-----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, Kg7i6HgdHWe/OwENJwcJ2Cf+46QPmHWCUBy71FMKb8ppeoBbNAg3x4BB3K2eNbDA 11aD5PpDWZHHoUA171sQ4Q== 0001001277-05-000103.txt : 20050209 0001001277-05-000103.hdr.sgml : 20050209 20050209153042 ACCESSION NUMBER: 0001001277-05-000103 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050209 DATE AS OF CHANGE: 20050209 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: 1934 Act SEC FILE NUMBER: 333-82900 FILM NUMBER: 05588548 BUSINESS ADDRESS: STREET 1: 2711 CITRUS ROAD CITY: RANCHO CORDOVA STATE: CA ZIP: 95742 BUSINESS PHONE: 9168585100 MAIL ADDRESS: STREET 1: 2711 CITRUS ROAD CITY: RANCHO CORDOVA STATE: CA ZIP: 95742 FORMER COMPANY: FORMER CONFORMED NAME: INSTA COOL INC OF NORTH AMERICA DATE OF NAME CHANGE: 19920703 10-Q 1 for123104.txt UNITED STATES 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, 2004. or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition from _________ to ____________. 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.) 2711 Citrus Rd. Rancho Cordova, CA 95742 (916) 858-5100 (Address of principal executive offices, including zip code, and telephone number, including area code) 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] The number of shares of the registrant's common stock, $0.001 par value, outstanding on January 31, 2005 was 45,798,645. THERMOGENESIS CORP. INDEX Page Number ----------- Part I Financial Information Item 1. Financial Statements (Unaudited) Balance Sheets at December 31, 2004 and June 30, 2004 ................3 Statements of Operations for the Three and Six Months ended December 31, 2004 and 2003 ............................5 Statements of Cash Flows for the Six Months Ended December 31, 2004 and 2003 ...................................6 Notes to Financial Statements ........................................7 Item 2. Management's Discussion and Analysis of Financial Condition & Results of Operations........................11 Item 3. Quantitative and Qualitative Disclosures about Market Risk...........18 Item 4. Controls and Procedures..............................................18 Part II Other Information Item 1. Legal................................................................19 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........19 Item 3. Default Upon Senior Securities.......................................19 Item 4. Submission of Matters to a Vote of Security Holders..................19 Item 5. Other Information....................................................19 Item 6. Exhibits.............................................................19 Signatures ...................................................................20 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) THERMOGENESIS CORP. Balance Sheets (Unaudited)
December 31, June 30, 2004 2004 --------------------- --------------------- ASSETS Current Assets: Cash and cash equivalents $13,022,000 $16,612,000 Accounts receivable, net of allowance for doubtful accounts of $45,000 ($61,000 at June 30, 2004) 2,598,000 3,107,000 Inventories 3,035,000 2,470,000 Other current assets 617,000 582,000 --------------------- --------------------- Total current assets 19,272,000 22,771,000 Equipment, at cost less accumulated depreciation of $2,539,000 ($2,383,000 at June 30, 2004) 1,241,000 1,146,000 Other assets 149,000 197,000 --------------------- --------------------- $20,662,000 $24,114,000 ===================== =====================
See accompanying notes to financial statements. 3 THERMOGENESIS CORP. Balance Sheets (Cont'd) (Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, June 30, 2004 2004 -------------------- ------------------- Current liabilities: Accounts payable $1,158,000 $1,709,000 Accrued payroll and related expenses 328,000 287,000 Accrued liabilities 580,000 835,000 Deferred revenue 145,000 142,000 -------------------- ------------------- Total current liabilities 2,211,000 2,973,000 Long-term portion of capital lease obligations and note payable 17,000 21,000 Deferred revenue 86,000 152,000 Commitments and contingencies Stockholders' equity: Preferred stock, $0.001 par value; 2,000,000 shares authorized; Series A convertible preferred stock, 1,077,540 shares issued, 110,000 outstanding (126,000 outstanding at June 30, 2004) ($1,090,976 aggregate involuntary liquidation value at December 31, 2004) -- -- Common stock, $0.001 par value; 50,000,000 shares authorized; 45,233,533 issued and outstanding (44,711,871 at June 30, 2004) 45,000 45,000 Paid in capital in excess of par 81,604,000 80,413,000 Deferred stock compensation (91,000) -- Accumulated deficit (63,210,000) (59,490,000) -------------------- ------------------- Total stockholders' equity 18,348,000 20,968,000 -------------------- ------------------- $20,662,000 $24,114,000 ==================== ===================
See accompanying notes to financial statements. 4 THERMOGENESIS CORP. Statements of Operations (Unaudited)
Three Months Ended Six Months Ended December 31, December 31, 2004 2003 2004 2003 ---------------- ----------------- ----------------- ---------------- Net revenues $2,954,000 $2,500,000 $5,351,000 $4,643,000 Cost of revenues 2,004,000 1,698,000 3,621,000 3,252,000 ---------------- ----------------- ----------------- ---------------- Gross profit 950,000 802,000 1,730,000 1,391,000 ---------------- ----------------- ----------------- ---------------- Expenses: Selling, general and administrative 1,452,000 1,285,000 2,886,000 2,421,000 Research and development 1,395,000 748,000 2,664,000 1,447,000 ---------------- ----------------- ----------------- ---------------- Total operating expenses 2,847,000 2,033,000 5,550,000 3,868,000 Interest and other income, net 56,000 8,000 100,000 15,000 ---------------- ----------------- ----------------- ---------------- Net loss ($1,841,000) ($1,223,000) ($3,720,000) ($2,462,000) ================ ================= ================= ================ Per share data: Basic and diluted net loss per common share ($0.04) ($0.03) ($0.08) ($0.06) ================ ================= ================= ================ Shares used in computing per share data 45,100,050 40,265,493 45,011,948 39,862,971 ================ ================= ================= ================
See accompanying notes to financial statements. 5 THERMOGENESIS CORP. Statements of Cash Flows Six Months Ended December 31, 2004 and 2003 (Unaudited)
2004 2003 ---------------- ---------------- Cash flows from operating activities: Net loss ($3,720,000) ($2,462,000) Adjustments to reconcile net loss to net cash used in operating activities: Stock compensation expense 116,000 20,000 Depreciation and amortization 167,000 132,000 Loss on retirement of equipment -- 10,000 Net change in operating assets and liabilities: Accounts receivable 509,000 (66,000) Inventories (710,000) (182,000) Other current assets (35,000) 183,000 Other assets 48,000 (3,000) Accounts payable (551,000) (1,000) Accrued payroll and related expenses 41,000 9,000 Deferred revenue (63,000) (59,000) Accrued liabilities (243,000) 140,000 ---------------- ---------------- Net cash used in operating activities (4,441,000) (2,279,000) ---------------- ---------------- Cash flows from investing activities: Capital expenditures (117,000) (492,000) ---------------- ---------------- Net cash used in investing activities (117,000) (492,000) ---------------- ---------------- Cash flows from financing activities: Payments on capital lease obligations and note payable (16,000) (12,000) Exercise of stock options and warrants 984,000 4,233,000 ---------------- ---------------- Net cash provided by financing activities 968,000 4,221,000 ---------------- ---------------- Net increase (decrease) in cash and cash equivalents (3,590,000) 1,450,000 Cash and cash equivalents at beginning of period 16,612,000 6,815,000 ---------------- ---------------- Cash and cash equivalents at end of period $13,022,000 $8,265,000 ================ ================ Supplemental non-cash flow information: Transfer of inventory to equipment $145,000 -- ================ ================ Surrender of stock to exercise options -- $656,000 ================ ================
See accompanying notes to financial statements 6 THERMOGENESIS CORP. Notes to Financial Statements December 31, 2004 (Unaudited) Interim Reporting - ----------------- The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. All sales, domestic and foreign, are made in U.S. dollars and therefore currency fluctuations are believed to have no impact on the Company's net revenues. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended December 31, 2004 are not necessarily indicative of the results that may be expected for the year ending June 30, 2005. The balance sheet at June 30, 2004, has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. Summary of Significant Accounting Policies - ------------------------------------------ The Company recognizes revenue including multiple element arrangements, in accordance with the provisions of SAB No. 104 and EITF 00-21. Revenue arrangements with multiple elements are divided into separate units of accounting if certain criteria are met, including whether the delivered item has value to the customer on a stand-alone basis and whether there is objective and reliable evidence of the fair value of the undelivered items. Revenue is recognized as specific elements indicated in sales contracts are executed. If an element is essential to the functionality of an arrangement, the entire arrangement's revenue is deferred until that essential element is delivered. The fair value of each undelivered element that is not essential to the functionality of the system is deferred until performance or delivery occurs. The fair value of an undelivered element is based on vendor specific objective evidence or third party evidence of fair value as appropriate. If an undelivered element exists, the Company will determine the fair value of the undelivered element and subtract the fair value of the undelivered element from the total consideration under the arrangement. The residual amount is the Company's estimate of the fair value of the delivered element. Costs associated with inconsequential or perfunctory elements in multiple element arrangements are accrued at the time of revenue recognition. The Company accounts for training and installation as a separate element of a multiple element arrangement. The Company therefore recognizes the fair value of training and installation services upon their completion when the Company is obligated to perform such services. For licensing agreements pursuant to which the Company receives up-front licensing fees for products or technologies that will be provided by the Company over the term of the arrangements, the Company defers the up-front fees and recognizes the fees as revenue on a straight-line method over the term of the respective contracts. 7 THERMOGENESIS CORP. Notes to Financial Statements (Cont'd) December 31, 2004 (Unaudited) Summary of Significant Accounting Policies (Cont'd) - --------------------------------------------------- Revenues from the sale of the Company's products are recognized upon transfer of title. The Company generally ships products F.O.B. shipping point at its office. There is no conditional evaluation on any product sold and recognized as revenue. All foreign sales are denominated in U.S. dollars. The Company's foreign sales are generally through distributors. There is no right of return provided for distributors. For sales of products made to distributors, the Company considers a number of factors in determining whether revenue is recognized upon transfer of title to the distributor, or when the distributor places the product with an end-user. These factors include, but are not limited to, whether the payment terms offered to the distributor are considered to be non-standard, the distributor history of adhering to the terms of its contractual arrangements with the Company, the level of inventories maintained by the distributor, whether the Company has a pattern of granting concessions for the benefit of the distributor, or whether there are other conditions that may indicate that the sale to the distributor is not substantive. The Company currently recognizes revenue on the sell-in method with its distributors. Shipping and handling fees billed to customers are included in product and other revenues, while the related costs are included in cost of product and other revenues. Service revenue which is included in net revenues, generated from contracts for providing maintenance of equipment is amortized over the life of the agreement. All other service revenue is recognized at the time the service is completed. Amounts billed in excess of revenue recognized are recorded as deferred revenue on the balance sheet. Inventories - ----------- Inventories consisted of the following at:
December 31, 2004 June 30, 2004 ----------------- ------------- Raw materials $1,607,000 $1,448,000 Work in process 884,000 769,000 Finished goods 1,123,000 755,000 Reserve (579,000) (502,000) ------------------ -------------- $3,035,000 $2,470,000 ================== ==============
Included in the Company's inventory reserve at December 31, 2004 and June 30, 2004 was $337,000 and $320,000, respectively, related to CryoSeal(R) FS System inventory products which is based on inventory levels in excess of current demand for the product. The remainder of the reserve relates to the BioArchive(R) System and ThermoLine(TM) inventory which have been identified as slow-moving or potentially obsolete. Warranty - -------- The Company offers a one-year warranty for parts only on all of its products. The Company estimates the costs that may be incurred under its basic limited warranty and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the Company's warranty liability include the number of installed units, historical and anticipated rates of warranty claims, and cost per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. 8 THERMOGENESIS CORP. Notes to Financial Statements (Cont'd) December 31, 2004 (Unaudited) Warranty (Cont'd) - ----------------- Changes in the Company's product liability during the period are as follows: July 1, 2004 balance $281,000 Warranties issued during the period 104,000 Settlements made during the period (64,000) Changes in liability for pre-existing warranties during the period, including expirations (69,000) --------- Balance at December 31, 2004 $252,000 ========= Stock-Based Compensation - ------------------------ The Company has adopted the disclosure provision for stock-based compensation of SFAS No. 123, "Accounting for Stock-Based Compensation" and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" which was released in December 2002 as an amendment of SFAS No. 123, 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". The Company uses the Black-Scholes option pricing model to determine the fair value of the equity instruments issued (which were determined to be more reliably measurable than the fair value of consideration received) using the stock price and other measurement assumptions as of the date a commitment for performance by the counterparty to earn the equity instrument was reached. The fair value of the equity instruments issued is recognized in the same period as if the Company had paid cash for the services. For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options' vesting periods. The Company's pro forma information is as follows:
Three Months Ended Six Months Ended December 31, December 31, 2004 2003 2004 2003 --------------- -------------- -------------- --------------- Net loss, as reported ($1,841,000) ($1,223,000) ($3,720,000) ($2,462,000) Add: stock-based employee compensation expense included in reported net loss, net of related tax effects 14,000 -- 84,000 -- Deduct: total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects (241,000) (149,000) (628,000) (262,000) --------------- -------------- -------------- --------------- Pro forma net loss ($2,068,000) ($1,372,000) ($4,264,000) ($2,724,000) =============== ============== ============== =============== Basic and diluted net loss per share As reported ($0.04) ($0.03) ($0.08) ($0.06) Pro Forma ($0.05) ($0.03) ($0.09) ($0.07)
9 THERMOGENESIS CORP. Notes to Financial Statements (Cont'd) December 31, 2004 (Unaudited) Recent Accounting Pronouncements - -------------------------------- On December 16, 2004, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 123 ("Statement 123(R)"), (revised 2004), "Share-Based Payment," which is a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation." Statement 123(R) supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and amends FASB Statement No. 95, "Statement of Cash Flows." Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Pro forma disclosure is no longer an alternative. Statement 123(R) must be adopted no later than July 1, 2005. We expect to adopt Statement 123(R) on July 1, 2005. The Company has not determined the method in which it will adopt Statement 123(R). As permitted by Statement 123, the Company currently accounts for share-based payments to employees using Opinion 25's intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)'s fair value method will have an impact on the Company's results of operations, although it will have no impact on the Company's overall cash position. The Company is currently evaluating the impact of the adoption of Statement 123(R). Subsequent Event - ---------------- On December 21, 2004, the Company issued a "Notice of Automatic Conversion" to the remaining Series A Preferred stockholders. Effective 20 days from receipt of the notice, each of the remaining shares of Series A Preferred Stock was converted into 5 shares of the Company's common stock. The Series A Certificate of Designation states that each share of Series A Preferred Stock shall, at the option of the Company, be automatically converted to five shares of the Company's common stock if the shares of common stock trade at or above $5 per share for 30 consecutive trading days. As of December 21, 2004, the Company's common stock traded at or above $5 per share for 30 consecutive trading days. In January 2005, there were 110,000 shares of Series A Preferred Stock outstanding, which were converted into 550,000 shares of common stock. 10 THERMOGENESIS CORP. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three and Six Months Ended December 31, 2004 and 2003 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Forward-Looking Statements - -------------------------- This report contains forward-looking statements which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. When used in this report, the words "anticipate," "believe," "estimate," "expect" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. The Company's actual results, performance or achievements could differ materially from the results expressed in, or implied by these forward-looking statements. The Company wishes to caution readers of the important factors, among others, that in some cases have affected, and in the future could affect the Company's actual results and could cause actual results for fiscal year 2005, and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. These factors include without limitation, the ability to obtain capital and other financing in the amounts and at the times needed to complete clinical trials and product marketing for new products, market acceptance of new products, regulatory approval and time frames for such approval of new products and new claims for existing products, realization of forecasted income and expenses, initiatives by competitors, price pressures, and the risk factors listed from time to time in the Company's SEC reports, including, in particular, the factors and discussion in the Company's Form 10-K for its last fiscal year. Introduction - ------------ The Company designs and manufactures medical devices and disposables used for the distributed manufacturing of biologic products such as concentrated stem cells from umbilical cord blood, fibrin sealant and thrombin from placental/cord blood, peripheral blood, blood plasma and other related blood products. Initially the Company developed its ThermoLine products for ultra rapid freezing and thawing of blood components, which the Company distributes to blood banks and hospitals. After extensive research and development, two new technology platforms (the BioArchive System and the CryoSeal System) have evolved products which provide specific blood components to patients in need. We believe our future continued growth will depend on our success in developing increased awareness of the therapeutic benefits of our existing and future products. Consequently, our research and development efforts are critical to the future growth and profitability of our Company. Beginning in late 1993, and with accelerated research and development efforts from 1996 to 1999, the Company completed development of the BioArchive and CryoSeal technology platforms, each of which will give rise to multiple medical products targeted at a number of different surgical and transplant indications. To achieve completion of these research projects, pursue regulatory clearance for the developed products and add experienced executive talent to launch the products required the consumption of considerable capital resources. Prior to the development of our BioArchive and CryoSeal products, our revenue was derived principally from the sale of our blood plasma freezers and thawers. With the launch of our BioArchive System, we have realized significant revenue increases due to the sale of that equipment and the recurring sale of disposables used in the BioArchive Systems worldwide. We anticipate similar revenue increases from disposable sales related to the CryoSeal System as the installed base of units increase; however, there is no assurance that this will occur. 11 THERMOGENESIS CORP. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three Months Ended September 30, 2004 and 2003 (Cont'd) Introduction (Cont'd) - --------------------- Our BioArchive Systems and related products are purchased predominantly by specialized cord blood stem cell banks. The sales in prior years were dependent on the very significant costs associated with starting up new stem cell banks as the science evolved. In more recent periods governmental funding and more clinical and public awareness of the therapeutic benefits from this stem cell treatment, have shortened the sales cycle and increased demand for our products. Consistent with the perception that governmental backing and funding will accelerate the demand for the products, the Company has incurred expenses to promote federal financing to increase the inventory of high quality cord blood units manufactured by a network of FDA-approved cord blood banks. Although legislation appropriating $10 million passed in January 2004 and additional authorizing legislation is pending, there is no certainty that the authorizing legislation will ultimately pass or that if it passes, it will result in a corresponding increase in our revenues due to cord blood banks who receive the funds deciding to purchase our BioArchive System. The Company's CryoSeal FS System produces autologous fibrin sealant from a single unit of human plasma. Our CryoSeal System is still in U.S. clinical trials, and there are no sales in the U.S. pending completion of the trial and the required FDA approval following pre-market application ("PMA") submission. The Company has received CE approval for the system enabling its sale and use in Europe, although sales into individual countries under cost reimbursement structures often requires some supporting clinical usage. We have, through our distribution partner in Europe, undertaken many of those clinical studies and, upon completion, will pursue a more aggressive marketing plan. In Japan, our distributor, Asahi Medical Co. Ltd., has recently completed enrollment in their pivotal clinical trials and is expected to file its PMA soon. In Canada, field trials are underway to provide a cost justification for federal reimbursement to hospitals that use the product. In Brazil, field trials have begun to establish training and demonstration with selected customers. Several similar field trials are at various stages throughout Europe. The Company's new product development efforts are focused on two products this year, the DAC System for semi-automated separation of blood into components and the Thrombin Processing Device ("TPD"). The TPD is a stand-alone disposable which produces autologous thrombin from approximately 11ml of the patient's plasma. Thrombin is used for topical hemostatis and releasing growth factors from platelets. The Company anticipates releasing the TPD in Europe in the fourth quarter of fiscal 2005, previously planned for the third quarter of fiscal 2005. In order to sell in the U.S., the Company requires FDA clearance which is being pursued. The DAC System is an innovative product which semi-automates the separation of whole blood. The System includes a compact battery powered device and a proprietary disposable bag set. We expect the DAC System disposable processing bag set to generate recurring revenues to the Company. Included in the set is a 25 ml freezing bag which can be archived in the BioArchive System. The Company anticipates beta site market launch in the third quarter of fiscal 2005 assuming no changes in regulatory requirements to market the device. 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. 12 THERMOGENESIS CORP. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three and Six Months Ended December 31, 2004 and 2003 (Cont'd) Critical Accounting Policies - ---------------------------- The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to bad debts, inventories, warranties, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its financial statements. Revenue Recognition: The Company recognizes revenue in accordance with the provisions of SAB No. 104 and EITF 00-21. For licensing arrangements pursuant to which the Company receives up-front licensing fees for products or technologies that will be provided by the Company over the term of the arrangements, the Company defers the upfront fees and recognizes the fees as revenue on a straight-line method over the term of the respective contracts. For sales of products made to distributors, the Company considers a number of factors in determining whether revenue is recognized upon transfer of title to the distributor, or when the distributor places the product with an end-user. These factors include, but are not limited to, whether the payment terms offered to the distributor are considered to be non-standard, the distributor's history of adhering to the terms of its contractual arrangements with the Company, the level of inventories maintained by the distributor, whether the Company has a pattern of granting concessions for the benefit of the distributor, or whether there are other conditions that may indicate that the sale to the distributor is not substantive. The Company currently recognizes revenue on the sell-in method with its distributors. Allowance for Doubtful Accounts: The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, which would be charged against earnings. Warranty: The Company provides for the estimated cost of product warranties at the time revenue is recognized. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of its component suppliers, the Company's warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from the Company's estimates, revisions to the estimated warranty liability would be required. 13 THERMOGENESIS CORP. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three Months Ended September 30, 2004 and 2003 (Cont'd) Critical Accounting Policies (Cont'd) - ------------------------------------- Inventory Reserve: The Company plans inventory procurement and production based on orders received, forecasted demand and supplier requirements. The Company writes down its inventories for estimated obsolescence or unmarketable inventories equal to the difference between the cost of inventories and its net realizable value based upon estimates about future demand from our customers and distributors and market conditions. Because some of the Company's products are highly dependent on government and third-party funding, current customer use and validation, and completion of regulatory and field trials, there is a risk that we will forecast incorrectly and purchase or produce excess inventory. As a result, actual demand may differ from forecasts, and such a difference may have a material adverse effect on future results of operations due to required write-offs of excess or obsolete inventory. This inventory risk may be further compounded for the CryoSeal family of products because they are at initial market introduction and market acceptance will depend upon the customer accepting the products as clinically useful, reliable, accurate and cost effective compared to existing and future products and completion of required clinical or field acceptance trials. Results of Operations - --------------------- Results of Operations for the Three Months Ended December, 31 2004 as Compared to the Three Months Ended December 31, 2003 Net Revenues: Revenues for the three months ended December 31, 2004 were $2,954,000 compared to $2,500,000 for the three months ended December 31, 2003, an increase of $454,000 or 18%. Revenues generated by the BioArchive product line were $2,123,000 for the three months ended December 31, 2004, compared to $1,595,000 for the corresponding fiscal 2004 period, an increase of $528,000 or 33%. There were seven BioArchive devices shipped in the second quarter of fiscal 2005 versus six in the second quarter of fiscal 2004. Included in the BioArchive product line revenues noted above was $695,000 generated from the sales of disposables for the second quarter of fiscal 2005, an increase of $237,000 or 52% over the prior year second quarter. Revenues generated by the CryoSeal product line for the three months ended December 31, 2004 were $125,000 versus $172,000 for the three months ended December 31, 2003, a decrease of $47,000. The decrease is due to disposable sales as the conversion of evaluation units to routine disposable usage has been slower than expected. The following represents the Company's cumulative BioArchive devices sold into the following geographies: December 31, 2004 2003 ---------- ----------- United States 21 17 Asia 40 31 Europe 24 20 Rest of World 19 8 ---------- ----------- 104 76 ========== =========== 14 THERMOGENESIS CORP. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three and Six Months Ended December 31, 2004 and 2003 (Cont'd) Results of Operations (cont'd) - ------------------------------ Cost of Revenues: Cost of revenues as a percent of revenues was 68% for the three months ended December 31, 2004, as compared to 68% for the corresponding fiscal 2004 period. The cost of revenues percentage is consistent primarily due to the volume increase of BioArchive disposables being offset by slightly higher costs for labor and materials. Selling, General and Administrative Expenses: Selling, general and administrative expenses were $1,452,000 for the three months ended December 31, 2004 compared to $1,285,000 for the fiscal 2004 period, an increase of $167,000 or 13%. The increase is primarily due to an increase in legal fees for new contracts and patent issues, year to year increases in salary and related benefits and sales and marketing consultants. Research and Development Expenses: Included in this line item are Engineering, Regulatory Affairs, Scientific and Clinical Affairs. Research and development expenses for the three months ended December 31, 2004 were $1,395,000 compared to $748,000 for the corresponding fiscal 2004 period, an increase of $647,000 or 86%. The increase is due to an increase in personnel, specifically, engineering and clinical affairs, including the new Vice President of Research and Development and design and development services for new product development of the DAC System. Personnel were added to our electrical, software and mechanical engineering staff to assure that ongoing product development efforts meet our Business Plan milestones. The costs associated with the CryoSeal FS human clinical trials increased to $366,000 for the quarter ended December 31, 2004 from $295,000 for the quarter ended December 31, 2003. Management believes that product development and refinement is essential to maintaining the Company's market position. Therefore, the Company considers these costs as continuing costs of doing business. No assurances can be given that the products or markets recently developed or under development will be successful. 15 THERMOGENESIS CORP. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three and Six Months Ended December 31, 2004 and 2003 (Cont'd) Results of Operations (cont'd) - ------------------------------ Results of Operations for the Six Months Ended December, 31 2004 as Compared to the Six Months Ended December 31, 2003 Net Revenues: Revenues for the six months ended December 31, 2004 were $5,351,000 compared to $4,643,000 for the fiscal 2004 period, an increase of $708,000 or 15%. BioArchive revenues were $3,743,000 for the six months ended December 31, 2004, compared to $3,001,000 for the corresponding fiscal 2004 period, an increase of $742,000 or 25%. There were 12 BioArchive devices shipped in the six months ended December 31, 2004. Eleven were recognized in revenue upon shipment and one is being accounted for as an operating lease. There were ten BioArchives recognized in revenue in the first six months of fiscal 2004. Included in the BioArchive product line revenues noted above was $1,389,000 generated from the sales of disposables for the first six months of fiscal 2005, an increase of $375,000 or 37% over the fiscal 2004 comparable period. Revenues generated by the CryoSeal product line for the six months ended December 31, 2004 were $231,000 versus $210,000 for the six months ended December 31, 2003. There were six devices sold in the six months ended December 31, 2004 versus three in the comparable prior year period. The six devices were sold to our distributor in Europe. Cost of Revenues: Cost of revenues as a percent of revenues was 68% for the six months ended December 31, 2004, as compared to 70% for the corresponding fiscal 2004 period. The decrease in the cost of revenues percentage is primarily due to the volume increase of BioArchive disposables. The volume increase in BioArchive disposables, specifically, canisters, increased the gross margin by approximately $100,000. Selling, General and Administrative Expenses: Selling, general and administrative expenses for the six months ended December 31, 2004 were $2,886,000 versus $2,421,000 for the corresponding fiscal 2004 period, an increase of $465,000 or 19%. The increase is due to additional positions in both accounting and the European sales force, salary increases from year to year and an increase in professional fees due to outside accounting and consulting fees in connection with the Sarbanes-Oxley Act of 2002 ("SOX"). Research and Development Expenses: Research and development expenses for the six months ended December 31, 2004 were $2,664,000 compared to $1,447,000 for the corresponding fiscal 2004 period, an increase of $1,217,000 or 84%. The increase is due to an increase in personnel, specifically, engineering and clinical affairs, including the new Vice President of Research and Development and design and development services for new product development of the DAC System. Personnel were added to our electrical, software and mechanical engineering staff to assure that ongoing product development efforts meet our Business Plan milestones. 16 THERMOGENESIS CORP. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three and Six Months Ended December 31, 2004 and 2003 (Cont'd) Liquidity and Capital Resources - ------------------------------- At December 31, 2004, the Company had a cash balance of $13,022,000, and working capital of $17,061,000. This compares to a cash balance of $16,612,000 and working capital of $19,798,000 at June 30, 2004. The cash was used to fund operations and other cash needs of the Company. This was offset by the exercise of stock options and warrants of $984,000. In addition to product revenues, we have primarily financed our operations through the private placement of equity securities. Since its inception, the Company has raised approximately $72.9 million, net of expenses, through common and preferred stock financings and option and warrant exercises. As of December 31, 2004, the Company has no off-balance sheet arrangements. Net cash used in operating activities for the six months ended December 31, 2004 was $4,441,000, primarily due to the net loss of $3,720,000. Accounts receivable generated $509,000 of cash as a due to collections of outstanding customer balances. Inventory utilized $710,000 of cash as a result of purchasing materials and building up inventory in order to ensure a more even manufacturing workload throughout the year. Accounts payable utilized $551,000 in cash due to payments to vendors for the CryoSeal clinical trials and the Enterprise Resource Planning ("ERP") system. Accrued liabilities utilized $243,000 of cash primarily due to the payment of commissions to distributors and a decrease in warranty reserves as the actual expenses incurred have been lower than historical expenses. At December 31, 2004, the Company has $1.8 million outstanding in cancelable orders to purchase inventory, supplies and services for use in normal business operations and no significant outstanding capital commitments. Additionally, the Company has a contract with an OEM vendor to purchase $8.7 million of inventory through fiscal 2009. Backlog - ------- The Company's cancelable backlog at December 31, 2004 was $630,000. 17 THERMOGENESIS CORP. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three and Six Months Ended December 31, 2004 and 2003 (Cont'd) Item 3. Quantitative and Qualitative Disclosures about Market Risk - ------------------------------------------------------------------ All sales, domestic and foreign, are made in U.S. dollars and therefore currency fluctuations are believed to have no impact on the Company's net revenues. The Company has no long-term debt or investments and therefore is not subject to interest rate risk. Item 4. Controls and Procedures - ------------------------------- The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer along with the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined by Exchange Act Rule 13a-15(e)) as of the end of our first fiscal quarter pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Company's Chief Executive Officer along with the Company's Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. During the second quarter of fiscal 2005, the Company implemented a new Enterprise Resource Planning (ERP) software system which includes an integrated general ledger, accounts receivable/payable, inventory and MRP modules. The new system was implemented to support the Company's future growth and assist in the SOX 404 compliance effort. 18 PART II - OTHER INFORMATION Item 1. Legal. In the normal course of operations, the Company may have disagreements or disputes with vendors or employees. These disputes are seen by the Company's management as a normal part of business, and there are no pending actions currently or no threatened actions that management believes would have a significant material impact on the Company's financial position, results of operations or cash flows. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None. Item 3. Defaults upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. Election of directors at the Annual Meeting of Stockholders held on December 13, 2004. All of management's nominees were elected to the board of directors. Proposal #1 Election of Directors For Withhold ---------------------- --- -------- Philip H. Coelho 31,512,006 6,497,189 George J. Barry 36,359,236 1,649,959 Hubert Huckel 36,346,707 1,662,488 Patrick McEnany 36,196,738 1,812,457 Kevin Simpson 31,341,520 6,667,675 Proposal #2 Approval of amendment to increase the number of shares available for grant under the 2002 Independent Directors Equity Incentive Plan by 100,000 shares. For Against Abstain --- -------- ------- 17,368,767 2,829,780 200,851 Item 5. Other Information. None. Item 6. Exhibits 31.1 Certification by the Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002. 19 THERMOGENESIS CORP. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THERMOGENESIS CORP. (Registrant) Dated: February 8, 2005 /s/ Philip H. Coelho -------------------------------------------- Philip H. Coelho Chief Executive Officer (Principal Executive Officer) /s/ Renee M. Ruecker -------------------------------------------- Renee M. Ruecker Chief Financial Officer (Principal Financial and Accounting Officer) 20 EX-31 2 exhibit311.txt Exhibit 31.1 PRINCIPAL EXECUTIVE OFFICER'S CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Philip H. Coelho, Chief Executive Officer for THERMOGENESIS CORP. certify that: 1. I have reviewed this quarterly report on Form 10-Q of THERMOGENESIS CORP.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others particularly during the period in which this report is being prepared; (b) omitted; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: February 8, 2005 /s/ Philip H. Coelho -------------------------------- Philip H. Coelho Chief Executive Officer (Principal Executive Officer) EX-31 3 exhibit312.txt Exhibit 31.2 PRINCIPAL FINANCIAL OFFICER'S CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Renee M. Ruecker, Chief Financial Officer for THERMOGENESIS CORP. certify that: 1. I have reviewed this quarterly report on Form 10-Q of THERMOGENESIS CORP.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others particularly during the period in which this report is being prepared; (b) omitted; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: February 8, 2005 /s/ Renee M. Ruecker -------------------------------------------- Renee M. Ruecker Chief Financial Officer (Principal Financial and Accounting Officer) EX-32 4 exhibit32.txt Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of ThermoGenesis Corp. (the "Company") on Form 10-Q for the period ended December 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Philip H. Coelho, Chief Executive Officer and Renee M. Ruecker, Chief Financial Officer, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of our knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: February 8, 2005 /s/ Philip H. Coelho -------------------------------------------- Philip H. Coelho, Chief Executive Officer (Principal Executive Officer) /s/ Renee M. Ruecker -------------------------------------------- Renee M. Ruecker, Chief Financial Officer (Principal Financial and Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----