ThermoGenesis Holdings, Inc. - Quarter Report: 2009 September (Form 10-Q)

whether the Company has a pattern of granting concessions for the benefit of the distributor, and whether there are other conditions that may indicate that the sale to the distributor is not substantive. The Company currently recognizes revenue primarily on the sell-in method with its distributors.

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 any 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. Costs associated with inconsequential or perfunctory elements in multiple element arrangements are accrued at the time of revenue recognition. The Company accounts for training and installation as a separate element of a multiple element arrangement. The Company therefore recognizes the fair value of training and installation services upon their completion when the Company is obligated to perform such services.

Service revenue 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.

Milestone payments the Company receives under research and development arrangements are recognized as revenue upon achievement of the milestone events, which represent the culmination of the earnings process, and when collectibility is reasonably assured. Milestone payments are triggered by the results of the Company’s development efforts. Accordingly, the milestone payments are substantially at risk at the inception of the contract, and the amounts of the payments assigned thereto are commensurate with the milestone achieved. Upon the achievement of a milestone event, which may include acceptance by the counterparty, the Company has no future performance obligations related to that milestone as the milestone payments received by the Company are nonrefundable.

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 license. For license agreements that require no continuing performance on the Company’s part, license fee revenue is recognized immediately upon grant of the license.

Shipping and handling fees billed to customers are included in net revenues, while the related costs are included in cost of revenues.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, short term investments, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short duration.

The Company adopted Statement of Financial Accounting Standard No. 157, Fair Value Measurements, as codified in ASC subtopic 820-10 (ASC 820-10), effective July 1, 2008 for financial assets and liabilities measured on a recurring basis. ASC 820-10 applies to all financial assets and financial liabilities that are measured and reported on a fair value basis and requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. There was no impact for adoption of ASC 820-10 to the Company’s consolidated financial statements.

ASC 820-10 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are

quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on management’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The Company has no Level 3 financial assets or liabilities as of September 30, 2009.

Assets measured at fair value on a recurring basis include the following as of September 30, 2009:

		Fair Value Measurements at
		September 30, 2009 Using
						Significant
		Quoted Prices				Other				Total Fair
		in Active				Observable				Value as of
		Markets				Inputs				September 30,
		(Level 1)				(Level 2)				2009
Cash equivalents
Money market funds		$	1,059,000				—			$	1,059,000
Certificates of deposit			—			$	500,000			$	500,000
Short-term investments
Certificates of deposit			—			$	10,377,000			$	10,377,000

Segment Reporting

The Company operates in a single segment providing medical devices and disposables to hospitals and blood banks throughout the world which utilize the equipment to process blood components.

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 net loss per share is the same for all periods presented, as the effect of the potential common stock equivalents is anti-dilutive due to the Company’s net loss position for all periods presented. Anti-dilutive securities, which consist of stock options and common stock restricted awards that were not included in diluted net loss per common share were 3,720,296 and 3,124,437 as of September 30, 2009 and 2008, respectively.

Subsequent Events

The Company has evaluated its subsequent events through November 6, 2009, the filing date of the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2009.

Reclassifications

Certain amounts in the prior year’s financial statements have been reclassified to conform with the 2010 presentation.

Recent Accounting Pronouncements

In December 2007, the FASB ratified EITF Issue No. 07-1, “Accounting for Collaborative Arrangements”, as codified in ASC topic 808 (ASC 808). ASC 808 defines collaborative arrangements and establishes reporting requirements for transactions between participants in a collaborative arrangement and between participants in the arrangement and third parties. ASC 808 also establishes the

appropriate income statement presentation and classification for joint operating activities and payments between participants, as well as the sufficiency of the disclosures related to these arrangements. EITF 07-1 is effective for fiscal years beginning after December 15, 2008. ASC 808 shall be applied retrospectively to all prior periods presented for all collaborative arrangements existing as of the effective date. The adoption of ASC 808 did not have a material impact on the Company’s results of operations or financial condition.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations”, as codified in ASC topic 805 (ASC 805). The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value and requires the expensing of acquisition-related costs as incurred. ASC 805 is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company will assess the potential impact of the adoption of ASC 805 if and when a future acquisition occurs.

In April 2009, the FASB issued ASC 825-10-65-1 “Financial Instruments” (formerly FASB Staff Position No. FAS 107-1 and APB 28-1 (FSP 107-1), “Interim Disclosures about Fair Value of Financial Instruments”). ASC 825-10-65-1 requires disclosures about fair values of financial instruments for interim perioids of publicly traded companies. These disclosures include fair value methods and significant assumptions used. The adoption of ASC 825-10-65-1 did not have a material impact on the Company’s results of operations or financial condition.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162”, as codified in FASB ASC topic 105, “Generally Accepted Accounting Principles” (ASC 105). The statement confirmed that the FASB Accounting Standards Codification (the “Codification”) will become the single official source of authoritative U.S. GAAP (other than guidance issued by the Securities and Exchange Commission (the “SEC”), superseding existing FASB, American Institute of Certified Public Accountants, EITF, and related literature. After that date, only one level of authoritative U.S. GAAP will exist. All other literature will be considered non-authoritative. The Codification does not change U.S. GAAP; instead, it introduces a new structure that is organized in an easily accessible, user-friendly online research system. The Codification, which changes the referencing of financial standards, becomes effective for interim and annual periods ending on or after September 15, 2009. The adoption of ASC 105 did not have a material impact on the Company’s results of operations or financial condition.

In September 2009, the EITF reached final consensus on a new revenue recognition standard, Issue No. 09-3, “Applicability of AICPA Statement of Position 97-2 to Certain Arrangements That Contain Software Elements” (ASU 985). ASU 985 amends the scope of AICPA Statement of Position 97-2, Software Revenue Recognition to exclude tangible products that include software and non-software components that function together to deliver the product’s essential functionality. This Issue shall be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted, provided that the guidance is retroactively applied at the beginning of the year of adoption. We are currently evaluating the potential impact of ASU 985 on the Company’s results of operations or financial condition.

In October 2009, FASB issued Accounting Standards Update (ASU) No. 2009-13, “Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force (ASU 2009-13). ASU 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services separately rather than as a combined unit and modifies the manner in which the transaction consideration is allocated across the separately identified deliverables. ASU 2009-13 significantly expands the disclosure requirements for multiple-deliverable revenue arrangements. ASU 2009-13 will be effective for the first annual reporting period beginning on or after June 15, 2010, and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. Early adoption is permitted, provided that the guidance is retroactively applied to the beginning of the year of adoption. We are currently evaluating the impact this update will have on the Company’s results of operations or financial condition.

2. Investments

The Company intends and has the ability to hold its Certificates of deposit to maturity, and therefore classifies its investments as held-to-maturity and carries such investments at amortized cost in accordance with the provisions of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, as codified in ASC topic 320, “Investments-Debt and Equity Securities” (ASC 320).

The following is a summary of held-to-maturity securities:

						Gross				Gross
		Amortized				Unrealized				Unrealized				Estimated
		Cost				Gains				Losses				Fair Value
September 30, 2009
Certificates of deposit		$	10,377,000				—				—			$	10,377,000
Maturity Date:
Less than 90 days		$	8,877,000											$	8,878,000
Due in 91-365 days			1,499,000												1,499,000
		$	10,376,000											$	10,377,000
June 30, 2009
Certificates of deposit		$	8,976,000				—				—			$	8,976,000

3. Inventories

Inventories consisted of the following at:

		September 30, 2009				June 30, 2009
Raw materials		$	1,278,000			$	1,116,000
Work in process			2,279,000				1,871,000
Finished goods			1,733,000				2,246,000
		$	5,290,000			$	5,233,000

4. Commitments and Contingencies

Vendor Purchase Commitments

A product manufacturing supplier made purchases of raw materials based on company provided forecasts, which the Company may be required to pay for as part of normal manufacturing processes, including scrap and obsolete parts that result from the Company’s product design changes, and or discontinuation of manufacturing by a particular vendor. These are normal and standard manufacturing terms, and upon the contract end date, May 2009, the Company recorded an estimated loss contingency of $160,000 as management considers it probable that the payment will be made.

The Company has initiated discussions with a product manufacturing supplier (Supplier) regarding a mutual termination of their contract manufacturing and supply agreement, primarily due to quality issues. The Supplier is currently on hold, but has likely incurred some costs under existing purchase orders. As part of the termination discussions, the Company anticipates that the Supplier will seek reimbursement for their costs incurred to fulfill the purchase orders and the Company intends to seek reimbursement for our costs incurred

due to past quality issues and returned product from customers. Additionally, the Company intends to sell inventory, if any, which it agrees to purchase from the Supplier to other suppliers as an additional cost offset. The Company has determined the contract termination is probable and the range of loss is between $0 and $650,000. However, the Company has not recorded an expense related to the potential termination because any potential loss is not reasonably estimable under SFAS No. 5 “Accounting for Contingencies”, as codified in ASC 450.

Warranty

The Company offers a one-year warranty on all of its products. The Company warrants disposable products through their expiration date. 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, 2009 balance		$	529,000
Warranties issued during the period			46,000
Settlements made during the period			(60,000	)
Changes in liability for pre-existing warranties during the period, including expirations			313,000
Balance at September 30, 2009		$	828,000

As a result of various quality issues experienced by high usage customers of the AXP disposable bag sets, the Company made revisions to its estimated warranty liability for the three month period ended September 30, 2009. The Company recorded a change in estimate, which increased the Company’s cost of revenues and net loss (no net loss per share impact) by $190,000.

As a result of a product recall in the second quarter of fiscal 2009, the Company made revisions to its estimated warranty liability for the three months ended September 30, 2008. The Company recorded a change in estimate, which increased the Company’s cost of revenues and net loss by $520,000 and net loss per share of $0.01.

5. Stockholders’ Equity

Stock Based Compensation

The Company recorded stock-based compensation of $162,000 and $123,000 for the three months ended September 30, 2009 and 2008, respectively.

The following is a summary of option activity for the Company’s stock option plans:

										Weighted-
						Weighted-				Average
						Average				Remaining				Aggregate
		Number of				Exercise				Contractual				Intrinsic
		Shares				Price				Life				Value
Outstanding at June 30, 2009			3,079,641			$	1.65
Granted			860,000			$	0.64
Forfeited or Expired			(238,845	)		$	2.16
Exercised			—
Outstanding at September 30, 2009			3,700,796			$	1.38				3.1			$	32,000
Vested and Expected to Vest at September 30, 2009			3,336,640			$	1.44				3.1			$	27,000
Exercisable at September 30, 2009			887,944			$	2.96				2.1				—

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. There were no options exercised during the three months ended September 30, 2009 and 2008.

6. Subsequent Event

In October 2009, the Company and a consultant, the Company’s former Chief Technology Architect (Consultant), entered into a Mutual Termination Agreement (the “Agreement”) to terminate their consulting agreement effective October 1, 2009. Under the terms of the Agreement, the Company shall pay $104,000 in October 2009 and $136,000 in January 2010. As there is no further obligation for the Consultant to perform under the Agreement, the entire $240,000 was expensed in October 2009.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This report contains forward-looking statements. 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 2010, 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, failure to meet FDA regulations governing our products and operations and recalls associated with such regulations, the risks associated with initiating manufacturing for new products, 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.

Overview

ThermoGenesis develops, manufactures, and sells medical products that enable the practice of regenerative medicine. The Company was founded in 1986 and is located in Rancho Cordova, California. Our products automate the volume reduction and cryopreservation process of adult stem cell concentrates from cord blood and bone marrow for use in laboratory and point of care settings. Our growth strategy is to expand our offerings in regenerative medicine and partner with other pioneers in the stem cell arena to accelerate our worldwide penetration in this potentially explosive market.

Our Products

The AutoXpress™ Platform or AXP^® is a medical device with an accompanying disposable bag set that isolates and retrieves stem cells from umbilical cord blood. The AXP provides cord blood banks with a system to isolate and capture adult stem cells with lower labor costs and a reduced risk of contamination, under GMPs. Our market for the AXP includes both private and public cord blood banks. At a private bank, an individual pays to have cord blood stem cells from their offspring collected and stored, while a public bank owns cord blood stem cells donated by individuals, which are then available to the public for transplantation. The product is an automated, closed, sterile system that volume-reduces cord blood to a user defined volume in 30 minutes, able to retain over 97% of the mononuclear cells. Self-powered and microprocessor-controlled, the AXP contains flow control optical sensors which achieve precise separation.

The MarrowXpress™ or MXP™, an extension of the AXP, defines a new processing standard for isolating and retrieving stem cells from bone marrow aspirate. It is an automated, closed, sterile system that volume-reduces blood to a user-defined volume while retaining over 90% of the mononuclear cells. Self-powered and microprocessor-controlled, the MarrowXpress Platform contains flow control optical sensors which achieve precise separation. In June 2008, we received the CE-Mark, enabling commercial sales in Europe. In July 2008, we received authorization from the FDA to begin marketing the MXP for use in the clinical laboratory or intraoperatively at the point-of-care for preparation of a cell concentrate from bone marrow. In September 2008, the Company announced an agreement with Celling Technologies, a subsidiary of Spine-Smith, LLC, to distribute the MXP for orthopedic applications. The product was launched in December 2008.

The Res-Q™ product is also used for bone marrow stem cell processing. Launched in July 2009, the Res-Q can be used in a clinical laboratory or can be used inter-operatively at the point of care. The technology is a next generation, centrifuge-based disposable device designed for the isolation and extraction of specific stem cell populations at the point of care. Res-Q is a rapid, reliable, and easier-to-use product which achieves a high recovery rate of stem cells from bone marrow. The key advantages of the Res-Q include (a) delivering a high number of target cells from a small sample of bone marrow, and (b) providing a disposable that is highly portable and packaged for the sterile field. These features allow the physician to process bone marrow and return the cells to the patient in as little as 15 minutes. As cell processing for regenerative medicine applications becomes more readily accepted, we believe the features and benefits of the Res-Q position the product for broad-based adoption.

The BioArchive^® System is an automated cryogenic system used in stem cell therapy to cryopreserve and archive stem cells for future transplant and treatment. Launched in fiscal 1998, over 200 BioArchive Systems have been purchased by over 90 umbilical cord blood stem cell banks in over 30 countries worldwide to archive, cryopreserve and store stem cell preparations extracted from human placentas and umbilical cords for future use. The BioArchive System can store over 3,600 stem cell samples. It is the only fully-automated system commercially available that integrates controlled-rate freezing, sample management and long term cryogenic storage in liquid nitrogen. The robotic storage and retrieval of these stem cell units improves cell viability, provides precise inventory management and minimizes the possibility of human error.

The Thermoline™ product line includes the ultra-rapid plasma Thermoline Freezer and ultra-rapid plasma Thermoline Thawer. The Thermoline freezer optimizes plasma freezing through its unique liquid heat transfer and uniform freezing technologies that can freeze units of blood plasma in approximately 30 minutes. These products are suited for medium to large laboratories. We also offer three models of blood components thawers which vary primarily by capacity. The product’s unique flexible membrane technology allows for a closed thawing system. These instruments can be used for rapid (less than 12 minutes) homogeneous thawing of plasma and glycerolized frozen red blood cells.

The CryoSeal^® Fibrin Sealant (CryoSeal) System is an automated system used to prepare an autologous hemostatic surgical sealant from a patient’s own blood or from a single donor in approximately one hour. We received FDA approval to market the CryoSeal in liver resection surgeries in July 2007. The CryoSeal serves the wound care market. Our intention is to divest this product line in fiscal 2010.

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 consolidated financial statements.

Critical Accounting Policies

Management’s discussion and analysis of its financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to bad debts, inventories, warranties, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a full discussion of our accounting estimates and assumptions that the Company has identified as critical in the preparation of our condensed consolidated financial statements, please refer to our 2009 Annual Report on Form 10-K.

Results of Operations for the Three Months Ended September 30, 2009 as Compared to the Three Months Ended September 30, 2008

Net Revenues:

Revenues for the three months ended September 30, 2009 were $5,193,000 compared to $4,502,000 for the three months ended September 30, 2008, an increase of $691,000 or 15%. The increase is primarily due to revenues of $470,000 from the MXP product line which was launched in December 2008 and an increase in AXP disposable revenues of $460,000 due to volume increases. The increases were offset by a decline in Thermoline Freezer revenues of $330,000.

The following represents the Company’s revenues for disposables by product line for the three months ended:

		September 30,
		2009				2008
AXP		$	1,626,000			$	1,166,000
BioArchive			994,000				850,000
MXP/Res-Q			330,000				—
CryoSeal			80,000				83,000
		$	3,030,000			$	2,099,000
Percentage of total Company revenues			58	%			47	%

The following represents the Company’s cumulative BioArchive devices sold into the following geographies through the dates indicated:

		September 30,
		2009				2008
Asia			66				62
United States			50				48
Europe			51				47
Rest of World			39				30
			206				187

Gross Profit:

The Company’s gross profit was $1,557,000 or 30% of net revenues for the three months ended September 30, 2009, as compared to $1,280,000 or 28% for the corresponding fiscal 2009 period. The increase in gross profit is primarily due to the $520,000 accrual for the voluntary recall of AXP bag sets in the quarter ended September 30, 2008, offset by an increase in warranty for BioArchive devices and AXP disposables.

Selling, General and Administrative Expenses:

Selling, general and administrative expenses were $2,163,000 for the three months ended September 30, 2009, compared to $2,447,000 for the comparable fiscal 2009 period, a decrease of $284,000 or 12%. The decrease is primarily due to lower salaries and benefits of $220,000 as there were five fewer positions employed during the quarter ended September 30, 2009 as compared to the quarter ended September 30, 2008.

Research and Development Expenses:

Included in this line item are Engineering, Regulatory Affairs, Scientific and Clinical Affairs.

Research and development expenses were $1,594,000 for the three months ended September 30, 2009, compared to $1,600,000 for the corresponding fiscal 2009 period, a decrease of $6,000. Spending in research and development has remained consistent as the increase in costs to complete development of the Res-Q product, $260,000, was offset by a decrease in costs associated with the Vantus subsidiary during the three months ended September 30, 2008.

Liquidity and Capital Resources

At September 30, 2009, the Company had cash, cash equivalents and short-term investments of $13,120,000 and working capital of $18,634,000. This compares to cash, cash equivalents and short-term investments of $15,631,000 and working capital of $20,923,000 at June 30, 2009. The cash was used to fund operations, capital expenditures and other strategic initiatives of the Company. In addition to product revenues, the Company has primarily financed operations through the private and public placement of equity securities and has raised approximately $108,000,000, net of expenses, through common and preferred stock financings and option and warrant exercises.

Net cash used in operating activities for the three months ended September 30, 2009 was $2,255,000, primarily due to the net loss of $2,189,000, offset by depreciation and stock based compensation expense of $111,000 and $162,000, respectively. Accounts receivable utilized $228,000 of cash as a result of higher sales during the current quarter versus the prior quarter. Other current liabilities generated $237,000 in cash for the quarter ended September 30, 2009.

We believe that our currently available cash, cash equivalents and short-term investments, will be sufficient to satisfy our operating and working capital requirements for at least the next twelve months. We have experienced some slowing in our customers’ spending as a result of deterioration in credit markets. As we anticipate this trend to continue, we have reduced expenses without sacrificing development plans we consider essential to our near term revenue growth and do not anticipate we will have to seek additional debt or equity capital.

Off-Balance Sheet Arrangements

As of September 30, 2009, the Company has no off-balance sheet arrangements.

Backlog

The Company’s cancelable backlog at September 30, 2009 was $895,000.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of changes in the value of market risk sensitive instruments caused by fluctuations in interest rates, foreign exchange rates and commodity prices. There have been no material changes in the Company’s exposure to market risk since the 2009 fiscal year end.

Our exposure to interest rate risk at September 30, 2009 is related to the investment of our excess cash into highly liquid, short-term financial investments. We invest in money market funds, certificates of deposit or U.S. Treasury obligations in accordance with our investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Our investment policy specifies credit quality standards for our investments. We do not hold auction-rate or mortgage-backed securities. Due to the short-term nature of our investments, we have assessed that there is no material exposure to interest rate risk arising from them.

All sales, including those involving foreign entities, are denominated in U.S. dollars and as a result, we have experienced no significant foreign exchange gains and losses to date. We have not engaged in foreign currency hedging activities to date, and have no intention of doing so. Our future revenues may be negatively impacted in periods of a strengthening U.S. dollar. We have not entered into any derivative financial instruments or derivative commodity instruments.

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 Principal Executive Officer along with the Company’s Principal 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) and 15d-15(e)) as of the end of our fiscal quarter pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

There were no changes in the Company’s internal controls over financial reporting that occurred during the three months ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting. The Company believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.

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.