-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I6ub2aZaT5CvTv9t247at/GcLS8pj8N8oWp8tuq7bkGHgPRMuuioBPRNj2iw7QnD TbMjZ9P6k4vbjdF302e1gQ== 0000811212-99-000002.txt : 19990212 0000811212-99-000002.hdr.sgml : 19990212 ACCESSION NUMBER: 0000811212-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THERMOGENESIS CORP CENTRAL INDEX KEY: 0000811212 STANDARD INDUSTRIAL CLASSIFICATION: LABORATORY APPARATUS & FURNITURE [3821] IRS NUMBER: 943018487 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16375 FILM NUMBER: 99529181 BUSINESS ADDRESS: STREET 1: 3146 GOLD CAMP DRIVE CITY: RANCHO CORDOVA STATE: CA ZIP: 95670 BUSINESS PHONE: 9168585100 MAIL ADDRESS: STREET 1: 3146 GOLD CAMP DRIVE CITY: RANCHO CORDOVA STATE: CA ZIP: 95670 FORMER COMPANY: FORMER CONFORMED NAME: INSTA COOL INC OF NORTH AMERICA DATE OF NAME CHANGE: 19920703 10-Q 1 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 No __ The number of shares of the registrant's common stock, $.001 par value, outstanding on January 22, 1999 was 18,930,685. _______________________________ 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 PART I FINANCIAL INFORMATION THERMOGENESIS CORP. BALANCE SHEETS (UNAUDITED)
December 31, June 30, ASSETS 1998 1998 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
See accompanying notes to financial statements. 3 THERMOGENESIS CORP. BALANCE SHEETS (CONTINUED) (UNAUDITED)
December 31, June 30, LIABILITIES AND SHAREHOLDER'S EQUITY 1998 1998 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
See accompanying notes to financial statements. 4 THERMOGENESIS CORP. STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended December 31, December 31, 1998 1997 1998 1997 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
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 5 THERMOGENESIS CORP. Statements of Cash Flows Six Months Ended December 31, 1998 and 1997
Cash flows from operating activities: 1998 1997 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
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS 6 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 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 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 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 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 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 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 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) EX-27 2
5 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. 3-MOS JUN-30-1999 OCT-01-1998 DEC-31-1998 4,460,707 0 1,018,204 95,000 2,017,487 7,726,438 2,580,760 1,094,091 9,474,987 2,374,721 0 4,733,576 0 18,931 2,570,163 9,474,987 2,425,855 2,440,620 2,604,431 2,604,431 0 24,089 96,303 (3,356,798) 0 (3,356,798) 0 0 0 (3,356,798) (0.30) (0.30)
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