-----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, UiHTsB6btXeNsV+7u9/bmmdyiyGs8+LRnvpgfutuoRzsQQ6cZqx90ql35DRoEEQn yoVVIvxAww3pCwv7Fzc3yQ== 0001001277-00-000077.txt : 20000313 0001001277-00-000077.hdr.sgml : 20000313 ACCESSION NUMBER: 0001001277-00-000077 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 20000310 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: 10KSB/A SEC ACT: SEC FILE NUMBER: 333-72035 FILM NUMBER: 566230 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 10KSB/A 1 AMENDMENT NO. 1 TO FORM 10-K 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. 2 ITEM 6. SELECTED FINANCIAL DATA THERMOGENESIS CORP. FIVE-YEAR REVIEW OF SELECTED FINANCIAL DATA
Summary of Operations 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------ 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
3 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page Number 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
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 F-2 THERMOGENESIS CORP. Balance Sheets
June 30, 1999 June 30, 1998 ------------- ------------- 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 ========== ==========
See accompanying notes. F-3 THERMOGENESIS CORP. Balance Sheets (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY June 30, 1999 June 30, 1998 ------------- ------------- 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 =========== ============
See accompanying notes. F-4 THERMOGENESIS CORP. Statements of Operations
Years ended June 30, 1999 1998 1997 ---- ---- ---- 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 ============= ============ ============
See accompanying notes. F-5 THERMOGENESIS CORP. Statements of Shareholder's Equity
Paid in Total Preferred Common capital in Accumulated shareholders' Stock Stock excess of par deficit equity 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 ====== ======= =========== ============ ===========
See accompanying notes. F-6 THERMOGENESIS CORP. Statements of Cash Flows
Years Ended June 30 1999 1998 1997 ---- ---- ---- 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 =========== =========== ==========
See accompanying notes. 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. 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. 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 ========== ========== 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 ======== ======== 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. 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. 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. 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. 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 ========= 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:
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 $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 ========= =========
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. 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. 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:
1999 1998 1997 ---- ---- ---- 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 $ - $ - $ - =========== =========== ===========
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 $ - $ - ============= ============= 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. 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. EX-23 2 CONSENT OF INDEPENDENT AUDITORS 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 -----END PRIVACY-ENHANCED MESSAGE-----