Note 4 - Related Party Transactions

9 Months Ended

Sep. 30, 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 Group (USA), Inc. (the “Lender”), 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 the Company the right to borrow up to $10,000,000 (the “Loan”) at any time prior to March 6, 2023 (the “Maturity Date”). 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. In June 2022, the Lender converted a total of $3,000,000 of the outstanding balance of the convertible note into 10,552,234 shares of our common stock. As of September 30, 2022 and December 31, 2021, the outstanding principle balance of the Loan was $7,000,000 and $10,000,000, respectively.

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		Face Value		Debt Discount			Carrying Value
September 30, 2022	3/6/2023		22	%	$	0.21	$	7,000,000	$	(1,867,000	)	$	5,133,000
December 31, 2021	3/6/2022		22	%	$	1.80	$	10,000,000	$	(755,000	)	$	9,245,000

The Note includes a down-round anti-dilution provision that lowers its conversion price if the Company sells shares of common stock or issues convertible debt at a lower price per share. In 2022, the anti-dilution provision was triggered three times, as noted below:

In February 2022, when the conversion price of the Note was at $1.80 per share, the Company sold shares of common stock at $0.64 per share. This resulted in a triggering event lowering the conversion price of the Note to that value. The Company determined that it created an incremental value of $213,000 which was treated as a debt discount and amortized over the remaining term of the Note.

In June 2022, the Company sold shares of common stock at $0.28 per share, resulting in a down round triggering event lowering the conversion price of the Note to that value. The triggering event created an incremental value of $2,475,000 which was treated as a debt discount and will be amortized over the remaining term of the Note.

In July 2022, the Company modified a convertible debt agreement, lowering the conversion price of the debt to $0.21 per share, resulting in a down round triggering event lowering the conversion price of the Note to that value. The triggering event created an incremental value of $1,075,000 which was treated as a debt discount and will be 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 at each triggering event, with the following inputs:

	February 2022			June 2022			July 2022
Conversion price before	$	1.80		$	0.64		$	0.28
Conversion price after	$	0.64		$	0.28		$	0.21
Term (years)		0.02			0.69			0.61
Volatility		39.53	%		85.6	%		99.5	%
Dividend rate		0	%		0	%		0	%
Risk free rate		1.97	%		3.2	%		2.8	%

The Company amortized $940,000 and $1,897,000 of debt discount to interest expense for the three and nine months ended September 30, 2022. The amortization included $742,000, which related to accelerated amortization for the portion of the Note that was converted in June 2022. In addition to the amortization, the Company also recorded interest expense of $394,000 and $1,496,000 for the three and nine months ended September 30, 2022, and $562,000 and $1,668,000 for the three and nine months ended September 30, 2021. The interest payable balance as of September 30, 2022 and December 31, 2021 was $1,099,000 and $2,231,000, respectively.

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 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 three and nine months ended September 30, 2022, no sales were recorded under the license agreement and no royalty payments were made to Boyalife Genomics.