Note - 4 Related Party Transactions

6 Months Ended

Jun. 30, 2023

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 the maturity date. On March 6, 2023, the Company entered into an Amendment No. 2 (the “Amendment to the Note”) to its Second Amended and Restated Convertible Promissory Note with Boyalife Group Inc. (the “Note”), and an Amendment No. 3 to its First Amended and Restated Revolving Credit Agreement with Boyalife Group Inc. The Amendment to the Note amended and extended the maturity date of the Note from March 6, 2023 to December 31, 2023 (the “Maturity Date”) and added to the principal balance of the Note all accrued and unpaid interest at the time of the extension, resulting in an outstanding principal balance of $7,278,000 as of March 6, 2023.

The Company performed a debt extinguishment vs. modification analysis on the Amendment to the Note and determined that the amendment would be considered an extinguishment, due to an increase of more than 10% to the value of the embedded conversion option. However, no gain or loss was recorded in the condensed consolidated statements of operations and comprehensive loss at the time of the Amendment as it was determined that the fair value of the Amendment to the Note and accrued interest was $7,278,000 both before and after the extension.

The Credit Agreement and the Note, as amended 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
June 30, 2023	12/31/23		22	%	$	2.65	$	7,278,000	$	(521,000	)	$	6,757,000
December 31, 2022	12/31/23		22	%	$	6.30	$	7,000,000	$	(1,223,000	)	$	5,777,000

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. Through June 30, 2023, the down-round provision was triggered as noted below:

In January 2023, when the conversion price of the Note was at $6.30 per share, the Company amended a previously outstanding convertible note, resulting in a triggering event lowering the conversion price of the Note to $2.87. The Company determined that it created an incremental value of $2,350,000 which was treated as a discount to the carrying amount of the Note and amortized over its remaining term.

In March 2023, the Company sold shares of common stock and warrants at $2.65 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 $810,000 which was treated as a discount to the carrying amount of the Note and will be amortized over its remaining term.

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:

	January 2023			March 2023
Conversion price before	$	6.30		$	2.87
Conversion price after	$	2.87		$	2.65
Term (years)		0.09			0.78
Volatility		167	%		168.9	%
Dividend rate		0	%		0	%
Risk free rate		4.46	%		4.20	%

For the three and six months ended June 30, 2023, the Company amortized $258,000 and $3,862,000 of debt discount related to triggering events, compared to $742,000 and $955,000 for the three and six months ended June 30, 2022. In addition to the amortization, the Company also recorded interest expense of $405,000 and $794,000 for the three and six months ended June 30, 2023, compared to $552,000 and $1,102,000 for the three and six months ended June 30, 2022, respectively. The interest payable balance as of June 30, 2023 and December 31, 2022 was $516,000 and $1,492,000, 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 division named TG Biosynthesis.

Under the terms of the agreement, the Company transferred its remaining 8.64% interest in ImmuneCyte, Inc. 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 six months ended June 30, 2023, no sales were recorded under the license agreement and no royalty payments were made to Boyalife Genomics.