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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(b) of the Securities Exchange
Act of 1934 for the quarterly period ended December 31, 2002.
Commission File Number: 0-16375
ThermoGenesis Corp.
(Exact name of registrant as specified in its character)
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)
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 Exchange Act). Yes [ ] No [X]
The number of shares of the registrant's common stock, $0.001 par value,
outstanding on January 31, 2003 was 35,266,004.
_______________________________
THERMOGENESIS CORP.
INDEX
Page Number
-----------
Part I Financial Information
Item 1. Financial Statements (Unaudited):
Balance Sheets at December 31, 2002 and June 30, 2002 ................3
Statements of Operations for the Three and Six
Months ended December 31, 2002 and 2001 ............................5
Statements of Cash Flows for the Three and Six Months
Ended December 31, 2002 and 2001 ...................................6
Notes to Financial Statements ........................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .....................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
See Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 4. Controls and Procedures...............................................15
Part II Other Information
Item 1. Legal Proceedings ...................................................16
Item 2. Changes in Securities and Use of Proceeds............................16
Item 3. Default Upon Senior Securities ......................................16
Item 4. Submission of Matters to a Vote of Security Holders .................16
Item 5. Other Information ...................................................16
Item 6. Exhibits and Reports on Form 8-K ....................................16
Signatures ...................................................................17
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
THERMOGENESIS CORP.
Balance Sheets
(Unaudited)
December 31, June 30,
2002 2002
--------------------- ---------------------
ASSETS
Current Assets:
Cash and cash equivalents $3,450,000 $4,713,000
Short term investments -- 2,013,000
Accounts receivable, net of allowance for
doubtful accounts of $80,000
($84,000 at June 30, 2002) 1,423,000 1,916,000
Inventory 3,742,000 2,887,000
Other current assets 458,000 115,000
--------------------- ---------------------
Total current assets 9,073,000 11,644,000
Equipment, at cost less accumulated depreciation
of $2,471,000 ($2,389,000 at June 30, 2002) 521,000 537,000
Other assets 48,000 58,000
--------------------- ---------------------
$9,642,000 $12,239,000
===================== =====================
See accompanying notes to financial statements.
THERMOGENESIS CORP.
Balance Sheets (Cont'd)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, June 30,
2002 2002
-------------------- -------------------
Current liabilities:
Accounts payable $1,379,000 $995,000
Accrued payroll and related expenses 270,000 204,000
Deferred revenue 394,000 436,000
Accrued liabilities 257,000 378,000
-------------------- -------------------
Total current liabilities 2,300,000 2,013,000
Long-term obligations 55,000 33,000
Commitments and contingencies -- --
Stockholders' equity:
Series A convertible preferred stock, $0.001 par
value, 1,200,000 shares authorized; 158,000
issued and outstanding (158,000 at June 30,
2002)($1,303,500 aggregate involuntary
liquidation value at December 31, 2002) -- --
Preferred stock, $0.001 par value; 800,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $0.001 par value; 50,000,000
shares authorized; 35,266,004 issued and
outstanding (35,230,254 at June 30, 2002) 35,000 35,000
Paid in capital in excess of par 59,308,000 59,268,000
Accumulated deficit (52,056,000) (49,110,000)
-------------------- -------------------
Total stockholders' equity 7,287,000 10,193,000
-------------------- -------------------
$9,642,000 $12,239,000
==================== ===================
See accompanying notes to financial statements.
THERMOGENESIS CORP.
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2002 2001 2002 2001
---------------- ----------------- ----------------- ----------------
Net revenues $2,350,000 $2,467,000 $4,403,000 $3,984,000
Cost of revenues 1,938,000 1,841,000 3,635,000 3,110,000
---------------- ----------------- ----------------- ----------------
Gross profit 412,000 626,000 768,000 874,000
---------------- ----------------- ----------------- ----------------
Expenses:
Selling, general and administrative 1,185,000 1,156,000 2,369,000 2,249,000
Research and development 826,000 455,000 1,388,000 1,056,000
---------------- ----------------- ----------------- ----------------
Total expenses 2,011,000 1,611,000 3,757,000 3,305,000
Interest expense 4,000 3,000 7,000 6,000
Interest income 19,000 33,000 50,000 69,000
---------------- ----------------- ----------------- ----------------
Net loss ($1,584,000) ($955,000) ($2,946,000) ($2,368,000)
================ ================= ================= ================
Per share data:
Basic and diluted net loss per common
share ($0.04) ($0.03) ($0.08) ($0.07)
================ ================= ================= ================
Shares used in computing per share data 35,266,004 31,606,436 35,265,837 31,704,492
================ ================= ================= ================
See accompanying notes to financial statements.
THERMOGENESIS CORP.
Statements of Cash Flows
Six Months Ended December 31, 2002 and 2001
(Unaudited)
2002 2001
------------------- -------------------
Cash flows from operating activities:
Net loss ($2,946,000) ($2,368,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 137,000 233,000
Loss on retirement of equipment 9,000 --
Net change in operating assets and liabilities:
Accounts receivable 493,000 (51,000)
Inventory (907,000) (1,249,000)
Other current assets (343,000) (127,000)
Other assets 10,000 1,000
Accounts payable 384,000 198,000
Accrued payroll and related expenses 66,000 25,000
Deferred revenue (42,000) (206,000)
Accrued liabilities (127,000) 515,000
------------------- -------------------
Net cash used in operating activities (3,266,000) (3,029,000)
------------------- -------------------
Cash flows from investing activities:
Capital expenditures (42,000) (93,000)
Maturities of short-term investments 2,013,000 1,822,000
------------------- -------------------
Net cash provided by investing activities 1,971,000 1,729,000
------------------- -------------------
Cash flows from financing activities:
Payments on capital lease obligations (8,000) (6,000)
Exercise of stock options 40,000 13,000
------------------- -------------------
Net cash provided by financing activities 32,000 7,000
------------------- -------------------
Net decrease in cash and cash equivalents (1,263,000) (1,293,000)
Cash and cash equivalents at beginning of period 4,713,000 3,544,000
------------------- -------------------
Cash and cash equivalents at end of period $3,450,000 $2,251,000
=================== ===================
Supplemental non-cash flow information:
Equipment acquired by note payable $36,000 --
=================== ===================
Cancellation of stockholder note receivable -- $425,000
=================== ===================
See accompanying notes to financial statements
THERMOGENESIS CORP.
Notes to Financial Statements
December 31, 2002
(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, 2002 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 2003.
Summary of Significant Accounting Policies
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin ("SAB") No.
101, "Revenue Recognition in Financial Statements," and effective July 1, 2000,
the Company changed its method of accounting for revenue recognition for
BioArchive (registered trademark) Systems and certain licensing agreements.
Previously, the Company recognized revenue for BioArchive units upon the
delivery of the equipment to the customers. The costs of training and
installation were accrued in the same period the installation and training was
performed and the related training and installation revenue was recognized.
Under the new accounting method for BioArchive Systems adopted retroactive to
July 1, 2000, the Company now recognizes revenue for BioArchive Systems for
which the Company is responsible for the installation and training upon
completion of training and installation of the equipment at the end-user's site.
If a third party vendor is responsible for the installation and training and the
Company has no further obligations to the customer, the Company recognizes the
revenue for the BioArchive device upon transfer of title. Previously, the
Company recognized revenue for licensing agreements when payment was received
and the Company performed all services required under the agreements. Under the
new accounting method which was adopted retroactive to July 1, 2000 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 now defers the up-front fees and
recognizes the fees as revenue on a straight-line method over the term of the
respective contracts. The cumulative effect of the change on prior years
resulted in an increase in the net loss of $282,000 (net of income taxes of $0),
which is included in the net loss before the cumulative effect of a change in
accounting principle for the year ended June 30, 2001, and $13,000 has been
included in deferred revenue as of June 30, 2001. The $282,000 is comprised of
revenues of $664,000 less cost of revenues of $382,000. The effect of the change
on the year ended June 30, 2001 was to decrease the net loss before the
cumulative effect of the accounting change by $179,000 ($0.01 per share). The
$179,000 is comprised of revenues of $272,000 less cost of revenues of $93,000.
For the three months ended December 31, 2002 and 2001, the Company recognized $0
and $138,000 respectively, in revenue that was included in the cumulative effect
adjustment as of July 1, 2000. The effect of that revenue and related cost of
revenue of $0 and $125,000 was to reduce the net loss by $0 and $13,000 during
those periods, respectively. For the six months ended December 31, 2002 and 2001
the Company recognized $0 and $138,000 respectively, in revenue that was
included in the cumulative effect adjustment as of July 1, 2000. The effect of
that revenue and related cost of revenue of $0 and $125,000 was to reduce the
net loss by $0 and $13,000 during those periods, respectively.
THERMOGENESIS CORP.
Notes to Financial Statements (Cont'd)
December 31, 2002
(Unaudited)
Summary of Significant Accounting Policies (Cont'd)
Revenues from the sale of the Company's CryoSeal FS (registered trademark)
System and ThermoLine (trademark) products to end-users 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 CryoSeal, BioArchive and
ThermoLine 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 inventory 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. 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 is generally generated from
contracts for providing maintenance of equipment. Service revenue is recognized
at the time the service is completed.
Recent Accounting Pronouncements
On June 29, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS"), SFAS No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 eliminates the pooling-of-interests method of accounting for business
combinations. Under SFAS No. 142, goodwill and indefinite lived intangible
assets are no longer amortized but are reviewed annually, or more frequently if
impairment indicators arise, for impairment. Intangible assets whose lives are
not indefinite are amortized over their useful lives, and reviewed for
impairment in accordance with SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-lived Assets to be Disposed of". SFAS No. 141 was
adopted as of July 1, 2001 and had no impact on our financial statements. SFAS
No. 142 was adopted as of July 1, 2002 and had no impact on our financial
statements.
In October 2001, the FASB issued SFAS No. 144 on "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS No. 121. The
primary objectives of SFAS No. 144 are to develop one accounting model based on
the framework established in SFAS No. 121 for long-lived assets to be disposed
of by sale, and to address significant implementation issues. SFAS No. 144 was
adopted on July 1, 2002 and had no impact on our financial statements.
THERMOGENESIS CORP.
Notes to Financial Statements (Cont'd)
December 31, 2002
(Unaudited)
Recent Accounting Pronouncements (Cont'd)
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB No. 4, 44 and
64, Amendment of FASB No. 13 and Technical Corrections". SFAS No. 145 updates,
clarifies and simplifies existing accounting pronouncements. SFAS No. 145
rescinds SFAS No. 4, which required all gains and losses from extinguishment of
debt to be aggregated and, if material, classified as an extraordinary item, net
of related income tax effect. As a result, the criteria in Accounting Principles
Board Opinion No. 30 will now be used to classify those gains and losses because
SFAS No. 4 has been rescinded. SFAS 145 amends SFAS No. 13 to require that
certain lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback transactions.
This amendment is consistent with the FASB's goal of requiring similar
accounting treatment for transactions that have similar economic effects. SFAS
No. 145 also makes technical corrections to existing pronouncements. While those
corrections are not substantive in nature, in some instances, they may change
accounting practice. The Company adopted the provisions of SFAS 145 for fiscal
2003, which did not result in a material impact to financial position, cash
flows or results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)" ("Issue 94-3").
The principal difference between SFAS No. 146 and Issue 94-3 relates to SFAS No.
146's requirements for recognition of a liability for a cost associated with an
exit or disposal activity. SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost as generally defined in
Issue 94-3 was recognized at the date of an entity's commitment to an exit plan.
A fundamental conclusion reached by the FASB in SFAS No. 146 is that an entity's
commitment to a plan, by itself, does not create an obligation that meets the
definition of a liability. Therefore, SFAS No. 146 eliminates the definition and
requirements for recognition of exit costs in Issue 94-3. SFAS No. 146 also
establishes that fair value is the objective for initial measurement of the
liability. The provisions of SFAS No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does not
expect the adoption of SFAS No. 146 will have a material impact on financial
position, cash flows or results of operations.
In November 2002, the EITF reached a consensus on Issue 00-21,
"Multiple-Deliverable Revenue Arrangements" ("EITF 00-21"). EITF 00-21 addresses
how to account for arrangements that may involve the delivery or performance of
multiple products, services, and/or rights to use assets. The consensus mandates
how to identify whether goods or services or both that are to be delivered
separately in a bundled sales arrangement should be accounted for separately
because they are "separate units of accounting." The guidance can affect the
timing of revenue recognition for such arrangements, even though it does not
change rules governing the timing or pattern of revenue recognition of
individual items accounted for separately. The final consensus will be
applicable to agreements entered into in fiscal years beginning after June 15,
2003 with early adoption permitted. Additionally, companies will be permitted to
apply the consensus guidance to all existing arrangements as the cumulative
effect of a change in accounting principle in accordance with APB Opinion No.
20, Accounting Changes. We are assessing, but at this point do not believe the
adoption of EITF 00-21 will have a material impact on the Company's financial
position, cash flows or results of operations.
THERMOGENESIS CORP.
Notes to Financial Statements (Cont'd)
December 31, 2002
(Unaudited)
Recent Accounting Pronouncements (Cont'd)
In November 2002, the FASB issued Interpretation Number 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are effective for
interim and annual periods after December 15, 2002 and the Company has adopted
those requirements for the financial statements included in this Form 10-Q. The
initial recognition and initial measurement requirements of FIN 45 are effective
prospectively for guarantees issued or modified after December 31, 2002. The
Company is assessing, but at this point do not believe the adoption of the
recognition and initial measurement requirements of FIN 45 will have a material
impact on financial position, cash flows or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure. SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. SFAS No. 148 also amends the disclosure
requirements of SFAS No. 123 to require more prominent and frequent disclosures
in financial statements about the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of SFAS No. 148 are
effective for financial statements issued for fiscal years ending after December
15, 2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. Adoption of SFAS No. 148 is not expected to materially impact our
financial statements.
Inventory
Inventory consisted of the following at:
December 31, 2002 June 30, 2002
------------------------ ------------------
Raw materials $1,903,000 $1,456,000
Work in process 640,000 765,000
Finished goods 1,199,000 666,000
------------------------ ------------------
$3,742,000 $2,887,000
======================== ==================
THERMOGENESIS CORP.
Notes to Financial Statements (Cont'd)
December 31, 2002
(Unaudited)
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. Additionally, the Company sells extended
warranties on its BioArchive and freezers. The customer pays for the extended
warranty at the beginning of the contract period and the resulting liability is
included in deferred revenue. The Company periodically assesses the adequacy of
its recorded warranty liabilities and adjusts the amounts as necessary.
Changes in the Company's product liability during the period are as follows:
July 1, 2002 balance $267,000
Warranties issued during the period 149,000
Settlements made during the period (145,000)
Changes in liability for pre-existing warranties during
the period, including expirations (61,000)
------------
December 31, 2002 balance $210,000
============
Related Party Transactions
During the three and six months ended December 31, 2002, the Company paid a
board member $30,000 and $73,000 respectively, for consulting services related
to the Company's strategic initiatives.
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ended December 31, 2002 and 2001
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 2003, 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 biotherapeutic products such as concentrated
mononuclear cells from umbilical cord blood, fibrin sealant and thrombin from
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 new
biotherapeutic products to patients in need.
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 and add experienced executive
talent to launch the products and move the Company to new levels of growth and
revenues, considerable capital resources were used.
The 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.
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ended December 31, 2002 and 2001 (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
judgements and estimates, including those related to revenue recognition, 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. The Company recognizes revenue for BioArchive Systems upon transfer
of title if we are not responsible for training and installation services,
otherwise, we recognize revenue upon completion of training and installation of
the equipment at the end-user's site. 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
CryoSeal, BioArchive and ThermoLine 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 inventory 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 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. 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. The Company writes down its inventory for
estimated obsolescence or unmarketable inventory equal to the difference between
the cost of inventory and the estimated market value based upon assumptions
about future demand and market conditions. If actual market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ended December 31, 2002 (Cont'd)
Results of Operations
- ---------------------
Net Revenues:
Revenues for the three and six months ended December 31, 2002 were $2,350,000
and $4,403,000, compared to $2,467,000 and $3,984,000 for the fiscal 2002
periods, a decrease of $117,000 or 5% and an increase of $419,000 or 11%,
respectively. BioArchive revenues were $985,000 and $1,978,000 for the three and
six months ended December 31, 2002, compared to $962,000 and $1,687,000 for the
corresponding fiscal 2002 periods, an increase of $23,000 or 2% and $291,000 or
17%, respectively. The increase in BioArchive revenue is primarily due to
disposables sold to existing customers due to the increased demand from private
and public cord blood banks in Asia. Revenues generated by the CryoSeal product
line for the three and six months ended December 31, 2002 were $111,000 and
$362,000 versus $24,000 for the three and six months ended December 31, 2001.
Cost of Revenues:
Cost of revenues as a percent of revenues was 82% and 83% for the three and six
months ended December 31, 2002, as compared to 75% and 78% for the corresponding
fiscal 2002 periods. The cost of revenues percentage increased primarily due to
the significant overhead costs associated with building and maintaining an
infrastructure that is required to meet FDA regulatory requirements and
standards for productions of Class II medical devices and the mix of products
sold.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses were $1,185,000 and $2,369,000 for
the three and six months ended December 31, 2002 compared to $1,156,000 and
$2,249,000 for the fiscal 2002 periods, an increase of $29,000 or 3% and
$120,000 or 5%, respectively. The increases were primarily the result of
professional fees paid in connection with the executive search for a new
President and Chief Operating Officer and additional travel expenses.
Research and Development Expenses:
Research and development expenses for the three and six months ended December
31, 2002 were $826,000 and $1,388,000 compared to $455,000 and $1,056,000 for
the corresponding fiscal 2002 periods, an increase of 82% and 31% respectively.
The increase is primarily due to the costs associated with the CryoSeal FS human
clinical trials.
Liquidity and Capital Resources
Our cash balance at December 31, 2002 was $3,450,000, a decrease of $1,263,000
from the balance at June 30, 2002. Additionally, the short-term investment
balance has decreased $2,013,000 since June 30, 2002. The cash and short-term
investments were used to fund operations and other cash needs of the Company. 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 $51 million, net of expenses, through common and preferred
stock financings and option and warrant exercises. As of December 31, 2002, the
Company has no off-balance sheet arrangements.
Net cash used in operating activities for the six months ended December 31, 2002
was $3,266,000, primarily due to the net loss of $2,946,000. Inventory utilized
$907,000 of cash as a result of purchasing materials for the BioArchive System
and CryoSeal disposables to continue our revenue growth and ensure that we fill
our customer orders on a timely basis. Other current assets utilized $343,000 of
cash primarily due to a $385,000 prepayment to a Clinical Research Organization
(CRO) for services with respect to the Company's CryoSeal FS human clinical
trials.
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ended December 31, 2002 (Cont'd)
Liquidity and Capital Resources (Cont'd)
- ----------------------------------------
The report of independent auditors on the Company's June 30, 2002 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 2003. The plan includes the realization of revenues from the
commercialization of new products, the consummation of debt or equity financings
and the reduction of certain operating expenses as required. 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. There is no assurance that the Company will be
able to achieve additional financing or that such events will be on terms
favorable to the Company.
At December 31, 2002, the Company has $900,000 outstanding in cancelable orders
to purchase inventory, supplies and services for use in normal business
operations and no significant outstanding capital commitments.
Backlog
- -------
The Company's cancelable backlog at December 31, 2002 was $580,000.
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
- -------------------------------
Within the 90 days prior to the date of this Form 10-Q, 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 pursuant to
Exchange Act Rule 13a-14. 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 timely
alerting them to material information relating to the Company required to be
included in this Form 10-Q.
There have been no significant changes in the Company's internal controls or in
other factors which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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. Changes in Securities and Use of Proceeds.
None.
Item 3. Default Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
All nominees were elected to the board of directors and all
resolutions passed. The following is the results of the votes at
the Annual Meeting of stockholders held January 30, 2003.
Proposal #1
Election of Directors For Withhold
--------------------- --- --------
Philip H. Coelho 23,837,292 61,333
George J. Barry 23,832,592 66,033
Edward Cape 23,833,592 65,033
David Howell 23,833,192 65,433
Hubert Huckel 23,808,592 90,033
Patrick McEnany 23,450,764 447,861
Proposal #2 Approval of amendment to the 1998 Equity Incentive Plan to add
an additional 1,000,000 shares of common stock underlying that
plan.
For Withhold Abstain
21,749,280 2,010,515 138,830
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Employment Agreement with Kevin Simpson
99.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K - None.
THERMOGENESIS CORP.
Signatures
In accordance with 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 11, 2003
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)
CERTIFICATION
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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: February 11, 2003 s/Philip H. Coelho
-----------------------------
Philip H. Coelho
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION
I, Renee 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: February 11, 2003 s/Renee M. Ruecker
--------------------------------------------
Renee M. Ruecker
Chief Financial Officer
(Principal Financial and Accounting Officer)