Note 4 - Related Party Transactions

3 Months Ended

Mar. 31, 2022

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

4. Related Party Transactions

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 December 31, 2021, the Company had an outstanding principal balance on the Loan of $10,000,000. On March 4, 2022, the Company amended the Loan extending the Maturity Date by one year to March 6, 2023.

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. The Loan can be prepaid in whole or in part by the Company at any time without penalty.

The following summarizes the Note:

	Maturity Date	Stated Interest Rate			Conversion Price		Carrying Value
At March 31, 2022	3/6/2023		22	%	$	0.64	$	10,000,000
At December 31, 2021	3/6/2022		22	%	$	1.80	$	9,245,000

The Note includes a down round provision that lowers its conversion price if the Company sells shares of common stock at a lower price per share. In February 2022, the Company sold shares of common stock at a price lower than the conversion price of the Note, resulting in a down round triggering event lowering the conversion price of the Note to $0.64 per share.  The Company determined that the triggering event created incremental value of $213,000 which was treated as a debt discount and amortized over the remaining term of the Note.  A Black-Scholes pricing model was utilized to determine the change in the before and after incremental value of the conversion option with the following inputs:

	Before			After
Conversion Price	$	1.80		$	0.64
Term (in years)		0.02			0.02
Volatility		39.53	%		39.53	%
Dividend rate		0	%		0	%
Risk free rate		1.97	%		1.97	%

The Company amortized $213,000 and $827,000 of debt discount to interest expense for the three months ended March 31, 2022 and 2021, respectively. In addition to the amortization, the Company also recorded interest expense of $550,000 for each of the quarters ended March 31, 2022 and 2021. The interest payable balance as of March 31, 2022 and December 31, 2021 was $153,000 and $2,231,000, respectively.

On March 4, 2022, the Company amended the Credit Agreement and the Note to extend the due date by one year to March 6, 2023.  No other terms of the Note were changed as a part of the extension.  The Company performed a debt extinguishment vs. modification analysis.  The analysis determined that the extension would be considered an extinguishment from an accounting standpoint, due to the change in the value of the conversion option.  However, no gain or loss was recorded to the consolidated statement of operations for the quarter ended March 31, 2022 as it was determined that the fair value of the Note was $10,000,000 both before and after the extension.

Boyalife Genomics

On March 24, 2022, the Company entered into a License and Technology Access Agreement with Boyalife Genomics Tianjin Ltd. (“Boyalife Genomics”), a China-based contract development and manufacturing organization (“CDMO”) and an affiliate of ThermoGenesis’ Chairman and Chief Executive Officer, Chris Xu, Ph.D. The agreement provides for a U.S. license to certain existing and future know-how and other intellectual property relating to cell manufacturing and related processes. The Company plans to develop and operate the CDMO cell therapy manufacturing business through a newly formed division named TG Biosynthesis.

Under the terms of the agreement, the Company transferred its remaining 8.64% interest in ImmuneCyte to Boyalife Genomics and agreed to pay a running royalty of 7.5% of its annual net sales of products and services that are covered by one or more of Boyalife Genomics’ granted U.S. patents and a royalty of 5.0% of other products and services covered by other licensed intellectual property. In the quarter ended March 31, 2022, no royalty payments were made to Boyalife Genomics.

Z3 Investment

Also on March 24, 2022, the Company entered into a five year Lease Agreement with Z3 Investment LLC, an affiliate of the Company’s Chairman and CEO, beginning April 1, 2022, for approximately 35,475 square feet of laboratory and office space in Rancho Cordova, California.  Under the terms of the agreement, monthly rent will be $46,000 per month for the first six months, then increasing to $104,000 per month (with a 4% annual increase) thereafter.