UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2005.
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 [ ]
Indicate by check mark whether the registrant is a shell company (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 October 26, 2005 was 45,931,692.
ThermoGenesis Corp.
INDEX
Explanatory Note ............................................................3
Part I Financial Information
Item 1. Financial Statements ...............................................4
Signatures .................................................................16
Exhibits
Exhibit 31.1
Exhibit 31.2
Exhibit 32
Page 2
EXPLANATORY NOTE
This amended quarterly report on Form 10-Q/A is being filed to amend
Exhibit 31.1 and Exhibit 31.2 of the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 2005. No other modifications have been made to
any other portion of the Company's Form 10-Q as originally filed. This amendment
to our Form 10-Q does not reflect events occurring after the original filing of
the Form 10-Q or modify or update those disclosures affected by subsequent
events.
Page 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
----------------------------
ThermoGenesis Corp.
Condensed Balance Sheets (Unaudited)
ASSETS September 30, June 30,
(in thousands) 2005 2005
---------------------- ---------------------
Current Assets:
Cash and cash equivalents $8,121 $9,568
Accounts receivable, net of allowance for
doubtful accounts of $35 ($41 at June 30, 2005) 2,225 2,917
Inventories 3,135 3,280
Other current assets 367 469
---------------------- ---------------------
Total current assets 13,848 16,234
Equipment, at cost less accumulated depreciation
of $2,738 ($2,671 at June 30, 2005) 1,196 1,184
Other assets 48 48
---------------------- ---------------------
$15,092 $17,466
====================== =====================
See accompanying notes to financial statements.
Page 4
ThermoGenesis Corp.
Condensed Balance Sheets (Unaudited) (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY September 30, June 30,
(in thousands, except share and per share amounts) 2005 2005
-------------------- -------------------
Current liabilities:
Accounts payable $1,167 $1,791
Accrued payroll and related expenses 244 343
Accrued liabilities 650 740
Deferred revenue 280 275
-------------------- -------------------
Total current liabilities 2,341 3,149
Long-term portion of capital lease obligations and note
payable 128 45
Deferred revenue 206 241
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares
authorized, none issued -- --
Common stock, $0.001 par value; 50,000,000
shares authorized; 45,929,944 issued and
outstanding (45,860,237 at June 30, 2005) 46 46
Paid in capital in excess of par 82,097 81,752
Deferred stock compensation -- (57)
Accumulated deficit (69,726) (67,710)
-------------------- -------------------
Total stockholders' equity 12,417 14,031
-------------------- -------------------
$15,092 $17,466
==================== ===================
See accompanying notes to financial statements.
Page 5
ThermoGenesis Corp.
Condensed Statements of Operations (Unaudited)
Three Months Ended
(in thousands, except share and per share amounts) September 30,
2005 2004
----------------- ----------------
Net revenues $2,116 $2,397
Cost of revenues 1,529 1,617
----------------- ----------------
Gross profit 587 780
----------------- ----------------
Expenses:
Selling, general and administrative 1,584 1,434
Research and development 1,073 1,269
----------------- ----------------
Total operating expenses 2,657 2,703
Interest and other income, net 54 44
----------------- ----------------
Net loss ($2,016) ($1,879)
================= ================
Per share data:
Basic and diluted net loss per common share ($0.04) ($0.04)
================= ================
Shares used in computing per share data 45,917,502 44,923,844
================= ================
See accompanying notes to financial statements.
Page 6
ThermoGenesis Corp.
Condensed Statements of Cash Flows (Unaudited)
Three Months Ended September 30, 2005 and 2004
(in thousands) 2005 2004
---------------- ----------------
Cash flows from operating activities:
Net loss ($2,016) ($1,879)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 93 78
Stock based compensation expense 231 80
Net change in operating assets and liabilities:
Accounts receivable 692 850
Inventories 186 (543)
Other current assets 102 25
Other assets -- (1)
Accounts payable (624) (301)
Accrued payroll and related expenses (99) (69)
Accrued liabilities (77) (283)
Deferred revenue (30) (16)
---------------- -- ----------------
Net cash used in operating activities (1,542) (2,059)
---------------- ----------------
Cash flows from investing activities:
Capital expenditures (40) (53)
---------------- ----------------
Net cash used in investing activities (40) (53)
---------------- ----------------
Cash flows from financing activities:
Payments on capital lease obligations and note payable (36) (3)
Exercise of stock options and warrants 171 464
---------------- ----------------
Net cash provided by financing activities 135 461
---------------- ----------------
Net decrease in cash and cash equivalents (1,447) (1,651)
Cash and cash equivalents at beginning of period 9,568 16,612
---------------- ----------------
Cash and cash equivalents at end of period $8,121 $14,961
================ ================
Supplemental non-cash flow information:
Equipment acquired by capital lease $106 --
================ ================
Transfer of inventory to equipment $22 $123
================ ================
Transfer of equipment to inventory $63 --
================ ================
See accompanying notes to financial statements
Page 7
ThermoGenesis Corp.
Notes to Condensed Financial Statements (Unaudited)
Interim Reporting
-----------------
The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
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 ThermoGenesis Corp's (the "Company") 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
three month period ended September 30, 2005 are not necessarily indicative of
the results that may be expected for the year ending June 30, 2006.
The balance sheet at June 30, 2005, 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
------------------------------------------
Revenue
The Company recognizes revenue including multiple element arrangements, in
accordance with the provisions of Staff Accounting Bulletin ("SAB") No. 104 and
Emerging Issues Task Force ("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 basis over the term of the respective license.
Page 8
ThermoGenesis Corp.
Notes to Condensed Financial Statements (Unaudited) (Continued)
Summary of Significant Accounting Policies (Continued)
------------------------------------------------------
Revenue (Continued)
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. 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:
(in thousands) September 30, 2005 June 30, 2005
------------------ -------------
Raw materials $1,439 $1,433
Work in process 1,678 1,723
Finished goods 662 756
Reserve (644) (632)
------------------ ------------------
$3,135 $3,280
================== ==================
Included in the Company's inventory reserve at September 30, 2005 and June 30,
2005 was $448,000 and $431,000, 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 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.
Page 9
ThermoGenesis Corp.
Notes to Condensed Financial Statements (Unaudited) (Continued)
Summary of Significant Accounting Policies (Continued)
-----------------------------------------------------
Warranty (Continued)
Changes in the Company's product liability during the period are as follows:
(in thousands)
July 1, 2005 balance $103
Warranties issued during the period 20
Settlements made during the period (7)
Changes in liability for pre-existing warranties during
the period, including expirations (22)
-------------
Balance at September 30, 2005 $94
=============
Stock-Based Compensation
Stock Plans
-----------
The 2002 Independent Directors Equity Incentive Plan ("2002 Plan") permits the
grant of stock or options to independent directors. A total of 350,000 shares
were approved by the stockholders for issuance under the 2002 Plan. Options are
granted at prices which are equal to 100% of the fair market value on the date
of grant, and expire over a term not to exceed ten years. Options generally vest
immediately, unless otherwise determined by the Board of Directors.
The Amended 1994 Stock Option Plan ("1994 Plan") permits the grant of stock or
options to employees, directors and consultants. A total of 1,450,000 shares
were approved by the stockholders for issuance under the 1994 Plan. Options are
granted at prices that are equal to 100% of the fair market value on the date of
grant, and expire over a term not to exceed ten years. Options generally vest
ratably over a five-year period, unless otherwise determined by the Board of
Directors. The 1994 Plan, but not the options granted, expired in October 2004.
The Amended 1998 Stock Option Plan ("1998 Plan") permits the grant of stock or
options to employees, directors and consultants. A total of 3,798,000 shares
were approved by the stockholders for issuance under the 1998 Plan. Options are
granted at prices that are equal to 100% of the fair market value on the date of
grant, and expire over a term not to exceed ten years. Options generally vest
ratably over three to five years, unless otherwise determined by the Board of
Directors.
Page 10
ThermoGenesis Corp.
Notes to Condensed Financial Statements (Unaudited) (Continued)
Stock-Based Compensation (Continued)
Adoption of FAS 123(R)
----------------------
Prior to July 1, 2005, the Company accounted for those plans under the
recognition and measurement provisions of Accounting Principals Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations, as permitted by Financial Accounting Standards Board ("FASB")
Statement No. 123, Accounting for Stock-Based Compensation. No stock-based
employee compensation cost was recognized for options granted in the Statement
of Operations for the three months ended September 30, 2004, as all options
granted under those plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. Effective July 1, 2005, the
Company adopted the fair value recognition provisions of FASB Statement No.
123(R), Share-Based Payment, using the modified-prospective-transition method.
Under that transition method, compensation cost recognized in fiscal year 2006
includes: (a) compensation cost for all share-based payments granted prior to,
but not yet vested as of July 1, 2005, based on the grant date fair value
estimated in accordance with the original provisions of Statement 123, and (b)
compensation cost for all share-based payments granted subsequent to July 1,
2005, based on the grant-date fair value estimated in accordance with the
provisions of Statement 123(R); However, no share-based awards were granted
during the first quarter of fiscal year 2006. Results for prior periods have not
been restated.
As a result of adopting Statement 123(R) on July 1, 2005, the Company's net loss
for the three months ended September 30, 2005, was $195,000 lower than if it had
continued to account for share-based compensation under Opinion 25. Basic and
diluted loss per share for the three months ended September 30, 2005 had the
Company not adopted Statement 123(R) remained unchanged as compared to reported
basic and diluted loss per share of $0.04.
Determining Fair Value
----------------------
Valuation and amortization method - The Company estimates the fair value of
stock options granted using the Black-Scholes-Merton option-pricing formula.
This fair value is then amortized on a straight-line basis over the requisite
service periods of the awards, which is generally the vesting period.
Expected Term - The Company's expected term represents the period that the
Company's stock-based awards are expected to be outstanding and was determined
based on historical experience of similar awards, giving consideration to the
contractual terms of the stock-based awards, vesting schedules and expectations
of future employee behavior as influenced by changes to the terms of its
stock-based awards.
Expected Volatility - The Company uses the trading history if its common stock
in determining an estimated volatility factor when using the
Black-Scholes-Merton option-pricing formula to determine the fair value of
options granted.
Expected Dividend - The Company has not declared dividends. Therefore, the
Company uses a zero value for the expected dividend value factor when using the
Black-Scholes-Merton option-pricing formula to determine the fair value of
options granted.
Risk-Free Interest Rate - The Company bases the risk-free interest rate used in
the Black-Scholes-Merton valuation method on the implied yield currently
available on U.S. Treasury zero-coupon issues with the same or substantially
equivalent remaining term.
Page 11
ThermoGenesis Corp.
Notes to Condensed Financial Statements (Unaudited) (Continued)
Stock-Based Compensation (Continued)
Determining Fair Value (Continued)
----------------------------------
Estimated Forfeitures - When estimating forfeitures, the Company considers
voluntary and involuntary termination behavior as well as analysis of actual
option forfeitures.
Pro Forma
---------
The following table illustrates the effect on net loss per share if the Company
had applied the fair value recognition provisions of Statement 123 to options
granted under the Company's stock option plans. For purposes of this pro forma
disclosure, the value of the options is estimated using a Black-Scholes-Merton
option-pricing formula and amortized to expense over the options' vesting
periods.
Three Months Ended
(in thousands) September 30,
2004
----------------------
Net loss, as reported ($1,879)
Add: stock-based employee
compensation expense included in
reported net loss, net of related tax
effects 70
Deduct: total stock-based employee
compensation expense determined
under fair value method for all
awards, net of related tax effects (387)
-------------------------
Pro forma net loss ($2,196)
=========================
Basic and diluted net loss per share
As reported ($0.04)
Pro Forma ($0.05)
Fair Value - The Company did not grant stock options to employees for the three
months ended September 30, 2005. The fair value of the Company's stock options
granted to employees for the three months ended September 30, 2004, was
estimated using the following weighted-average assumptions:
2004
-----------------
Expected Term (in years) 6.3
Risk-free interest rate 3.8%
Volatility .85
Weighted-Average Fair Value $2.78
Dividend yield 0%
Page 12
ThermoGenesis Corp.
Notes to Condensed Financial Statements (Unaudited) (Continued)
Stock-Based Compensation (Continued)
Stock Compensation Expense
--------------------------
As required by SFAS 123(R), management made an estimate of expected forfeitures
and is recognizing compensation costs only for those equity awards expected to
vest.
At September 30, 2005, the total compensation cost related to unvested
stock-based awards granted to employees under the Company's stock option plans
but not yet recognized was $1,534,000 net of estimated forfeitures of $104,000.
This cost will be amortized on a straight-line basis over a weighted-average
period of approximately two years and will be adjusted for subsequent changes in
estimated forfeitures.
The Company issues new shares of common stock upon exercise of stock options.
The following is a summary of option activity for the Company's stock option
plans:
Weighted-
Average
Weighted- Remaining Aggregate
Number of Average Contractual Intrinsic
(in thousands, except share price and term) Shares Exercise Price Life Value
---------------- ---------------- ---------------- ---------------
Outstanding at June 30, 2005 2,344 $2.56
Granted -- --
Expired -- --
Forfeitures and Cancellations (63) $4.75
Exercised (12) $3.53
---------------- ----------------
Outstanding at September 30, 2005 2,269 $2.49 3.9 $6,382
---------------- ---------------- ---------------- ---------------
Vested and Expected to Vest at September
30, 2005 2,214 $2.48 3.9 $6,246
---------------- ---------------- ---------------- ---------------
Exercisable at September 30, 2005 1,414 $2.22 3.4 $4,372
---------------- ---------------- ---------------- ---------------
Page 13
ThermoGenesis Corp.
Notes to Condensed Financial Statements (Unaudited) (Continued)
Stock-Based Compensation (Continued)
Stock Compensation Expense (Continued)
--------------------------------------
The aggregate intrinsic value is calculated as the difference between the
exercise price of the underlying awards and the quoted price of the Company's
common stock for the 2,250,000 options that were in-the-money at September 30,
2005. During the three months ended September 30, 2005 and 2004, the aggregate
intrinsic value of options exercised under the Company's stock option plans were
$21,000 and $81,000, respectively, determined as of the date of option exercise.
Common Stock Restricted Awards
------------------------------
On August 9, 2004, the Company's Compensation Committee approved the grant of
50,914 shares of restricted common stock to selected members of management and
key employees, excluding its executive officers, which had a fair market value
of $3.58 per share on the date of grant. These common stock restricted awards
vest in three equal installments, on the date of grant and the first and second
anniversary of the grant date. The Company recorded deferred stock compensation
of $182,000 based on the closing market price of the Company's common stock on
the date of grant. One third vested immediately on the grant date and the
remaining value will be amortized on a straight-line basis over the remaining
two year service period. In accordance with FAS 123(R), on July 1, 2005 the
Company reversed the deferred stock compensation balance of $57,000 against
additional paid-in-capital. The following is a summary of restricted stock
activity during the first quarter of fiscal 2006:
(in thousands) Number of Grant Date
Shares Fair Value
------------- --------------
Outstanding at June 30, 2005 29 $104
Granted -- --
Vested (14) ($50)
Forfeited (1) ($4)
------------- --------------
Outstanding at September 30, 2005 14 $50
============= ==============
Warrants
--------
During the quarter ended September 30, 2005, the Company received $128,000 in
cash from the exercise of warrants to purchase 43,200 shares of common stock.
Recent Accounting Pronouncements
--------------------------------
In November 2004, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 151 ("SFAS 151"), "Inventory Costs, an amendment of Accounting
Research Bulletin ("ARB") No. 43, Chapter 4." SFAS 151 amends the guidance in
ARB No. 43, Chapter 4, "Inventory Pricing," to clarify that abnormal amounts of
idle facility expense, freight, handling costs, and wasted material should be
recognized as current period charges and requires the allocation of fixed
production overheads to inventory based on the normal capacity of the production
facilities. SFAS 151 was adopted as of July 1, 2005 and did not have a material
impact on the Company's financial statements.
Page 14
ThermoGenesis Corp.
Notes to Condensed Financial Statements (Unaudited) (Continued)
Net Loss per Share
------------------
Net loss per share is computed by dividing the net loss to common stockholders
by the weighted average number of common shares outstanding. The calculation of
the basic and diluted earnings per share is the same for all periods presented,
as the effect of the potential common stock equivalents is antidilutive due to
the Company's net loss position for all periods presented. Antidilutive
securities, which consist of stock options, warrants, common stock restricted
awards and the Series A convertible preferred stock, that were not included in
diluted net loss per common share were 2,883,816 and 3,717,181 as of September
30, 2005 and 2004.
Subsequent Events
-----------------
On October 13, 2005, the Company entered into an International Distribution
Agreement (the "GEHC Agreement") with Amersham Biosciences AB, a GE Healthcare
company headquartered in Sweden ("GEHC"). Under the Agreement, GEHC becomes the
exclusive worldwide distributor of and service provider for the Company's Auto
Xpress(TM) System (AXP(TM)) and BioArchive System. The Company will receive from
GEHC fees for rights granted under the Agreement. GEHC will purchase products
from the Company to distribute and service. In addition, GEHC and the Company
agreed to collaborate on certain future improvements to these product lines. The
Agreement has an initial expiration date of December 31, 2010, but will be
automatically renewed for additional two year periods unless terminated by one
of the parties 12 months prior to the end of the then current term.
On October 28, 2005, the stockholders approved an amendment to and restatement
of the Company's Certificate of Incorporation to increase the number of
authorized shares of common stock from 50,000,000 to 60,000,000.
On November 7, 2005, the Company entered into an OEM Supply Agreement (the
"Agreement") with Medtronic, Inc. ("MDT"). Under the terms of the Agreement, the
Company will modify its Thrombin Processing Device ("TPD") to work with MDT's
Magellan Product (the "OEM Product") and sell and supply the OEM Product to MDT
for use and sale in conjunction with the MDT Magellan Product throughout the
world. The Agreement has a term of five years. MDT's Magellan Product is used
for the production of platelet gel. MDT previously used bovine thrombin in
conjunction with the Magellan device.
Page 15
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: December 12, 2005
/s/ Philip H. Coelho
--------------------------------------------
Philip H. Coelho
Chief Executive Officer
(Principal Executive Officer)
/s/ Matthew T. Plavan
--------------------------------------------
Matthew T. Plavan
Chief Financial Officer
(Principal Financial and Accounting Officer)
Page 16