the Plan as of June 30, 1999.
<PAGE>4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this amendment no. 1 to Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 9, 2000 THERMOGENESIS CORP.
/s/PHILIP H. COELHO
------------------------------------
Philip H. Coelho, Chairman & C.E.O.
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 333-28653, 333-08661, and 333-45532) pertaining to the
THERMOGENESIS CORP. Amended 1994 Stock Option Plan, (Form S-8 No. 333-46911)
pertaining to the THERMOGENESIS CORP. 1998 Employee Equity Incentive Plan, and
(Form S-3 Nos. 333-23097, 333-1479, 33-63676, 333-44151, 333-72035, and
333-95143) of THERMOGENESIS CORP. and in the related Prospectuses of our report
dated August 13, 1999, with respect to the financial statements and schedule of
THERMOGENESIS CORP. included in the Annual Report (Form 10-K and Form 10-K/A-1)
for the year ended June 30, 1999.
Sacramento, California
March 2, 2000
