Note 3 - Related Party Transactions

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

3

.     

Related Party Transactions

Convertible Promissory Note and Revolving Credit Agreement

In

March 2017,

Cesca entered into a Credit Agreement with Boyalife Investment Fund II, Inc., which later merged into Boyalife Asset Holding II, Inc. (the “Lender”). The Lender is a wholly owned subsidiary of Boyalife Group Inc., which is owned and controlled by the Company’s Chief Executive Officer and Chairman of the Board of Directors. The Credit Agreement and its subsequent amendments, grants to the Company the right to borrow up to

$10,000,000

(the “Loan”) at any time prior to

March 6, 2022 (

the “Maturity Date”). The Company has drawn down a total of

$8,713,000

and

$7,200,000

as of

June 30, 2019

and

December 31, 2018,

respectively.  The Company’s ability to draw-down the remaining

$1,287,000

may

be impacted by reasons such as default or foreign government policies that restrict or prohibit transferring funds.  At the time of this filing, we are currently unable to draw down on the line of credit.  This

may

change in the near future but there is

no

assurance that the line of credit will become available at such time when it is needed.

The Credit Agreement and the Convertible Promissory Note issued thereunder (the “Note”) provide that the principal and all accrued and unpaid interest under the Loan will be due and payable on the Maturity Date, with payments of interest-only due on the last day of each calendar year. The Loan bears interest at

22%

per annum, simple interest. The Company has

five

business days after the Lender demands payment to pay the interest due before the Loan is considered in default. The Note can be prepaid in whole or in part by the Company at any time without penalty.

The Maturity Date of the Note is subject to acceleration at the option of the Lender upon customary events of default, which include; a breach of the Loan documents, termination of operations, or bankruptcy. The Lender’s obligation to make advances under the Loan is subject to the Company’s representations and warranties in the Credit Agreement continuing to be true at all times and there being

no

continuing event of default under the Note. The Credit Agreement provides that if the Lender at any time in the future purchases the Company’s blood and bone marrow processing device business, the Lender would refund to the Company legal fees expended by the Company in connection with certain litigation expenses funded by the Company with proceeds of the Loan.

The Credit Agreement and Note were amended in

April 2018.

The amendment granted the Lender the right to convert, at any time, outstanding principal and accrued but unpaid interest into shares of Common Stock at a conversion price of

$16.10

per share and if the Company issues shares of Common Stock at a lower price per share, the conversion price of the Note is lowered to the reduced amount. The Company completed

two

transactions in

2018,

lowering the conversion price to

$1.80.

It was concluded that the conversion option did contain a beneficial conversion feature and as a result of the modifications to the conversion price, the Company recorded a debt discount in the amount of

$7,200,000

and added

$1,513,000

to the debt discount as a result of the draw-down during the quarter ended

March 31, 2019.

Such discount represented the fair value of the incremental shares up to the proceeds received from the convertible notes. The Company amortized

$586,000

and

$1,172,000

of such debt discount to interest expense for the

three

and

six

months ended

June 30, 2019,

and

$350,000

for the

three

and

six

months ended

June 30, 2018.

In addition to the amortization, the Company also recorded interest expense of

$466,000

and

$926,000

during the

three

and

six

months ended

June 30, 2019,

and

$382,000

and

$742,000

for the

three

and

six

months ended

June 30, 2018.

As of

June 30, 2019,

the Company had an interest payable balance of

$926,000

as compared to

$1,513,000

at

December 31, 2018

related to the Note.

Distributor Agreement

On

August 21, 2017,

ThermoGenesis entered into an International Distributor Agreement with Boyalife W.S.N. Under the terms of the agreement, Boyalife W.S.N. was granted the exclusive right, subject to existing distributors and customers (if any), to develop, sell to, and service a customer base for ThermoGenesis’ AXP

®

(AutoXpress

®

) System and BioArchive

®

System in the People’s Republic of China (excluding Hong Kong and Taiwan), Singapore, Indonesia, and the Philippines (the “Territories”). Boyalife W.S.N. is an affiliate of our Chief Executive Officer and Chairman of our Board of Directors, and Boyalife (Hong Kong) Limited, our largest stockholder. Boyalife W.S.N.’s rights under the agreement include the exclusive right to distribute AXP

®

Disposable Blood Processing Sets and use rights to the AutoXpress

®

System, BioArchive System and other accessories used for the processing of stem cells from cord blood in the Territories. Boyalife W.S.N. is also appointed as the exclusive service provider to provide repairs and preventative maintenance to ThermoGenesis products in the Territories.

The term of the agreement is for

three

years with ThermoGenesis having the right to renew the agreement for successive

two

-year periods at its option. However, ThermoGenesis has the right to terminate the agreement early if Boyalife W.S.N. fails to meet specified minimum purchase requirements.

Revenues

During the

three

and

six

months ended

June 30, 2019,

the Company recorded

$315,000

and

$581,000,

and

$43,000

and

$269,000

for the

three

and

six

months ended

June 30, 2018

respectively, of revenues from Boyalife related to the aforementioned distributor agreement.

License Agreement

On

March 12, 2018,

ThermoGenesis entered into a License Agreement (the “Agreement”) with IncoCell Tianjin Ltd., a Chinese company and wholly-owned subsidiary of China-based Boyalife Group (“IncoCell”). Boyalife Group is an affiliate of the Company’s Chief Executive Officer and Chairman of the Board of Directors, and Boyalife (Hong Kong) Limited, the Company’s largest stockholder. Under the terms of the Agreement, IncoCell was granted the exclusive license to use the ThermoGenesis

X

-Series

®

products in the conduct of IncoCell’s contract manufacturing and development operations in the People’s Republic of China, Japan, South Korea, Taiwan, Hong Kong, Macau, Singapore, Malaysia, Indonesia and India (the “Territories”).

Pursuant to the terms of the Agreement, ThermoGenesis has granted IncoCell an exclusive license to purchase and use, at a discounted purchase price,

X

-Series cellular processing research devices, consumables, and kits for use in the conduct of contract manufacturing and development services in the Territories. In exchange, ThermoGenesis is entitled to a percentage of IncoCell’s gross contract development revenues, including any potential upfront payments, future milestones or royalty payments, during the term of the Agreement. The term of the Agreement is

ten

years, provided that either party

may

terminate the Agreement earlier upon

ninety

(

90

) days’ prior notice to the other party.  The Company did

not

record any revenues related to this license agreement during the

three

and

six

months ended

June 30, 2019

and

2018.