Note 5 - Related Party Transactions

6 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

5.   RELATED PARTY TRANSACTIONS

HealthBanks Biotech (USA) Inc.

On November 26, 2019 the Company entered into an agreement with HealthBanks Biotech (USA) Inc. (“HealthBanks”) to form a new company called ImmuneCyte, Inc. (“ImmuneCyte”) to commercialize the Company’s proprietary cell processing platform, CAR-TXpress™, for use in immune cell banking as well as for cell-based contract development and manufacturing services (CMO/CDMO). Under the terms of the agreement, ImmuneCyte was initially owned 80% by HealthBanks and 20% by the Company. Healthbanks is a subsidiary of the Boyalife Group (USA), Inc. which is owned by Dr. Xiaochun (Chris) Xu, the Company’s Chief Executive Officer and Chairman of our Board of Directors. Due to the significant influence the Company has over ImmuneCyte’s operations, the investment was accounted for by the Company using the equity method.

Between November 26, 2019 and September 30, 2020, ImmuneCyte closed on a series of investments with a private institution and qualified investors. After the investments, ImmuneCyte was owned 75.16% by HealthBanks, 18.79% by the Company and 6.05% by the private investors.

In March 2021, ImmuneCyte completed an acquisition to acquire Boyalife’s Cellular Therapy Division, for 12,000,000 shares in ImmuneCyte and Shangai KDWinfo Technology Co. Ltd. For 500,000 shares in ImmuneCyte. Following the acquisitions, the Company’s ownership percentage in ImmuneCyte decreased from 18.79% to 8.64%. The Company performed an analysis of the transaction and noted that none of the factors supporting significant influence changed as a result of the acquisition. Therefore, it was concluded that significant influence remains and the Company will continue to account for the transaction using the equity method. The Company recognized a dilution gain of $262,000 representing its share of the net assets acquired by ImmuneCyte. However, at the time of the acquistion, the Company had accumulated losses of $428,000 in its investment in ImmuneCyte. As the accumulated losses were greater than the dilution gain, no entry was recorded by the Company for its investment in ImmuneCyte for the quarter ended March 31, 2021.

As of June 30, 2021, the value of the Company’s investment in ImmuneCyte on its Balance Sheet is $0. For the quarter ended June 30, 2021, ImmuneCyte had a net income of $599,000, its current assets were $3,753,000 and current liabilities were $2,013,000.

Convertible Promissory Note and Revolving Credit Agreement

In March 2017, ThermoGenesis Holdings entered into a Credit Agreement with Boyalife Asset Holding II, Inc. (the “Lender”). The Lender is a wholly owned subsidiary of the Boyalife Group (USA), Inc., which is owned and controlled by the Company’s Chief Executive Officer and Chairman of our Board of Directors. The Credit Agreement, as amended, 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”). As of June 30, 2021 and December 31, 2020, the Company had an outstanding principal balance on the Loan of $10,000,000.

The Credit Agreement and the Convertible Promissory Note issued thereunder (as amended, 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. In January 2021, the Company paid the Lender, the interest due as of December 31, 2020 in the amount of $2,082,000. The Note can be prepaid in whole or in part by the Company at any time without penalty.

The Credit Agreement and Note were amended in April 2018, granting the Lender the right to convert, at any time, outstanding principal and accrued but unpaid interest into shares of the Company’s common stock at a conversion price of $16.10 per share. The amendment included a down-round provision that lowered the conversion price if the Company issues shares of common stock at a lower price per share, the conversion price of the Note is lowered to that amount. The Company completed a transaction in 2018, which lowered the conversion price to $1.80.

The following summarizes the Note:

	Maturity Date	Stated Interest Rate			Conversion Price		Face Value		Remaining Debt Discount			Carrying Value
At June 30, 2021	3/6/2022		22	%	$	1.80	$	10,000,000	$	(2,410,000	)	$	7,590,000
At December 31, 2020	3/6/2022		22	%	$	1.80	$	10,000,000	$	(4,065,000	)	$	5,935,000

The Company amortized $827,000 and $1,655,000 of debt discount to interest expense for the three and six months ended June 30, 2021 and $729,000 and $1,276,000 for the three and six months ended June 30 2020, respectively. In addition to the amortization, the Company also recorded interest expense of $556,000 and $1,106,000 for the three and six months ended June 30, 2021 and $515,000 and $957,000 for the three and six months ended June 30 2020, respectively. The interest payable balance as of June 30, 2021 and December 31, 2020 was $1,106,000 and $2,082,000, respectively.