CERTAIN STATEMENTS CONTAINED IN THIS SECTION AND OTHER PARTS OF THIS REPORT ON FORM 10-K WHICH ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE PROJECTED RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT AFFECT ACTUAL RESULTS INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN ITEM 7A "RISK FACTORS" AND OTHER FACTORS IDENTIFIED FROM TIME TO TIME IN THE COMPANY'S REPORTS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.
The following discussion should be read in conjunction with the Company's consolidated financial statements contained in this report.

(a) 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. Critical Accounting Policies:
The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. 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 stock-based compensation, 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 consolidated financial statements.
Stock-Based Compensation:
The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Statement of Financial Accounting Standards No. 123(R), Shared-Based Payments (FAS 123(R)). Under FAS 123(R), compensation cost is calculated on the date of the grant using the Black Scholes-Merton option-pricing formula. The compensation expense is then amortized over the vesting period. The Company uses the Black-Scholes-Merton option-pricing formula in determining the fair value of the Company's options at the grant date and applies judgment in estimating the key assumptions that are critical to the model such as the expected term, volatility and forfeiture rate of an option. The Company's estimate of these key assumptions is based on historical information and judgment regarding market factors and trends. If actual results are not consistent with the Company's assumptions and judgments used in estimating the key assumptions, the Company may be required to record additional compensation or income tax expense, which could have a material impact on the Company's financial position and results of operations. Revenue Recognition:
The Company recognizes revenue including multiple element arrangements, in accordance with the provisions of the SEC's Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition and the Financial Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF) 00-21, Revenue Agreements with Multiple Deliverables. Revenues from the sale of the Company's products are recognized when persuasive evidence of an arrangement exists, delivery has occurred (or services have been rendered), the price is fixed or determinable, and collectability is reasonably assured. 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. Amounts billed in excess of revenue recognized are recorded as deferred revenue on the balance sheet.

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 payment is received. 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, 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 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. 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 collectability 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 product and other revenues, while the related costs are included in cost of product and other revenues.
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 could have a material impact on the Company's financial position, cash flows or results of operations.
Inventory Reserve:
The Company states inventories at lower of cost or market value determined on a first-in, first-out basis. The Company provides inventory allowances when conditions indicate that the selling price could be less than cost due to physical deterioration, obsolescence, changes in price levels, or other causes, which it includes as a component of cost of product and other revenues. Additionally, the Company provides reserves for excess and slow-moving inventory on hand that are not expected to be sold to reduce the carrying amount of slow-moving inventory to its estimated net realizable value. The reserves are based upon estimates about future demand from our customers and distributors and market conditions. Because some of the Company's products are highly dependent on government and third-party funding, current customer use and validation, and completion of regulatory and field trials, there is a risk that we will forecast incorrectly and purchase or produce excess inventories. As a result, actual demand may differ from forecasts and the Company may be required to record additional inventory reserves that could adversely impact our gross margins. Conversely, favorable changes in demand could result in higher gross margins when products previously reserved are sold.
(b) Results of Operations 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 periods included in the accompanying consolidated financial statements.
Results of Operations for the Year Ended June 30, 2009 as Compared to the Year Ended June 30, 2008
Net Revenues:
Net revenues for the year ended June 30, 2009 were $19,799,000 compared to $21,946,000 for the year ended June 30, 2008, a decrease of $2,147,000 or 10%. Our decrease in revenues is primarily a result of the slowing global economy which has impacted the majority of our product lines. The CryoSeal product line decreased $1,477,000 from the year ended June 30, 2008. Revenues from the BioArchive product line decreased approximately $1,000,000 as there were six fewer devices sold in fiscal 2009 as compared to fiscal 2008. The AXP product line decreased $560,000 primarily due to the timing of bag set orders. Offsetting these decreases was an increase in revenues of $367,000 due to the launch of the MXP in fiscal 2009 and Freezer sales increased $370,000 primarily due to the sale of ten freezers to two different customers.

Sales analysis for the year ending June 30:

                                             2009                       2008
   Disposable revenues:
   AXP/MXP                               $  6,531,000               $  6,828,000
   BioArchive                               3,766,000                  3,757,000
   CryoSeal                                   297,000                  1,143,000

                                           10,594,000        54 %     11,728,000        53 %

   Non-disposable revenues:
   BioArchive                               4,262,000        22 %      5,564,000        25 %
   Thermoline                               2,361,000        12 %      2,058,000         9 %
   AXP/MXP                                    722,000         4 %        594,000         3 %
   CryoSeal                                    37,000         -          481,000         2 %
   Milestone payments and license fees        676,000         3 %        866,000         5 %
   Other                                    1,147,000         5 %        655,000         3 %

   Total Company revenues                $ 19,799,000       100 %   $ 21,946,000       100 %

The following represents the Company's cumulative BioArchive System placements in the following geographies:

                                                June 30
                                            2009      2008
                           Asia               64        58
                           United States      49        46
                           Europe             51        47
                           Rest of World      38        30

                                             202       181

Gross Profit:
The Company's gross profit was $5,693,000 or 29% of net revenues for the year ended June 30, 2009, as compared to $6,970,000 or 32% for the year ended June 30, 2008. The lower gross profit was due to a lower volume of disposable products and additional inventory allowances and reserves for obsolete inventory at AXP bag set suppliers, excess AXP device inventory given the planned transition to an upgraded AXP device and excess CryoSeal inventory. These were offset by lower warranty costs for the BioArchive and CryoSeal products and lower material costs on the AXP bag sets. Selling, General and Administrative Expenses:
Selling, general and administrative expenses were $9,249,000 for the year ended June 30, 2009, compared to $10,165,000 for the year ended June 30, 2008, a decrease of $916,000 or 9%. The decrease is primarily due to lower salaries and benefits of $580,000 as there were four management positions open during the year, and lower legal fees of $325,000, as there was $300,000 of legal fees incurred in fiscal 2008 associated with the GEHC distribution agreement negotiations and for consultation during the voluntary recall effort. Recruiting costs decreased $275,000 in fiscal 2009 as there were expenses paid in fiscal 2008 in searches for new board members and executive officers. Additionally, stock compensation expense decreased $220,000. These decreases were offset by an increase in severance expense of $500,000 in fiscal 2009 primarily due to the severance accruals for the Company's former Chief Executive Officer and vice presidents of sales and marketing.

Research and Development Expenses:
Research and development expenses for the year ended June 30, 2009 were $5,222,000 compared to $7,172,000 for fiscal 2008, a decrease of $1,950,000 or 27%. The decrease is primarily due to a decrease in stock compensation expense of $1,230,000 as the restricted stock awarded to the company's former Chief Technology Architect (CTA) fully vested in April 2008, a decrease of $330,000 in expenses associated with the Vantus subsidiary which was formed in February 2008 and a reduction of $460,000 of expenses for new product development. Management believes that product development and refinement are essential to maintaining the Company's market position. Therefore, the Company considers these costs as continuing costs of doing business. No assurances can be given that the products or markets recently developed or under development will be successful.
Results of Operations for the Year Ended June 30, 2008 as Compared to the Year Ended June 30, 2007
Net Revenues:
Net revenues for the year ended June 30, 2008 were $21,946,000 compared to $16,751,000 for the year ended June 30, 2007, an increase of $5,195,000 or 31%. The increase is primarily due to revenues from AXP disposables, which increased $4,271,000 due to higher sales volume from existing customers. Additionally, revenues from BioArchive devices and accessories increased $1,111,000 as there were 27 shipments of devices in fiscal 2008 compared to 20 shipments in fiscal 2007. These increases were offset by a decrease in development milestone payments and license fees of approximately $800,000.
The following represents the Company's cumulative BioArchive Systems in the following geographies:

                                                June 30
                                            2008      2007
                           Asia               58        56
                           United States      46        33
                           Europe             47        40
                           Rest of World      30        26

                                             181       155

The following represents the Company's revenues for disposables by product line:

                                                          June 30
                                                    2008            2007
         AXP                                    $  6,828,000     $ 2,557,000
         BioArchive                                3,757,000       3,290,000
         TPD                                         257,000         493,000
         CryoSeal                                    886,000         365,000

                                                $ 11,728,000     $ 6,705,000

         Percentage of total Company revenues             53 %            40 %

Gross Profit:
The Company's gross profit was $6,970,000 or 32% of net revenues for the year ended June 30, 2008, as compared to $5,197,000 or 31% for the year ended June 30, 2007. The gross margin for fiscal 2008 was impacted by the costs associated with the voluntary recall of AXP disposable bag sets. The incremental costs of $386,000 were for testing, materials and the destruction of bag sets which were not considered resalable. No bag set lots have failed the requisite testing performed on the recalled inventory. This was offset by lower warranty costs for the CryoSeal and BioArchive devices. Selling, General and Administrative Expenses:
Selling, general and administrative expenses were $10,165,000 for the year ended June 30, 2008, compared to $9,630,000 for the year ended June 30, 2007, an increase of $535,000 or 6%. The increase is due to increased legal costs primarily related to the discussions with GEHC regarding the distribution agreement and consultation during the voluntary AXP recall effort. Research and Development Expenses:
Research and development expenses for the year ended June 30, 2008 were $7,172,000 compared to $4,108,000 for fiscal 2007, an increase of $3,064,000 or 75%. The increase is primarily due to stock compensation, salaries and consulting fees of approximately $1,800,000 related to the CTA, a position filled by the Company's former Chief Executive Officer as of August 1, 2007. Effective May 1, 2008, the CTA resigned to become a consultant to the Company. Also adding to the increase in research and development was $620,000 in expenses associated with the Vantus subsidiary, a $350,000 increase in operating supplies for cell therapy research projects and payments made to UC Davis of $130,000 in connection with an agreement to develop stem cell treatments.
(c) Liquidity and Capital Resources At June 30, 2009, the Company had a cash, cash equivalents, and short-term investments balance of $15,631,000 and working capital of $20,884,000. This compares to a cash and short-term investments balance of $25,287,000 and working capital of $29,978,000 at June 30, 2008. The cash was used to fund operations and other cash needs 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 million, net of expenses, through common and preferred stock financings and option and warrant exercises. Net cash used in operating activities for the year ended June 30, 2009 was $8,757,000, primarily due to the net loss of $8,550,000, which included the accretion of discount on short-term investments of $161,000, offset by depreciation and stock based compensation expense of $474,000 and $479,000, respectively. Accounts payable used $2,405,000 of cash due to paying vendors for purchases made late in the prior fiscal year, primarily for disposable products. Accounts receivable generated $1,741,000 in cash for the year ended June 30, 2009. Investing activities generated $11,041,000 of cash primarily due to short-term investments maturing. We believe that our currently available cash, cash equivalents and short-term investments, and cash generated from operations 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 into fiscal 2010, we have reduced expenses without sacrificing development plans we consider essential to our near term revenue growth and do no anticipate we will have to seek additional debt or equity capital. The Company generally does not require extensive capital equipment to produce or sell its current products. In fiscal 2007, the Company spent $621,000 primarily for office furniture for the new leased

facility, manufacturing equipment for the AXP product line and laboratory equipment. In fiscal 2008, the Company spent $514,000 for development of the Company's website, laboratory equipment and manufacturing equipment. In fiscal 2009, the Company spent $1,047,000 for quality system software, centrifuges to be placed at MXP customer sites, tooling for new products or additional vendors and computer equipment.
During the fiscal year ended June 30, 2009, revenues from one significant customer, GEHC, totaled $7,735,000 or 39% of net revenues. During the fiscal year ended June 30, 2008, revenues from one significant customer, GEHC, totaled $13,310,000 or 61% of net revenues. During the fiscal year ended June 30, 2007, revenues from one significant customer, GEHC, totaled $7,502,000 or 45% of net revenues.
At June 30, 2009, the Company had two customers that individually accounted for 43% and 19% of accounts receivable. At June 30, 2008, the Company had two customers that individually accounted for 60% and 14% of accounts receivable. The Company manages the concentration of credit risk with these customers through a variety of methods including, letters of credit with financial institutions, pre-shipment deposits, credit reference checks and credit limits. Although management believes that these customers are sound and creditworthy, a severe adverse impact on their business operations could have a corresponding material effect on their ability to pay timely and therefore on our net revenues, cash flows and financial condition. Off Balance Sheet Arrangements:
As of June 30, 2009, the Company had no off-balance sheet arrangements. Contractual Obligations:
As of June 30, 2009, the Company had the following contractual obligations and commercial commitments:

       Contractual Obligations                                              Payments Due by Period
                                                                   Less than                                             After 5
                                                 Total              1 year            1-3 years         4-5 years         years
Capital Lease Obligations                    $     9,000          $   5,000          $   4,000               -                -
Operating Leases                               1,623,000            642,000            981,000               -                -

Total Contractual Cash Obligations           $ 1,632,000          $ 647,000          $ 985,000               -                -