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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, 2003.
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 officer, 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 Section13 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 [ ] No [X]
The number of shares of the registrant's common stock, $0.001 par value,
outstanding on February 2, 2004 was 41,680,058.
-------------------------------
THERMOGENESIS CORP.
INDEX
Page Number
Part I Financial Information -----------
Item 1. Financial Statements (Unaudited)
Balance Sheets at December 31, 2003 and June 30, 2003 ..............3
Statements of Operations for the Three and Six
Months ended December 31, 2003 and 2002 ..........................5
Statements of Cash Flows for the Three and Six Months
Ended December 31, 2003 and 2002 .................................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.........15
Item 4. Controls and Procedures............................................15
Part II Other Information
Item 1. Legal Proceedings..................................................16
Item 2. Changes in Securities..............................................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,
2003 2003
--------------------- ---------------------
ASSETS
Current Assets:
Cash and cash equivalents $8,265,000 $6,815,000
Accounts receivable, net of allowance for
doubtful accounts of $80,000
($80,000 at June 30, 2003) 2,080,000 2,014,000
Inventories 2,832,000 2,650,000
Other current assets 637,000 820,000
--------------------- ---------------------
Total current assets 13,814,000 12,299,000
Equipment, at cost less accumulated depreciation
of $2,297,000 ($2,599,000 at June 30, 2003) 792,000 442,000
Other assets 53,000 50,000
--------------------- ---------------------
$14,659,000 $12,791,000
===================== =====================
See accompanying notes to financial
statements.
THERMOGENESIS CORP.
Balance Sheets (Cont'd)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY December 31, June 30,
2003 2003
-------------------- -------------------
Current liabilities:
Accounts payable $1,164,000 $1,165,000
Accrued payroll and related expenses 244,000 235,000
Accrued liabilities 531,000 389,000
Deferred revenue 325,000 384,000
-------------------- -------------------
Total current liabilities 2,264,000 2,173,000
Long-term portion of capital lease obligations and note
payable 30,000 44,000
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, 126,000 outstanding
(158,000 outstanding at June 30, 2003) ($1,103,000
aggregate involuntary liquidation value at December
31, 2003) -- --
Common stock, $0.001 par value; 50,000,000
shares authorized; 41,484,262 issued and
outstanding (39,396,594 at June 30, 2003) 41,000 39,000
Paid in capital in excess of par 69,499,000 65,248,000
Accumulated deficit (57,175,000) (54,713,000)
-------------------- -------------------
Total stockholders' equity 12,365,000 10,574,000
-------------------- -------------------
$14,659,000 $12,791,000
==================== ===================
See accompanying notes to financial statements.
THERMOGENESIS CORP.
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2003 2002 2003 2002
---------------- ----------------- ----------------- ----------------
Net revenues $2,500,000 $2,350,000 $4,643,000 $4,403,000
Cost of revenues 1,698,000 1,938,000 3,252,000 3,635,000
---------------- ----------------- ----------------- ----------------
Gross profit 802,000 412,000 1,391,000 768,000
---------------- ----------------- ----------------- ----------------
Expenses:
Selling, general and administrative 1,285,000 1,185,000 2,421,000 2,369,000
Research and development 748,000 826,000 1,447,000 1,388,000
---------------- ----------------- ----------------- ----------------
Total operating expenses 2,033,000 2,011,000 3,868,000 3,757,000
Interest expense 3,000 4,000 12,000 7,000
Interest income 11,000 19,000 27,000 50,000
---------------- ----------------- ----------------- ----------------
Net loss ($1,223,000) ($1,584,000) ($2,462,000) ($2,946,000)
================ ================= ================= ================
Per share data:
Basic and diluted net loss per common
share ($0.03) ($0.04) ($0.06) ($0.08)
================ ================= ================= ================
Shares used in computing per share data 40,265,493 35,266,004 39,862,971 35,265,837
================ ================= ================= ================
See accompanying notes to financial statements.
THERMOGENESIS CORP.
Statements of Cash Flows
Six Months Ended December 31, 2003 and 2002
(Unaudited)
2003 2002
---------------- ----------------
Cash flows from operating activities:
Net loss ($2,462,000) ($2,946,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Non cash stock compensation expense 20,000 --
Depreciation and amortization 132,000 137,000
Loss on retirement of equipment 10,000 9,000
Net change in operating assets and liabilities:
Accounts receivable (66,000) 493,000
Inventories (182,000) (907,000)
Other current assets 183,000 (343,000)
Other assets (3,000) 10,000
Accounts payable (1,000) 384,000
Accrued payroll and related expenses 9,000 66,000
Deferred revenue (59,000) (42,000)
Accrued liabilities 140,000 (127,000)
---------------- ----------------
Net cash used in operating activities (2,279,000) (3,266,000)
---------------- ----------------
Cash flows from investing activities:
Capital expenditures (492,000) (42,000)
Maturities of short-term investments -- 2,013,000
---------------- ----------------
Net cash (used in) provided by investing activities (492,000) 1,971,000
---------------- ----------------
Cash flows from financing activities:
Payments on capital lease obligations and note payable (12,000) (8,000)
Exercise of stock options and warrants 4,233,000 40,000
---------------- ----------------
Net cash provided by financing activities 4,221,000 32,000
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 1,450,000 (1,263,000)
Cash and cash equivalents at beginning of period 6,815,000 4,713,000
---------------- ----------------
Cash and cash equivalents at end of period $8,265,000 $3,450,000
================ ================
Supplemental non-cash flow information:
Equipment acquired by note payable -- $36,000
================ ================
Surrender of stock to exercise options $656,000 --
================ ================
See accompanying notes to financial statements
THERMOGENESIS CORP.
Notes to Financial Statements
December 31, 2003
(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, 2003 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2004.
Summary of Significant Accounting Policies
- ------------------------------------------
The Company recognizes revenue including multiple element arrangements, in
accordance with the provisions of SAB No. 101 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. 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.
THERMOGENESIS CORP.
Notes to Financial Statements (Cont'd)
December 31, 2003
(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.
Recent Accounting Pronouncements
- --------------------------------
In November 2002, the EITF reached a consensus on Issue 00-21, "Revenue
Arrangements with Multiple Deliverables" ("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. EITF 00-21 was adopted on July 1,
2003 and had no impact on our financial statements.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150
(SFAS 150), "Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity". SFAS 150 requires certain financial instruments
that embody obligations of the issuer and have characteristics of both
liabilities and equity to be classified as liabilities. Many of these
instruments previously were classified as equity or temporary equity and as
such, SFAS 150 represents a significant change in practice in the accounting for
a number of mandatorily redeemable equity instruments and certain equity
derivatives that frequently are used in connection with share repurchase
programs. SFAS 150 was adopted as of July 1, 2003 and had no impact on our
financial statements.
THERMOGENESIS CORP.
Notes to Financial Statements (Cont'd)
December 31, 2003
(Unaudited)
Inventories
- -----------
Inventories consisted of the following at:
December 31, 2003 June 30, 2003
Raw materials $1,557,000 $1,612,000
Work in process 662,000 382,000
Finished goods 613,000 656,000
------------------------ ------------------
$2,832,000 $2,650,000
======================== ==================
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.
Changes in the Company's product liability during the period are as follows:
Balance at July 1, 2003 $193,000
Warranties issued during the period 99,000
Settlements made during the period (85,000)
Changes in liability for pre-existing
warranties during the period, including
expirations 20,000
---------
Balance at December 31, 2003 $227,000
=========
Stock-Based Compensation
- ------------------------
The Company has adopted the disclosure provision for stock-based compensation of
SFAS No. 123, "Accounting for Stock-Based Compensation", but continues to
account for such items using the intrinsic value method as outlined under
accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees".
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options. The Company's employee stock options have
characteristics significantly different from those of traded options such as
vesting restrictions and extremely limited transferability. In addition, the
assumptions used in option valuation models (see below) are highly subjective,
particularly the expected stock price volatility of the underlying stock.
Because changes in these subjective input assumptions can materially affect the
fair value estimates, in management's opinion, the existing models do not
provide a reliable single measure of the fair value of its employee stock
options.
THERMOGENESIS CORP.
Notes to Financial Statements (Cont'd)
December 31, 2003
(Unaudited)
Stock-Based Compensation (Cont'd)
- ---------------------------------
Three Months Ended Six Months Ended
December 31, December 31,
2003 2002 2003 2002
--------------- -------------- -------------- ---------------
Net loss, as reported ($1,223,000) ($1,584,000) ($2,462,000) ($2,946,000)
Add: stock-based employee
compensation expense included in
reported net income, net of related tax
effects -- -- -- --
Deduct: total stock-based employee
compensation expense determined
under fair value method for all awards,
net of related tax effects (149,000) (145,000) (262,000) (404,000)
--------------- -------------- -------------- ---------------
Pro forma net loss ($1,372,000) ($1,729,000) ($2,724,000) ($3,350,000)
=============== ============== ============== ===============
Basic and diluted net loss per share
As reported ($0.03) ($0.04) ($0.06) ($0.08)
Pro Forma ($0.03) ($0.05) ($0.07) ($0.10)
Related Party Transaction
- -------------------------
During the second quarter of fiscal 2004, the Company entered into an agreement
with Mediware Information Systems, Inc. (Mediware) to explore technical and
market requirements and terms and conditions for the joint development and
marketing of the industry's first fully integrated system to make personalized
cell therapy safer and more accessible. The Company had no expenses or revenues
associated with this agreement during the second quarter of fiscal 2004. The
Company's Chief Executive Officer is on the Board of Directors of Mediware and
Mediware's Chief Executive Officer is on the Board of Directors of the Company.
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ended December 31, 2003 and 2002
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 2004, 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.
Executive Overview
- ------------------
The Company designs and manufactures medical devices and disposables used for
the distributed manufacturing of biotherapeutic products such as concentrated
stem cells from umbilical cord blood, fibrin sealant and thrombin from blood
plasma and other related blood products. Initially the Company developed its
ThermoLine(TM) 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(R) System and the CryoSeal(R) System) have evolved products which
provide new biotherapeutic products to patients in need. We believe our future
continued growth will be predicated at large by the developing increased
therapeutic benefits and the corresponding market acceptance of our newer
products. We believe that our continuing research and development efforts are
also a key to maintaining our market share and future growth of our market share
where our products are sold and utilized.
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.
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ended December 31, 2003 and 2002 (Cont'd)
Executive Overview (Cont'd)
- ---------------------------
Prior to the development and market launch of our BioArchive and CryoSeal
technology, 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
more recently increases in revenue due to the recurring sale of disposables used
in the BioArchive that is commensurate with an ever increasing installed base of
BioArchive Systems worldwide. We anticipate similar revenue increases from
disposable sales related to the CryoSeal System when the installed base of units
increases.
Our BioArchive Systems and related products are purchased predominantly by
specialized cord blood stem cell banks. The sales in prior years were dependent
on start up and funding costs associated with new stem cell banks as the science
evolved. In more recent periods governmental funding and involvement, as well as
more recognized therapeutic benefits from this stem cell treatment, have
shortened the sales cycle and appears to be increasing demand. 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 when passed, 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.
Our CryoSeal System is still in U.S. clinical trials, and sales in the U.S. are
limited 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., is nearing completion of enrollment in their pivotal clinical trials and
is expected to file their PMA soon. In Canada, field trials are underway to
provide a cost justification for federal reimbursement to hospitals who 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.
A significant focus during the past year has been on decreasing manufacturing
costs and overhead to drive operations towards sustained profitability, while
also pursuing required improvements in our operations required for compliance
with new regulatory pronouncements, including the Sarbanes-Oxley Act and FDA
Quality System Regulations.
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, 2003 and 2002 (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.
Revenue Recognition:
The Company recognizes revenue in accordance with the provisions of SAB No. 101
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.
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ended December 31, 2003 and 2002 (Cont'd)
Critical Accounting Policies (Cont'd)
- -------------------------------------
Inventories Reserve:
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 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.
Results of Operations
- ---------------------
Results of Operations for the Three Months Ended December, 31 2003 as Compared
to the Three Months Ended December 31, 2002
Net Revenues:
Revenues for the three months ended December 31, 2003 were $2,500,000 compared
to $2,350,000 for the fiscal 2003 periods, an increase of $150,000 or 6%.
Revenues generated by the BioArchive product line were $1,595,000 for the three
months ended December 31, 2003, compared to $985,000 for the corresponding
fiscal 2003 period, an increase of $610,000 or 62%. The increase was primarily
generated from sales of both BioArchive devices and disposables. The increase in
device revenue is primarily due to the infusion of government funding for public
cord blood banking in Japan and Moscow and our strong distributor relationships
in those areas. Disposable sales continue to increase due to the growth of
private cord blood banking in Asia. Revenues generated by the CryoSeal product
line for the three months ended December 31, 2003 were $172,000 versus $111,000
for the three months ended December 31, 2002, an increase of 55%. The increase
in revenues is primarily due to the start of marketing activities in Russia,
Argentina and Brazil.
The following represents the Company's BioArchive devices sold into the
following countries:
December 31,
2003 2002
---------- -----------
United States 17 14
Asia 31 21
Europe 20 13
Rest of World 8 5
---------- -----------
76 53
========== ===========
Cost of Revenues:
Cost of revenues as a percent of revenues was 68% for the three months ended
December 31, 2003, as compared to 82% for the corresponding fiscal 2003 period.
The cost of revenues percentage decreased due to the mix of products sold and
the programs that were implemented in the fourth quarter of fiscal 2003 which
included reducing manufacturing overhead costs, consolidating operations into
one facility and discontinuing ThermoLine models with a low gross profit margin.
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ended December 31, 2003 and 2002 (Cont'd)
Results of Operations (cont'd)
- ------------------------------
Selling, General and Administrative Expenses:
Selling, general and administrative expenses were $1,285,000 for the three
months ended December 31, 2003 compared to $1,185,000 for the fiscal 2003
period, an increase of $100,000 or 8%. The increase is primarily due to
professional, legal fees and consultants related to the Sarbanes-Oxley
requirements. Management expects selling, general and administrative expenses to
continue to increase as the Company spends resources to ensure compliance with
Section 404 of the Sarbanes-Oxley Act by June 30, 2004.
Research and Development Expenses:
Research and development expenses for the three months ended December 31, 2003
were $748,000 compared to $826,000 for the corresponding fiscal 2003 period, a
decrease of $78,000 or 9%. The costs associated with the CryoSeal FS human
clinical trials decreased from $417,000 to $295,000 as we were enrolling sites
in the prior year and the initial start up costs associated with site enrollment
are higher than the costs of ongoing clinical trials.
Results of Operations for the Six Months Ended December, 31 2003 as Compared to
the Six Months Ended December 31, 2002
Net Revenues:
Revenues for the six months ended December 31, 2003 were $4,643,000 compared to
$4,403,000 for the fiscal 2003 period, an increase of $240,000 or 5%. BioArchive
revenues were $3,001,000 for the six months ended December 31, 2003, compared to
$1,978,000 for the corresponding fiscal 2003 period, an increase of $1,023,000
or 52%. The increase is due to the infusion of government funding in Japan and
Moscow and the growth of private cord blood banking in Asia. Revenues generated
by the CryoSeal product line for the six months ended December 31, 2003 were
$210,000 versus $362,000 for the six months ended December 31, 2002. The
decrease is due to the sales of four CryoSeal devices and the related
disposables during the first quarter of fiscal 2003, to our distributor in Japan
to initiate clinical trials. Also, we are experiencing lower than expected sales
coming out of Europe as our field clinical studies to earn reimbursement from
government health programs are not completed. We are working to accelerate
completion of the clinical studies in order to improve their sales penetration.
Cost of Revenues:
Cost of revenues as a percent of revenues was 70% for the six months ended
December 31, 2003, as compared to 83% for the corresponding fiscal 2003 period.
The cost of revenues percentage decreased due to the mix of products sold and
programs that were implemented in the fourth quarter of fiscal 2003 which
included reducing manufacturing overhead costs, consolidating operations into
one facility and discontinuing ThermoLine models with a low gross profit margin.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses remained relatively consistent year
to year, increasing only $52,000 or 2%. The increase in professional and
consulting fees associated with Sarbanes-Oxley was offset by a decrease in
professional fees from the comparable prior year period paid in connection with
the executive search for a new chief operating officer. As noted above,
management expects selling, general and administrative expenses to continue to
increase as the Company spends resources to ensure compliance with Section 404
of the Sarbanes-Oxley Act by June 30, 2004.
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ended December 31, 2003 (Cont'd)
Results of Operations (cont'd)
- ------------------------------
Research and Development Expenses:
Research and development expenses for the six months ended December 31, 2003
were $1,447,000 compared to $1,388,000 for the corresponding fiscal 2003 period,
an increase of $59,000 or 4%. The changes in research and development expenses
are primarily due to the costs associated with the CryoSeal FS human clinical
trials which were $621,000 for the six months ended December 31, 2003.
Liquidity and Capital Resources
At December 31, 2003, the Company had a cash balance of $8,265,000, and working
capital of $11,550,000. This compares to a cash balance of $6,815,000 and
working capital of $10,126,000 at June 30, 2003. There was $4,233,000 of cash
generated from the exercise of stock options and warrants during the six months
ended December 31, 2003. This was offset by the funding of 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 $61 million, net of
expenses, through common and preferred stock financings and option and warrant
exercises. As of December 31, 2003, the Company has no off-balance sheet
arrangements.
Net cash used in operating activities for the six months ended December 31, 2003
was $2,279,000, primarily due to the net loss of $2,462,000. Inventories
utilized $182,000 of cash as a result of building up BioArchive and ThermoLine
subassemblies to continue our revenue growth and smooth the manufacturing
workflow throughout the quarter. Expenditures for capital assets utilized
$492,000 of cash. The majority of the capital assets consisted of leasehold
improvements, furniture, phone and security systems as a result of moving to a
consolidated facility in the first quarter of fiscal 2004.
The report of independent auditors on the Company's June 30, 2003 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 2005. The plan includes the realization of revenues from the
commercialization of new products, 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, 2003, the Company has $1.3 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. There have been no purchases under this contract to date.
Backlog
The Company's cancelable backlog at December 31, 2003 was $2.5 million.
THERMOGENESIS CORP.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three and Six Months Ended December 31, 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.
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. The
following is the results of the votes at the Annual Meeting of
stockholders held December 15, 2003.
Proposal #1
Election of Directors For Withhold
--------------------- --- --------
Philip H. Coelho 29,232,536 161,085
George J. Barry 29,352,418 41,203
Hubert Huckel 28,998,818 394,803
Patrick McEnany 28,994,768 398,853
Kevin Simpson 29,227,086 166,535
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) 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.
(b) Reports on Form 8-K
None.
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 12, 2004
/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)