ThermoGenesis Holdings, Inc. - Annual Report: 2019 (Form 10-K)

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

This Annual Report contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact included in this Annual Report, are forward-looking statements. Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this Annual Report. Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” “plan,” “predict,” “seek,” “should,” “would,” “could,” “potential,” “ongoing,” or similar terms, variations of such terms, or the negative of such terms, and include, but are not limited to, statements regarding projected results of operations, capital expenditures, earnings, management’s future strategic plans, development of new technologies and services, litigation, regulatory matters, market acceptance and performance of our services, the success and effectiveness of our technologies and services, our ability to retain and hire key personnel, the competitive nature of and anticipated growth in our markets, market position of our services, marketing efforts and partnerships, liquidity and capital resources, our accounting estimates, and our assumptions and judgments. Such statements are based on management’s current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by us, all of which are subject to change.

These forward looking statements are not guarantees of future results and are subject to a number of risks, uncertainties and assumptions that are difficult to predict and that could cause actual results to differ materially and adversely from those described in the forward-looking statements, including:

These forward-looking statements speak only as of the date of this Annual Report and we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based, except as otherwise required by law. Additional factors that could cause such results to differ materially from those described in the forward-looking statements are set forth in connection with the forward-looking statements.

TRADEMARKS

This Annual Report contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Annual Report, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

PART I

ITEM 1.     BUSINESS

ThermoGenesis Holdings, Inc. (“ThermoGenesis Holdings”, the “Company”, “our”, or “we”), formerly known as Cesca Therapeutics Inc.is a pioneer and market leader in the development and commercialization of automated cell processing technologies for the cell and gene therapy field. The company markets a full suite of solutions for automated clinical biobanking, point-of-care applications, and large-scale cell processing and manufacturing for the emerging CAR-T immunotherapy market. Since the 1990’s ThermoGenesis Holdings has been a leading provider of automated systems that isolate, purify and cryogenically store units of hematopoietic stem and progenitor cells for the cord blood banking industry. The Company was incorporated in 1986 and is registered in the State of Delaware and headquartered in Rancho Cordova, CA.

ThermoGenesis Holdings has two separately reported business segments: A “Device Segment” and a “Clinical Development Segment.”  The Device Segment develops and commercializes automated systems that are used for, clinical grade cell-banking, point-of-care applications, and large-scale cell processing.  The Clinical Development Segment is developing autologous (utilizing the patient’s own cells) cell-based therapeutics that address significant unmet medical needs for the vascular, cardiology and orthopedic markets.

Recent Corporate Name Change

On November 1, 2019, Cesca Therapeutics Inc. changed its corporate name to ThermoGenesis Holdings, Inc. in order to better reflect its new strategic focus on becoming a key solution provider for cell manufacturing tools and services in the cell and gene therapy markets. In conjunction with the name change, the Company began trading under the new Nasdaq ticker symbol, THMO. In addition, the Company changed its CUSIP number to 88362L100.

Our Business Strategy

Our business strategy is to leverage our over 30 years of expertise, our strong intellectual property portfolio and significant know-how in the development and commercialization of automated cell processing technologies for the cell and gene therapy field. The company markets a full suite of solutions for automated clinical biobanking, point-of-care applications, and large scale cell processing and manufacturing for the emerging CAR-T immunotherapy market.

Clinical Bio-Banking

ThermoGenesis is a market leader in the development and commercialization of automated technologies for cell-based therapeutics and bioprocessing. With over 300 BioArchive Systems and 500 AXP^® Systems sold, we continue to be the critical supplier of devices and disposables used in the processing of cord blood samples for the largest and most prestigious cord blood banks worldwide. Our Systems are used in 37 countries and greater than 1,000,000 cord blood units have been processed using our technology to date.

Clinical Bio-Banking Applications:

Point-of-Care Application

The PXP^® System is our point-of-care device utilizing technology for processing bone marrow concentrate and is highly innovative pairing both speed and performance.

CAR-TXpress Platform (Large Scale Cell Processing)

With revolutionary cell-based therapies, such as CAR-T (chimeric antigen receptor T-cell) for cancer becoming a reality, developers must address a key challenge: how to manufacture high-quality, clinical-grade cell therapies at commercial scale to provide these groundbreaking treatments to as many patients as possible. Traditional cell processing methodologies are manual and time consuming, presenting an obstacle to large-scale manufactures of adoptive cell therapies.

In contrast, ThermoGenesis Holdings is keeping up with the fast-past field by developing the CAR-TXpress™ Platform designed to automate many of the manual steps involved in cell processing. The CAR-TXpress Platform is a multi-system package that provides a stream-lined solution for cell processing, selection, washing, and cryopreservation. The CAR-TXpress Platform can provide a comprehensive and commercially viable, semi-automated cellular manufacturing and control (“CMC”) solution for the development of CAR-T therapeutics.

CAR-TXpress eliminates the use of density gradient media for isolation and replaces magnetic bead-based systems used for selection procedures, thereby dramatically reducing processing time and increasing cell recoveries, in order to significantly reduce the overall manufacturing time and cost and increase the yield/efficiency of high value samples.

CAR-TXpress Processing Applications

Cell Manufacturing Services

Through our TotipotentRX subsidiary in Gurgaon, India, we operate an advanced clinical cell manufacturing, processing, testing, and storage facility, compliant with current GMP, Good Tissue Practices (“GTP”), and Good Laboratory Practices (“GLP”). We can support the production of a small, personalized medicine cell prescription or a large-scale batch process. Patient samples, batch samples, and therapeutic aliquots are all labeled in accordance with ISBT 128 and stored in our own cryogenics’ facility. In partnership with Fortis Healthcare we also operate commercial service programs supporting bone marrow transplantation (hematopoietic stem cell transplantation) for hematological and oncological disorders.

Recent Key Events and Accomplishments

Sales and Distribution Channels

We market and sell our products through independent distributors, except in North America and India, where we sell direct to end-user customers.

Research and Development

Our research and development activities for 2019 were geared towards expanding the automated platform for the immune-oncology applications while maintaining our bio-banking and point-of-care automation solutions. In 2019, the Company released the enhanced X-Mini CD-3 Selection Kit for the research market and developed an enhanced PXP-1000 system. We also improved our AXP^®, and BioArchive^® platforms with a focus on both performance improvements and ease of use. Emphasis was also placed on enhancing the capabilities of our contract manufacturing partners and building on our product quality leadership position.

Collectively, research and development expenses were $2,396,000 and $3,012,000 for the years ended December 31, 2019 and 2018, respectively. Research and development activities include expenses associated with the engineering, regulatory, scientific and clinical affairs functions.

Manufacturing and Raw Materials

We source components for our products from multiple suppliers that manufacture to our engineering specifications. Our high-volume disposable products are manufactured using contract manufacturers. AXP disposable bagsets are manufactured by Viant Medical and our manual processing bagsets are manufactured by Pall Medical Corporation. We utilize our manufacturing facility in Rancho Cordova, California for production of our low volume, high complexity devices. Additionally, in 2019, the Company completed the construction and qualification of an in-house clean room for the assembly of the X-Series disposable cartridges. We used this facility for the manufacturing of all disposable cartridges in 2019. Various raw materials are used to manufacture our products. The raw materials are generally available from multiple sources. We have not had significant difficulty in obtaining necessary raw materials.

Quality System

Our quality system is compliant with domestic and international standards and is appropriate for the specific devices we manufacture. Our corporate quality policies govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging, labeling, storage, installation, and servicing of all finished devices intended for human use. Such policies are intended to ensure that the products we market are safe, effective, and otherwise in compliance with the FDA Quality System Regulation (“QSR”) (21 C.F.R. Part 820) and the applicable rules of other governmental agencies.

We and our contract manufacturers are subject to inspections by the FDA and other regulatory agencies to ensure compliance with applicable regulations, codified in the FDA’s Quality System Regulations (“QSRs”). Compliance requirements relate to manufacturing processes, product testing, documentation control and other quality assurance procedures. Our facilities have undergone International Organization of Standards (“ISO”) 13485:2016 and EU Medical Device Directive (“MDD”) (93/42/EEC) inspections and we have obtained approval to CE-Mark our products. We have received our updated certificate demonstrating compliance to this standard under the Medical Device Single Audit Program (“MDSAP”).

Regulatory Scheme and Strategy

The development, manufacture and marketing of our cell therapy products, as well as the design and implementation of our clinical trials, are subject to regulation by the FDA as well as the equivalent agencies of other countries including the countries of the European Union and India.

The trials we conduct in India are compliant with the applicable rules of the Indian Council for Medical Research, Ministry of Health Order No. V.25011/375/2010-HR and requisite institutional ethics committee (“IEC”) and institutional committee for stem cell research and therapy (“IC-SCRT”) approvals. Both the U.S. and E.U. regulatory agencies are experienced in dealing with and accepting Indian clinical trial data. Good Clinical Practice (“GCP”) guidelines necessitates review and approval by an Institutional Review Board (“IRB”) before initiation of a study, continuing review of an ongoing study by an IRB, and the documented receipt of a freely given informed consent prior to participation in the study from each subject participant.

We have a quality and regulatory compliance management system that meets the requirements of the ISO 13485: 2003 standard, the FDA’s QSRs, the EU MDD, Canadian Medical Device Regulations (SOR 98-282), and all other applicable local, state, national and international regulations.

Medical Devices. The FDA regulates medical devices to ensure their safety and efficacy under the Federal Food Drug and Cosmetic Act (“FD&C”). Medical devices are defined by language within the FD&C Act which essentially states that a product is considered a medical device if it is intended to provide a diagnosis or basis for treatment. Once a company determines that its product is a medical device, it is required to comply with a number of federal regulations. These include the following:

The FDA classifies medical devices into three groups: Class I, II or III. These are stratified from lowest to highest safety risk, and regulatory controls increase based on Class.

Class I Devices

Some of our products are considered to pose little or no risk when used as directed and have been deemed by the FDA to be “exempt” from FDA approval or clearance processes prior to commercialization. While pre-marketing FDA review is not mandatory for Exempt Class I medical devices, the manufacturer’s compliance with QSR is nevertheless a requirement.

Class II Devices

Several of our products, including the BioArchive and the AXP are categorized as U.S. Class II medical devices and require premarket notification, also known as a section 510(k) clearance, prior to commercialization. Data submitted as part of a 510(k) process must demonstrate a device is “substantially equivalent” with a predicate device that is already on the market. Once 510(k) clearance has been secured, the new medical device may be marketed for its intended use and distributed in the U.S.

Class III Devices

If a product is considered a Class III device, the FDA approval process is more stringent and time-consuming, and includes the following:

Pre-clinical testing typically involves in vitro laboratory analysis and in vivo animal studies to obtain information related to such things as product safety, feasibility, biological activity and reproducibility. The results of pre-clinical studies are submitted to the FDA as part of an IDE application and are reviewed by the Agency before human clinical trials can begin.

Higher risk clinical trials conducted inside the U.S. are subject to FDA IDE regulation (21 C.F.R. Part 812), or an Investigational New Drug (“IND”) application (21 C.F.R. Part 312). Clinical trials conducted outside the U.S., and the data collected therefrom are allowed in accordance with applicable FDA requirements. The FDA or the sponsor may suspend a clinical trial at any time if either believes that study participants may be exposed to an unacceptable health risk.

For certain Class III devices, data generated during product development, pre-clinical studies, and human clinical studies must be submitted to the FDA as a PMA application in order to secure approval for commercialization in the U.S. The FDA may deny the approval of a PMA application if applicable regulatory criteria are not satisfied and, in some cases, may mandate additional clinical testing. Product approvals, once obtained, can be withdrawn if compliance with regulatory standards is not maintained or if safety concerns arise after the product reaches the market. The FDA might also require post-marketing testing and surveillance programs to monitor the safety and efficacy of a medical device and has the power to forbid or limit future marketing of the product based on the results of such programs.

Other U.S. Regulatory Information

Medical device manufacturers must register with the FDA and submit their manufacturing facilities to biennial inspections to ensure compliance with applicable regulations. Failure to comply with FDA requirements can result in withdrawal of marketing clearances, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production or loss of distribution rights. In addition, device manufacturing facilities in the state of California must be registered with the California State Food and Drug Branch of the California Department of Public Health and submit to an annual inspection by the State of California to ensure compliance with applicable state regulations. We are also subject to a variety of environmental laws as well as workplace safety, hazardous material, and controlled substances regulations.

Also, federal transparency requirements, sometimes referred to as the “Sunshine Act” under the Patient Protection and Affordable Care Act, require manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests.

Changes in these laws at all levels of government are frequent and could increase our cost of doing business. If we fail to comply, even inadvertently, with any of these requirements, we could be required to alter our operations, refund payments to the government, lose our licensure or accreditation, enter into corporate integrity, deferred prosecution or similar agreements with state or federal government agencies, and become subject to significant civil and criminal penalties.

International Regulatory Requirements

International regulatory requirements differ somewhat from those of the U.S. In the EU, a single regulatory approval process has been created and approval is represented by CE-Marking. To be able to affix the CE-Mark to our medical devices and distribute them in the EU, we must meet minimum standards for safety and quality (known as the essential requirements) and comply with one or more conformity rules. A notified body assesses our quality management system and compliance with the Medical Device Directive. Marketing authorization can be revoked by the applicable governmental agency or notified body in the event of an unsuccessful quality system annual audit.

In India, the regulatory body having oversight of medical devices, therapies, and cell banking is the Central Drugs Standard Control Organization (“CDSCO”), and specifically the Drugs Controller General India office. Our marketing and facilities licenses are subject to revocation by the applicable state Drug Controller in Haryana or DCGI.

Patents and Proprietary Rights

We believe that patent protection is important for our products and current and proposed business. We currently have over 30 issued patents globally. The patent positions can be uncertain because they involve interpretation of complex factual information and an evolving legal environment. The coverage sought in a patent application can be denied or significantly reduced either before or after the patent is issued. There can be no assurance that any of our pending patent applications will actually result in an issued patent. Furthermore, there can be no assurance that any existing or future patent will provide significant protection or commercial advantage, or that any existing or future patent will not be circumvented by a more basic patent. Generally, patent applications can be maintained in secrecy for at least 18 months after their earliest priority date. In addition, publication of discoveries in the scientific or patent literature often lags behind actual discoveries. Therefore, we cannot be certain that we were the first to invent or the first to file a patent application for the subject matter covered by each of our pending U.S. and foreign patent applications.

If a third-party files a patent application relating to an invention claimed in our patent application, we may be required to participate in an interference or derivation proceeding conducted by the U.S. Patent and Trademark Office to determine who owns the patent. Such proceeding could involve substantial uncertainties and cost, even if the eventual outcome is favorable to us. There can be no assurance that our patents, if issued, would be upheld as valid in court.

Agreements

The following are certain material agreements involving our business in effect as of December 31, 2019:

Healthbanks Biotech (USA) Inc.

On November 26, 2019 the Company entered into a joint venture agreement with HealthBanks Biotech (USA) Inc. (the “JV Agreement”) to form a new company called ImmuneCyte Life Sciences, 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 JV Agreement, ImmuneCyte will initially be owned 80% by HealthBanks Biotech and 20% by ThermoGenesis. ImmuneCyte will be among the first immune cell banks in the U.S. and offer customers the ability to preserve younger, healthier and uncontaminated immune cells for future potential use in dendritic and chimeric antigen receptor (“CAR-T”) cell therapies, in a GMP compliant processing environment. The Company’s principal contribution to ImmuneCyte will be a supply agreement under which ImmuneCyte will have the exclusive right to purchase the Company’s proprietary cell processing equipment in the immune cell banking business and a non-exclusive right to purchase it for other cell-based contract development and manufacturing (“CMO/CDMO”) services at a price equal to 115% of the Company’s cost. The Company will also contribute to ImmuneCyte intellectual property and trademarks relating to the Company’s clinical development assets as a result of the Company’s decision to discontinue its clinical development program. Healthbanks contributed to ImmuneCyte a paid-up, royalty free license to use its proprietary business management system, customer relationship management software, and laboratory information statement, and it will also make available a $1,000,000 unsecured, non-convertible line of credit to ImmuneCyte to provide initial operating capital. Healthbanks is a subsidiary of Boyalife Group, Inc. (USA), the owner of Boyalife Asset Holding II, Inc., which is the largest stockholder of the Company, and is owned by Dr. Xiaochun (Chris) Xu, the Company’s Chief Executive Officer and Chairman of our Board of Directors.

Corning Incorporated

On August 30, 2019, the Company entered into a Supply Agreement with Corning (the “Supply Agreement”). The Supply Agreement has an initial term of five years with automatic two-year renewal terms, unless terminated by either party in accordance with the terms of the Supply Agreement (collectively, the “Term”). Pursuant to the Supply Agreement, the Company has granted to Corning exclusive worldwide distribution rights for substantially all X-Series^® products under the CAR-TXpress™ platform (the “Products”) manufactured by its subsidiary, ThermoGenesis Corp., for the duration of the Term, subject to certain geographical and other exceptions. In addition, the Company has granted Corning rights of first refusal for the exclusive worldwide distribution of certain future products developed or introduced by the Company relating to cell isolation or cell selection, including any such products substantially related or similar to the Products (the “ROFR Products”). As consideration for the exclusive worldwide distribution rights for the Products and ROFR Products, Corning has agreed to pay a $2,000,000 fee, in addition to any amounts payable throughout the Term for the Products and any ROFR Products. The Supply Agreement also contains an option, exercisable by Corning at any time following January 1, 2021, to become the manufacturer for all or any portion of the Products.

IncoCell Tianjin Ltd

On March 12, 2018, ThermoGenesis Corp. entered into a License Agreement (the “IncoCell Agreement”) with IncoCell Tianjin Ltd., a wholly-owned subsidiary of Boyalife Group (“IncoCell”). Boyalife Group is an affiliate of the Company’s Chief Executive Officer and Chairman of our Board of Directors, and Boyalife (Hong Kong) Limited. Under the terms of the IncoCell Agreement, ThermoGenesis Corp. granted IncoCell an exclusive license to use the ThermoGenesis Corp. 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 “IncoCell Territories”).

Pursuant to the terms of the IncoCell Agreement, ThermoGenesis Corp. 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 IncoCell Territories. In exchange, ThermoGenesis Corp. 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 IncoCell 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 recorded revenue of $83,000 related to product sales under this agreement for the year ended December 31, 2019, and $14,000 for the year ended December 31, 2018. The Company recorded no revenue under the contract development portion of the Agreement for the years ended December 31, 2019 and 2018.

CBR Systems, Inc. (“CBR”)

Effective May 15, 2017 we entered into a Manufacturing and Supply Agreement with CBR which replaced the prior December 31, 2013 Sale and Purchase Agreement in which we agreed to supply CBR with the AXP cord blood processing system and disposables. The term of the Manufacturing and supply Agreement is for three years and will automatically renew in one-year increments unless either party provides written notice of its intention not to renew six months prior to the end of the term.

In June 2010, we entered into a License and Escrow Agreement in order to alleviate CBR’s concerns about potential long-term supply risk. We are the sole supplier of critical devices and disposables used in the processing of cord blood samples in CBR’s operations. Under the License and Escrow Agreement, we granted CBR a perpetual, non-exclusive, royalty-free license to certain intellectual property necessary for the manufacture of AXP^® devices and disposables. The license is for the sole and limited purpose of ensuring continued supply of the AXP and related disposables for use by CBR. The licensed intellectual property is held in escrow and available to CBR only in the event of a default under the License and Escrow Agreement. Effective May 15, 2017 we entered into a Sixth Amended and Restated Technology License and Escrow Agreement with CBR. This amendment, among other things, changes the circumstances that constitute a “Default” thereunder and conditions the circumstances under which CBR may, upon a default by the Company, purchase licensed products directly from the Company’s manufacturers and suppliers. The events or conditions of default include: a cash balance coupled with short-term investments net of debt or borrowed funds that are payable within one year of less than $2,000,000 (amended to $1,000,000 in March 2020) at any month end or we fail to provide products pursuant to the Manufacturing and Supply Agreement. We were in compliance with the License and Escrow Agreement at December 31, 2019.

Boyalife W.S.N.

On August 21, 2017, our subsidiary, ThermoGenesis Corp. entered into an International Distributor Agreement with Boyalife W.S.N., a Chinese corporation and affiliate of the Company. 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 Corp. 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”). The agreement replaced our prior distribution agreement with Golden Meditech, which expired in August 2017 and had granted similar exclusive distribution rights in the Territories. Boyalife W.S.N. is an affiliate of Dr. Xiaochun Xu, 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 Corp. products in the Territories. The term of the agreement is for three years with ThermoGenesis Corp. having the right to renew the agreement for successive two-year periods at its option.

Employees

As of December 31, 2019, we and our subsidiaries had 50 employees, 45 of whom were employed in the U.S. and 5 of whom were employed in India. We also utilize temporary employees throughout the year to address business needs and significant fluctuations in orders and product manufacturing. None of our employees are covered by a collective bargaining agreement, nor have we experienced any work stoppage.

Foreign Sales and Operations

See Note 12 of our Notes to Consolidated Financial Statements for information on our sales and operations outside of the U.S.

Where you can Find More Information

We are required to file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other information, including our proxy statement, with the Securities and Exchange Commission (“SEC”). The public can obtain copies of these materials by accessing the SEC’s website at http://www.sec.gov. In addition, as soon as reasonably practicable after these materials are filed with or furnished to the SEC, we will make copies available to the public free of charge through our website, http://www.thermogenesis.com. The information on our website is not incorporated into, and is not part of, this Annual Report on Form 10-K or our other filings with the SEC.

ITEM 1A.     RISK FACTORS

An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below together with all of the other information included or incorporated by reference in this Annual Report. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are not aware of or focused on or that we currently deem immaterial may also impair our business operations. This Annual Report is qualified in its entirety by these risk factors.

If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and you could lose all or part of your investment.

Risks Related to Our Structure and Business

A third party owns 20% of our subsidiary, CARTXpress Bio, Inc. (CARTXpress Bio), and holds certain minority investor rights therein. These rights could limit or delay our ability to take certain major actions relating to CARTXpress Bio. In January 2019, ThermoGenesis Corp. contributed its X-Series business into a newly formed subsidiary of ThermoGenesis Corp., CARTXpress Bio. Pursuant to the terms of a reorganization and share exchange agreement, ThermoGenesis Holdings acquired a 20% equity ownership in ThermoGenesis Corp. from Bay City Capital Fund V, L.P. and certain of its affiliates (“Bay City”). In exchange, Bay City acquired a 20% ownership in CARTXpress Bio. As a result of these transactions, ThermoGenesis Corp. became a wholly-owned subsidiary of ThermoGenesis Holdings, and ThermoGenesis Corp. owns 80% of the outstanding equity of CARTXpress Bio, while Bay City owns the remaining 20% of the outstanding equity of CARTXpress Bio. While we continue to indirectly own 80% of the outstanding capital stock of CARTXpress Bio, Bay City was granted certain minority investor rights in CARTXpress Bio. These rights include board representation rights, a right of first refusal over sales of CARTXpress Bio. stock by us, co-sale rights with respect to any sale of CARTXpress Bio stock by us, certain piggyback and Form S-3 registration rights in the event that CARTXpress Bio becomes a publicly traded company at any time in the future and other rights as detailed in the Investors’ Rights Agreement. In addition, the board of directors of CARTXpress Bio is comprised of three persons, two of whom are designated by us and one of whom is designated by Bay City. The foregoing minority investor rights in CARTXpress Bio could limit or delay our ability or flexibility to take certain major actions or make major decisions relating to CARTXpress Bio that might be beneficial to our stockholders, unless such actions or decisions have the consent or support of Bay City. Accordingly, the minority investor rights in CARTXpress Bio could have a negative impact on the market price of our common stock.

Our largest stockholder has significant influence over us which could limit your ability to influence the outcome of key transactions, including a change of control, and could negatively impact the market price of our common stock by discouraging third party investors. As of December 31, 2019, approximately 24% of our outstanding common stock is owned by Boyalife Asset Holding II, Inc (“Boyalife”). In addition, pursuant to the terms of the Amended Nomination Agreement we entered into with Boyalife in April 2018, Boyalife has the right to designate a number of members of our board of directors that is in proportion to the “Boyalife Ownership Percentage”, which is Boyalife and its affiliates’ combined percentage ownership of outstanding common stock, treating as outstanding any shares of common stock underlying convertible securities that are immediately exercisable by Boyalife and its affiliates’ (including under the debt facility) without any further payment. The Amended Nomination Agreement will terminate according to its terms when and if the Boyalife Ownership Percentage falls below 20%.

Boyalife is 100% owned by Dr. Xiaochun Xu, our Chief Executive Officer and Chairman of our Board of Directors. As a result of their ownership and ability to designate members of our Board of Directors, Boyalife (including Dr. Xu) is able to exercise significant influence over all matters affecting us, including the election of directors, formation and execution of business strategy and approval of mergers, acquisitions and other significant corporate transactions, which may have an adverse effect on our stock price and ability to execute our strategic initiatives. Boyalife and/or Dr. Xu may have conflicts of interest and interests that are not aligned with those of other investors in all respects. As a result of the concentrated ownership of our common stock, Dr. Xu may be able to control matters requiring stockholder approval, including the election of directors, the adoption of amendments to our certificate of incorporation and bylaws, and approval of a sale of our Company, and other significant corporate transactions. This concentration of ownership may delay or prevent a change in control and may have a negative impact on the market price of our common stock by discouraging third party investors from investing or making tender offers for our shares.

In addition, Boyalife is a material creditor of our company. We are a party to a revolving debt facility with Boyalife which has a maximum borrowing availability of $10,000,000 and an outstanding balance as of December 31, 2019 of $8,713,000 in principal and $1,869,000 in accrued interest. In February 2020, Boyalife converted $3.0 million of the outstanding balance of the convertible note into an aggregate of 1.67 million shares of our common stock. The debt facility matures on March 6, 2022, with accrued interest due annually on the last day of each calendar year. Because this debt facility is secured by all of our shares in our ThermoGenesis Corp. subsidiary, an event of default under the debt facility would have a material adverse impact on our interest in ThermoGenesis Corp. if the lender under the debt facility elected to foreclose on such security interest.

We utilize debt financing from outside the U.S. and an inability to obtain funds when requested could adversely impact operations. We use debt financing for working capital and other cash requirements.  Our ability to use this funding source may be impacted by reasons such as default or foreign government policies that restrict or prohibit transferring funds.  In the event that we were not able to obtain funds as needed, it could result in delays to project funding or non-compliance with cash-based covenants.

We may seek to enter into collaborative arrangements to develop and commercialize products which may not be successful. We may seek to enter into collaborative arrangements to develop and commercialize some of our potential products and product candidates both in North America and international markets. There can be no assurance that we will be able to negotiate collaborative arrangements on favorable terms or at all or that current or future collaborative arrangements will be successful.

A significant portion of revenue is derived from customers outside the United States. We may lose revenues, market share, and profits due to exchange rate fluctuations and political and economic changes related to its foreign business. For the year ended December 31, 2019, sales to customers outside the U.S. comprised approximately 48% of revenues. This compares to 50% for the year ended December 31, 2018. Our foreign business is subject to economic, political and regulatory uncertainties and risks that are unique to each area of the world. Fluctuations in exchange rates may also affect the prices that foreign customers are willing to pay and may put us at a price disadvantage compared to other competitors. Potentially volatile shifts in exchange rates may negatively affect our financial position and results.

The loss of a significant distributor or end user customer may adversely affect financial condition and results of operations. Revenues from our largest customer comprised 28% of revenues for the year ended December 31, 2019. Revenues from our largest distributor comprised 11% of revenues for the year ended December 31, 2019. The loss of a large customer or distributor may significantly decrease revenues.

We may be exposed to liabilities under the foreign corrupt practices act and any determination that we violated these laws could have a material adverse effect on our business. We are subject to the Foreign Corrupt Practices Act (“FCPA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and our employees, consultants, sales agents or distributors may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition.

Adverse results of legal proceedings could have a material adverse effect on us. We are subject to, and may in the future be subject to, a variety of legal proceedings and claims that arise out of the ordinary conduct of our business. Results of legal proceedings cannot be predicted with certainty. Irrespective of their merits, legal proceedings may be both lengthy and disruptive to our operations and may cause significant expenditure and diversion of management attention. We may be faced with significant monetary damages or injunctive relief against us that could have a material adverse effect on a portion of our business operations or a material adverse effect on our financial condition and results of operations.

Risks Related to Our Operations

We do not have commercial-scale manufacturing capability and have minimal commercial manufacturing experience. We operate GMP manufacturing facilities for device production; however, they are not of sufficient size for large commercial production. We do not have experience in large scale manufacturing, and currently rely on third-party contract manufacturers for a significant portion of our device production. We expect to depend on these contract manufacturers for the foreseeable future. Any performance failure on the part of our contract manufacturers could delay production of our current or future products, depriving us of potential product revenues and resulting in additional losses.

We have limited sales, marketing and distribution capabilities which may limit our ability to significantly increase sales quickly. We have limited internal capabilities in the sales, marketing, and distribution areas. There can be no assurance that we will be able to establish sales, marketing, and distribution capabilities internally or make arrangements with current collaborators or others to perform such activities or that such effort will be successful. If we decide to market any of our new products directly, we must either partner, acquire or internally develop a marketing and sales force with technical expertise and with supporting distribution capabilities. The acquisition or development of a sales, marketing and distribution infrastructure would require substantial resources, which may not be available to us or, even if available, divert the attention of our management and key personnel, and have a negative impact on further product development efforts.

Our inability to protect our patents, trademarks, trade secrets and other proprietary rights could adversely impact our competitive position. We believe that our patents, trademarks, trade secrets and other proprietary rights are important to our success and our competitive position. Accordingly, we commit substantial resources to the establishment and protection of our patents, trademarks, trade secrets and proprietary rights. We use various methods, including confidentiality agreements with employees, vendors, and customers, to protect our trade secrets and proprietary know-how for our products. We currently hold patents for products, and have patents pending in certain countries for additional products that we market or intend to market. However, our actions to establish and protect our patents, trademarks, and other proprietary rights may be inadequate to prevent imitation of our products by others or to prevent others from claiming violations of their trademarks and proprietary rights by us. If our products are challenged as infringing upon patents of other parties, we may be required to modify the design of the product, obtain a license, or litigate the issues, all of which may have an adverse business effect on us.

We may be subject to claims that our products or processes infringe the intellectual property rights of others, which may cause us to pay unexpected litigation costs or damages, modify our products or processes or prevent us from selling our products. Although it is our intention to avoid infringing or otherwise violating the intellectual property rights of others, third parties may nevertheless claim that our processes and products infringe their intellectual property and other rights. Our strategies of capitalizing on growing international demand as well as developing new innovative products across multiple business lines present similar infringement claim risks both internationally and in the U.S. as we expand the scope of our product offerings and markets. We compete with other companies for contracts in some small or specialized industries, which increase the risk that the other companies will develop overlapping technologies leading to an increased possibility that infringement claims will arise. Whether or not these claims have merit, we may be subject to costly and time-consuming legal proceedings, and this could divert management’s attention from operating our business. In order to resolve such proceedings, we may need to obtain licenses from these third parties or substantially re-engineer or rename our products in order to avoid infringement. In addition, we might not be able to obtain the necessary licenses on acceptable terms, or at all, or be able to re-engineer or rename our products successfully.

We commercially, in co-branding with Fortis Healthcare, bank and store private cord blood stem cells in our TotipotentRX GMP facility. We could be subject to unexpected litigation costs or damages for loss of one or more family owned units of cord blood or if one of the cord blood units we store causes bodily injury. We face an inherent business risk of exposure to product liability claims if our products or product candidates are alleged or found to have caused injury or cannot be used for some reason within our control and are found to result in injury or death. While we believe that our current liability insurance coverage is adequate for our present clinical and commercial activities, we may not be able to maintain insurance on acceptable terms or at all. If we are unable to obtain insurance or any claims against us substantially exceed our coverage, then our business could be adversely impacted.

We may not be able to protect our intellectual property in countries outside the United States. Intellectual property law outside the United States is uncertain and in many countries is currently undergoing review and revisions. The laws of some countries do not protect our patent and other intellectual property rights to the same extent as United States laws. This is particularly relevant to us as a significant amount of our current and projected future sales are outside of the United States. Third parties may attempt to oppose the issuance of patents to us in foreign countries by initiating opposition proceedings. Opposition proceedings against any of our patent filings in a foreign country could have an adverse effect on our corresponding patents that are issued or pending in the United States. It may be necessary or useful for us to participate in proceedings to determine the validity of our patents or our competitors’ patents that have been issued in countries other than the U.S. This could result in substantial costs, divert our efforts and attention from other aspects of our business, and could have a material adverse effect on our results of operations and financial condition.

Any failure to achieve and maintain the high design and manufacturing standards that our products require may seriously harm our business. Our products require precise, high-quality manufacturing. Achieving precision and quality control requires skill and diligence by our personnel as well as our vendors. Our failure to achieve and maintain these high manufacturing standards, including the incidence of manufacturing errors, design defects or component failures could result in patient injury or death, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could seriously hurt our business. Additionally, the large amount of AXP disposable inventory certain distributors and end-users maintain may delay the identification of a manufacturing error and expand the financial impact. A manufacturing error or defect, or previously undetected design defect, or uncorrected impurity or variation in a raw material component, either unknown or undetected, could affect the product. Despite our very high manufacturing standards, we cannot completely eliminate the risk of errors, defects or failures. If we or our vendors are unable to manufacture our products in accordance with necessary quality standards, our business and results of operations may be negatively affected.

Our revenues and operating results may be adversely affected as a result of our required compliance with the adopted EU directive on the restriction of the use of hazardous substances in electrical and electronic equipment, as well as other standards around the world. A number of domestic and foreign jurisdictions seek to restrict the use of various substances, a number of which have been or are currently used in our products or processes. For example, the EU Restriction of Hazardous Substances in Electrical and Electronic Equipment (“RoHS”) Directive now requires that certain substances, which may be found in certain products we have manufactured in the past, be removed from all electronics components. Other countries, such as China, have enacted or may enact laws or regulations similar to RoHS. Eliminating such substances from our manufacturing processes requires the expenditure of additional research and development funds to seek alternative substances for our products, as well as increased testing by third parties to ensure the quality of our products and compliance with the RoHS Directive. While we have implemented a compliance program to ensure our product offerings meet these regulations, there may be instances where alternative substances will not be available or commercially feasible, or may only be available from a single source, or may be significantly more expensive than their restricted counterparts. Therefore, we have focused our compliance efforts on those products and geographical areas in which we have the highest revenue potential. Our failure to comply with past, present and future similar laws could result in reduced sales of our products, substantial product inventory write-offs, reputation damage, penalties and other sanctions, any of which could harm our business and operating results.

Our products may be subject to product recalls which may harm our reputation and divert our managerial and financial resources. The FDA and similar governmental authorities in other countries have the authority to order the mandatory recall of our products or order their removal from the market if the governmental entity finds our products might cause adverse health consequences or death. The FDA may also seize product or prevent further distribution. A government-mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors or design defects (including labeling defects). In the past, we have initiated voluntary recalls of some of our products and we could do so in the future. Any recall of our products may harm our reputation with customers, divert managerial and financial resources and negatively impact our profitability.

We are dependent on our suppliers and manufacturers to meet existing regulations. Certain of our suppliers and manufacturers are subject to heavy government regulations, including FDA QSR compliance, in the operation of their facilities, products and manufacturing processes. Any adverse action by the FDA against our suppliers or manufacturers could delay supply or manufacture of component products required to be integrated or sold with our products. Although we attempt to mitigate this risk through inventory held directly or through distributors, and audit our suppliers, there are no assurances we will be successful in identifying issues early enough to allow for corrective action or transition to an alternative supplier, or in locating an alternative supplier or manufacturer to meet product shipment or launch deadlines. As a result, our sales, contractual commitments and financial forecasts may be significantly affected by any such delays.

Dependence on suppliers for custom components may impact the production schedule. We obtain products and custom components from a limited number of suppliers. If the supplier raises the price or discontinues production, we may have to find another qualified supplier to provide the item or re-engineer the item. In the event that it becomes necessary for us to find another supplier, we would first be required to qualify the quality assurance systems and product quality of that alternative supplier. Any operational issues with re-engineering or the alternative qualified supplier may impact the production schedule, therefore delaying revenues, and this may cause the cost of disposables or key components to increase.

Dependence on contract manufacturers for disposable products. We obtain the majority of our disposable products from contract manufacturers. Production halts or delays by these manufacturers could have a significant impact on our business. Our safety stock levels are generally not sufficient to handle an unexpected shut-down or delay in production by these contract manufacturers. In the event of a significant unplanned delay in production, we may need to find a new contract manufacturer, which could be a lengthy process and require a significant financial commitment, impacting our ability to fulfill customer orders and maintain current sales levels for a period of time until the new contract manufacturer can start production of our disposable products.

Failure to meet the financial covenant in our Technology License and Escrow Agreement could decrease our AXP revenues. Under our License and Escrow Agreement with CBR. if we fail to meet the financial covenant of cash balance and short-term investments net of debt or borrowed funds that are payable within one year of not less than $2,000,000, they may take possession of the escrowed intellectual property and initiate manufacturing of the applicable device and disposables. If this were to occur, our revenues would be negatively impacted. In order to remain compliant, we may have to complete additional financings or provide consideration to the counter party to modify the obligations.

Failure to retain or hire key personnel may adversely affect our ability to sustain or grow our business. Our ability to operate successfully and manage our potential future growth depends significantly upon retaining key research, technical, clinical, regulatory, sales, marketing and managerial personnel. Our future success partially depends upon the continued services of key technical and senior management personnel. Our future success also depends on our continuing ability to attract, retain and motivate highly qualified managerial and technical personnel. The inability to retain or attract qualified personnel could have a significant negative effect upon our efforts and thereby materially harm our business and future financial condition.

Most of our operations are conducted at a single location. Any disruption at our facilities could delay revenues or increase our expenses. Our U.S. device operations are conducted at a single location although we contract the manufacturing of certain devices, disposables and components. We take precautions to safeguard our facilities, through insurance, health and safety protocols, and off-site storage of computer data. However, a natural disaster, such as a fire, flood or earthquake, could cause substantial delays in our operations, damage or destroy our manufacturing equipment or inventory, and cause us to incur additional expenses. The insurance we maintain against fires, floods, and other natural disasters may not be adequate to cover our losses in any particular case.

Failure to maintain and/or upgrade our information technology systems may have an adverse effect on our operations. We rely on various information technology systems to manage our operations, and we evaluate these systems against our current and expected requirements. Although we have no current plans to implement modifications or upgrades to our systems, we will eventually be required to make changes to legacy systems and acquire new systems with new functionality. Any information technology system disruptions, if not anticipated and appropriately mitigated, could have an adverse effect on our business and operations.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us. We are required to establish and maintain adequate internal control over financial reporting, which are processes designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. We are also required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, which (among other things) requires public companies to conduct an annual review and evaluation of their internal control over financial reporting. However, as a “smaller reporting company,” we are not required to obtain an auditor attestation regarding our internal control over financial reporting. If, in the future, we require an attestation report from our independent registered public accounting firm and that firm is unable to provide an unqualified attestation report on the effectiveness of our internal controls over financial reporting, investor confidence and, in turn, our stock price could be materially adversely affected.

Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer. In the ordinary course of the Company’s business, the Company collects and stores sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners and personally identifiable information of the Company’s employees on its networks. The secure processing, maintenance and transmission of this information is critical to the Company’s operations and business strategy. Despite the Company’s security measures, its information, technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise the Company’s networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings or regulatory penalties and could disrupt the Company’s operations and the services it provides to customers, damage the Company’s reputation, and cause a loss of confidence in the Company’s products and services, which could adversely affect the Company’s business.

Our business and operations may be adversely affected by the recent 2019 Novel Coronavirus (COVID-19) outbreak or other similar outbreaks.  Any outbreaks of contagious diseases, including the recent outbreak of the coronavirus and other adverse public health developments in countries where we operate could have a material and adverse effect on our business, financial condition and results of operations. These effects could include disruptions or restrictions on our employees’ ability to travel, as well as temporary closures of our facilities or the facilities of our customers, suppliers, or other vendors in our supply chain. In addition, the coronavirus may result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our products or our ability to obtain financing. Any of these events, which may result in disruptions to our supply chain or customer demand, could materially and adversely affect our business and our financial results. The extent to which the coronavirus will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted. Such developments may include the geographic spread of the virus, the severity of the disease, the duration of the outbreak, the actions that may be taken by various governmental authorities in response to the outbreak and the possible impact on the U.S. or global economy. As a result, at the time of this filing, it is impossible to predict the overall impact of the coronavirus on our business, liquidity, capital resources and financial results.

Risks Related to Our Industry

Our business is heavily regulated, resulting in increased costs of operations and delays in product sales. Many of our products require FDA approval or clearance to sell in the U.S. and will require approvals from comparable agencies to sell in foreign countries. These authorizations may limit the U.S. or foreign markets in which our products may be sold. Further, our products must be manufactured under requirements of our quality system for continued CE-Marking so they can continue to be marketed and sold in Europe. These requirements are similar to the QSR of both the FDA and California Department of Public Health. Failure to comply with or incorrectly interpret these quality system requirements and regulations may subject us to delays in production while we correct deficiencies found by the FDA, the State of California, or our notifying body as a result of any audit of our quality system. If we are found to be out of compliance, we could receive a Warning Letter or an untitled letter from the FDA or even be temporarily shut down in manufacturing and product sales while the non-conformances are rectified. Also, we may have to recall products and temporarily cease their manufacture and distribution, which would increase our costs and reduce our revenues. The FDA may also invalidate our PMA or 510(k) if appropriate regulations relative to the PMA or 510(k) products are not met. The notified bodies may elect to not renew CE-Mark certification. Any of these events would negatively impact our revenues and costs of operations.

Changes in governmental regulations may reduce demand for our products or increase our expenses. We compete in many markets in which we and our customers must comply with federal, state, local and international regulations, such as environmental, health and safety and food and drug regulations. We develop, configure and market our products to meet customer needs created by those regulations. Any significant change in regulations could reduce demand for our products or increase our expenses. For example, many of our instruments are marketed to the industry for enabling new regenerative therapies. Changes in the FDA’s regulation of the devices and products directed at regenerative medicine, and development process for new therapeutic applications could have an adverse effect on the demand for these products.

To sell in international markets are subject to regulation in foreign countries. In cooperation with our distribution partners, we market our current and future products both domestically and in many foreign markets. A number of risks are inherent in international transactions. In order for us to market our products in certain non-U.S. jurisdictions, we need to obtain and maintain required regulatory approvals or clearances and must comply with extensive regulations regarding safety, manufacturing processes and quality. These regulations, including the requirements for approvals or clearances to market, may differ from the FDA regulatory scheme. International sales also may be limited or disrupted by political instability, price controls, trade restrictions and changes in tariffs. Additionally, fluctuations in currency exchange rates may adversely affect demand for our products by increasing the price of our products in the currency of the countries in which the products are sold.

There can be no assurance that we will obtain regulatory approvals or clearances in all of the countries where we intend to market our products, or that we will not incur significant costs in obtaining or maintaining foreign regulatory approvals or clearances, or that we will be able to successfully commercialize current or future products in various foreign markets. Delays in receipt of approvals or clearances to market our products in foreign countries, failure to receive such approvals or clearances or the future loss of previously received approvals or clearances could have a substantial negative effect on our results of operations and financial condition.

Operating in foreign jurisdictions subjects us to regulation by non-U.S. authorities. We have operations in India, and as such are subject to Indian regulatory agencies. A number of risks are inherent in conducting business and clinical operations overseas. In order for us to operate as a majority owned foreign corporation in India, we are subject to financial regulations imposed by the Reserve Bank of India. This includes the rules specific to the capital funding, pledging of assets, repatriation of funds and payment of dividends from and to the foreign subsidiaries and from and to us in the U.S.

In order for us to manufacture and/or market our services and products in India, we need to obtain and maintain required regulatory approvals or clearances and must comply with extensive regulations regarding safety, manufacturing processes and quality. These regulations, including the requirements for approvals or clearances to market, and/or export may differ from the FDA regulatory scheme. Additionally, in order for us to complete clinical trials, clinical trial services and cell banking in India, and other foreign jurisdictions, we need to obtain and maintain approvals and licenses which comply with extensive regulations of the appropriate regulatory body.

International operations also may be limited or disrupted by political, economic or social instability, price controls, trade restrictions and changes in tariffs as ordered by various governmental agencies. Additionally, fluctuations in currency exchange rates may adversely affect the cost of production for our products by increasing the price of materials and other inputs for our products in the currency of the countries in which the products are sold.

If our competitors develop and market products that are more effective than our product candidates or obtain regulatory and market approval for similar products before we do, our commercial opportunity may be reduced or eliminated. The development and commercialization of new pharmaceutical products which target cardiovascular, orthopedic, chronic dermal wounds and other conditions addressed by our current and future products is competitive, and we will face competition from numerous sources, including major biotechnology and pharmaceutical companies worldwide. Many of our competitors have substantially greater financial and technical resources and development, production and marketing capabilities than we do. In addition, many of these companies have more experience than we do in pre-clinical testing, clinical trials and manufacturing of compounds, as well as in obtaining FDA and foreign regulatory approvals. As a result, there is a risk that one of the competitors will develop a more effective product for the same indications for which we are developing a product or, alternatively, bring a similar product to market before we can. With regards to the BioArchive and AXP Systems, numerous larger and better-financed medical device manufacturers may choose to enter this market.

Changes in healthcare policy could subject us to additional regulatory requirements that may delay the commercialization of our products and increase our costs. The U.S. government and other governments have shown significant interest in pursuing healthcare reform. Any government-adopted reform measures could adversely impact the pricing of our diagnostic products and tests in the U.S. or internationally and the amount of reimbursement available from governmental agencies or other third-party payors. The continuing efforts of the U.S. and foreign governments, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce healthcare costs may adversely affect our ability to set prices for our products and services that we believe are fair, which may impact our ability to generate revenues and achieve and maintain profitability.

New laws, regulations and judicial decisions, or new interpretations of existing laws, regulations and judicial decisions, that relate to healthcare availability, methods of delivery or payment for products and services, or sales, marketing or pricing, may limit our potential revenue or force us to revise our research and development programs. The pricing and reimbursement environment may change in the future and become more challenging for several reasons, including policies advanced by the current executive administration in the U.S., new healthcare legislation or fiscal challenges faced by government health administration authorities. Specifically, in both the U.S. and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably.

For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (“PPACA”), have substantially changed the way healthcare is financed by both government health plans and private insurers. The PPACA contains a number of provisions that are expected to impact our business and operations in ways that may negatively affect our revenues in the future. While it is too early to predict all the specific effects the PPACA or any future healthcare reform legislation will have on our business, such provisions could materially adversely affect our business, prospects and financial condition.

The Food and Drug Administration Amendments Act of 2007 gives the FDA enhanced post-marketing authority, including the authority to require post-marketing studies and clinical studies of products, labeling changes based on new safety information, and compliance with risk evaluations and mitigation strategies approved by the FDA. The FDA’s exercise of this authority could result in delays or increased costs during product development, clinical studies and regulatory review, increased costs to assure compliance with post-approval regulatory requirements, and potential restrictions on the sale and/or distribution of approved products, all of which could materially adversely affect our business, prospects and financial condition.

Product liability and uninsured risks may adversely affect the continuing operations. We operate in an industry susceptible to significant product liability claims. We may be liable if any of our products or services cause injury, illness, or death. These claims may be brought by individuals seeking relief or by groups seeking to represent a class. We also may be required to recall certain of our products should they become damaged or if they are defective. We are not aware of any material product liability claims against us. However, product liability claims may be asserted against us in the future based on events we are not aware of at the present time. We maintain a product liability policy and a general liability policy that includes product liability coverage. However, a product liability claim against us could have a material adverse effect on our business or future financial condition.

Risks Related to Operating Results and Financial Markets

We have incurred net losses and we anticipate that our losses will continue. We have not been profitable for a significant period. For the years ended December 31, 2019 and 2018, we had a net loss of $10,099,000 and $40,940,000 respectively and an accumulated deficit at December 31, 2019, of 236,932,000.  The report of our independent auditors on our December 31, 2019 financial statements includes an explanatory paragraph indicating there is substantial doubt about our ability to continue as a going concern.  We will continue to incur significant costs as we develop and market our current products and related applications. Although we are executing our business plan to develop, market and launch new products, continuing losses may impair our ability to fully meet our objectives for new product sales or threaten our ability to continue as a going concern in future years.

We will likely need to raise additional capital to fund our operations and in furtherance of our business plan. Due to our recurring losses from operations and the expectation that we will continue to incur losses in the future, we may need to raise additional capital. We have historically relied upon private and public sales of our equity, as well as debt financings to fund our operations. In order to raise additional capital, we may seek to sell additional equity and/or debt securities or obtain a credit facility or other loan, which we may not be able to do on favorable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our product candidates, restrict our operations or obtain funds by entering into agreements on unfavorable terms.

We may incur significant non-operating, non-cash charges resulting from changes in the fair value of warrants. Our warrants are a derivative instrument; as such they have been recorded at their respective relative fair values at the issuance date and will be recorded at their respective fair values at each subsequent balance sheet date. Any change in value between reporting periods will be recorded as a non-operating, non-cash charge at each reporting date. The impact of these non-operating, non-cash charges could have an adverse effect on the Company’s financial results. The fair value of the warrants is tied in large part to our stock price. If the stock price increases between reporting periods, the warrants become more valuable. As such, there is no way to forecast what the non-operating, non-cash charges will be in the future or what the future impact will be on our financial statements.

Risks Related to Our Common Stock

If the price of our common stock does not meet the requirements of the NASDAQ capital market stock Exchange (“NASDAQ”), our shares may be delisted. Our ability to publicly or privately sell equity securities and the liquidity of our common stock could be adversely affected if we are delisted. The listing standards of NASDAQ provide, among other things, that a company may be delisted if the bid price of its stock drops below $1.00 for a period of 30 consecutive business days. Delisting from NASDAQ could adversely affect our ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our common stock. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

Liquidity of our common stock. Although there is a public market for our common stock, trading volume has been historically low, which could impact the stock price and the ability to sell shares of our common stock. We can give no assurance that an active and liquid public market for the shares of the common stock will continue in the future. In addition, future sales of large amounts of common stock could adversely affect the market price of our common stock and our ability to raise capital. The price of our common stock could also drop as a result of the exercise of options for common stock or the perception that such sales or exercise of options could occur. These factors could also have a negative impact on the liquidity of our common stock and our ability to raise funds through future stock offerings.

We do not pay cash dividends. We have never paid any cash dividends on our common stock and do not intend to pay cash dividends in the foreseeable future. Instead, we intend to apply earnings, if any, to the expansion and development of our business. Thus, the liquidity of your investment is dependent upon your ability to sell stock at an acceptable price. The price can go down as well as up and may limit your ability to realize any value from your investment, including the initial purchase price.

Our Amended and Restated Bylaws provide that the Court of Chancery of the State of Delaware will be the sole and exclusive venue for certain litigation that may be initiated by our stockholders, which may limit a stockholder’s ability to obtain a favorable judicial forum for such disputes with us or our directors, officers or employees.  

Our Amended and Restated Bylaws provide that, unless we consent in writing to the selection of an alternative venue, the Court of Chancery of the State of Delaware will be the sole and exclusive venue for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim for breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine, in each case subject to the Court of Chancery of the State of Delaware having personal jurisdiction over the indispensable parties named as defendants therein. This choice of venue provision will not apply to actions or proceedings brought to enforce a duty or liability created by the Securities Act or the Exchange Act.

This choice of venue provision may limit a stockholder’s ability to bring certain claims in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage the filing of lawsuits with respect to such claims.  If a court were to find this choice of venue provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in another jurisdiction, which could adversely affect our business and financial condition.

None.

We lease a facility with approximately 28,000 square feet of space located in Rancho Cordova, California. The facility is used by both our Clinical Development and Device Segments and is devoted to warehouse space, manufacturing of products, office space, a biologics lab, a clean room, and a research and development lab. The lease expires May 31, 2024.

In Gurgaon India we lease approximately 1,500 square feet for an office facility for our Clinical Development Segment. The lease expires September 14, 2023 however; either party can terminate the lease with three months’ notice.

Additionally, in Gurgaon India, as part of our agreement with Fortis Healthcare, we occupy and manage a 2,800 square foot cord blood banking and cellular therapy processing facility in the Fortis Memorial Research Institute.

We believe our facilities are adequate for our present needs and expect them to remain adequate for the foreseeable future.

In the normal course of operations, we may have disagreements or disputes with distributors, vendors or employees. Such potential disputes are seen by management as a normal part of business and while the outcome of such disagreements and disputes cannot be predicted with certainty, except as described below, we do not believe that any pending legal proceedings are material. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

In fiscal 2016, the Company signed an engagement letter with a strategic consulting firm, Mavericks.  Included in the engagement letter was a success fee due upon the successful conclusion of certain transactions.  On May 4, 2017, a lawsuit was filed in California Superior Court against the Company and its CEO by the consulting firm as the consulting firm argues that it is owed a transaction fee of $1,000,000 under the terms of the engagement letter due to the conversion of the Boyalife debentures in August 2016.  In October 2017, to streamline the case by providing for the dismissal of claims against the Company’s CEO based on alter ego theories and without acknowledging any liability, the Company deposited $1,000,000 with the Court.  The trial completed in February 2020 with an adverse jury verdict in favor of Mavericks in the total amount of $1,000,000.  The Action is now in the post-trial phase and no judgment has been entered as the parties are disputing whether the defense of equitable estoppel should bar entry of judgment at all and the proper per-judgment interest start date.  At present, the Court is already holding a $1,000,000 cash bond deposited by the Company early in the litigation.  After entry of judgment, the Court will permit release of those funds to the Mavericks.  As a result, the Company recorded a $1,400,000 loss in the quarter ended December 31, 2019.  The loss includes the $1,000,000 transaction fee and an estimated $400,000 in interest due. The final amount of interest due will be determined by the Court.  The $1,000,000 deposited with the court will be used to settle the transaction fee.

Not applicable.

PART II

Our common stock, $0.001 par value, is listed on the NASDAQ Capital Market under the symbol THMO.

We have not paid cash dividends on our common stock and do not intend to pay a cash dividend in the foreseeable future. There were approximately 122 stockholders of record on January 31, 2020, not including beneficial owners who own their stock in street name through Cede & Co. and others.

The Company did not repurchase any of its shares during the quarter ended December 31, 2019.

We are a “smaller reporting company” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as such, we are not required to provide the disclosure required under this item.

Certain statements contained in this section and other parts of this Annual Report on Form 10-K which are not historical facts are forward looking statements and are subject to certain risks and uncertainties. Our actual results may differ significantly from the projected results discussed in the forward-looking statements. Factors that might affect actual results include, but are not limited to, those discussed in ITEM 1A “RISK FACTORS” and other factors identified from time to time in our reports filed with the SEC. The following discussion should be read in conjunction with our consolidated financial statements contained in this Annual Report.

Overview

ThermoGenesis Holdings, Inc. (“ThermoGenesis Holdings”, the “Company”, “our”, or “we”) develops and commercializes a range of automated technologies for cell-banking, cell-processing, and cell-based therapeutics. Since the 1990’s ThermoGenesis Holdings has been a pioneer in, and a leading provider of automated systems that isolate, purify and cryogenically store units of hematopoietic stem and progenitor cells for the cord blood banking industry. The Company was incorporated in 1986 and is registered in the State of Delaware and headquartered in Rancho Cordova, CA. In July 2017, ThermoGenesis Holdings’ subsidiary, ThermoGenesis Corp., completed a strategic acquisition of the business and substantially all of the assets of SynGen Inc. (“SynGen”), a research and development company for automated cellular processing.

Following the acquisition of SynGen, we utilized the SynGen assets, together with our own proprietary technology, to develop a novel proprietary CAR-TXpress™ platform that addresses the critical unmet need for better efficiency and cost-effectiveness for the emerging immune-oncology field, in particular, the chimeric antigen receptor (“CAR”) T cell market. Since the first quarter of 2018, the Company developed and launched various X-Series^® products, including: X-Lab^®, X-Wash^®, X-Mini^® and X-BACS™.

Recent Corporate Name Change

On November 1, 2019, Cesca Therapeutics Inc. changed its corporate name to ThermoGenesis Holdings, Inc. in order to better reflect its new strategic focus on becoming a key solution provider for cell manufacturing tools and services in the cell and gene therapy markets. In conjunction with the name change, the Company began trading under the new Nasdaq ticker symbol, THMO. In addition, the Company changed its CUSIP number to 88362L100.

Reverse Stock Split

On June 4, 2019, the Company effected a one (1) for ten (10) reverse stock split of its issued and outstanding common stock. The total number of shares of common stock authorized for issuance by the Company of 350,000,000 shares did not change in connection with the reverse stock split.

All historical share amounts disclosed herein have been retroactively restated to reflect the reverse split and subsequent share exchange. No fractional shares were issued as a result of the reverse stock split, as fractional shares of common stock were rounded up to the nearest whole share.

ThermoGenesis Holdings now has two separately reported business segments: A “Device Segment” and a “Clinical Development Segment.”  The Device Segment develops and commercializes automated systems that used for, clinical grade cell-banking, point-of-care applications, and large scale cell processing.  The Clinical Development Segment is developing autologous (utilizing the patient’s own cells) cell-based therapeutics that address significant unmet medical needs for the vascular, cardiology and orthopedic markets.

ThermoGenesis Holdings’ Device Segment

ThermoGenesis Holdings’ Device Segment offers automated devices and technologies for cell-banking, point-of-care applications, and large scale cell processing. The automated devices include:

Clinical Bio-Banking Applications:

Point-of-Care Applications:

Large Scale Cell Processing Applications:

ThermoGenesis Holdings’ Clinical Development Segment

Using our proprietary automated point-of-care cellular processing technologies, ThermoGenesis Holdings utilizes autologous (utilizing the patient’s own cells) stem cell-based therapeutics for the vascular and orthopedic markets that include:

Results of Operations

Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018 (unaudited)

Net Revenues

Consolidated net revenues for the year ended December 31, 2019 were $13,047,000 compared to $9,672,000 for the year ended December 31, 2018, an increase of $3,375,000 or 35%. The increase was driven by AXP revenues which increased by $3,129,000 in 2019 with 688 more cases sold to a distributor in China, 435 more cases sold to domestic end users, 175 more cases sold to new customer in India and 83 more cases sold to our distributors in Europe (resulting in approximately $2,400,000 more in AXP disposables revenue in the current year). Additionally, AXP device sales increased by approximately $700,000 in 2019, driven by customers upgrading to AXP II devices in the current year. CAR-TXpress sales increased by approximately $600,000 due to 2019 containing a full year of sales while 2018 only had a partial year due to relaunching the product line in the second half of 2018. BioArchive sales decreased by approximately $200,000 due to one fewer device being sold in 2019. Sales in the Clinical Development Segment were approximately $100,000 less than prior year due to reduced clinical services in India.

Revenues were comprised of the following:

Gross Profit

The Company’s gross profit was $5,696,000 or 44% of net revenues for the year ended December 31, 2019 compared to $2,193,000 or 23% for the year ended December 31, 2018, an increase of $3,503,000 or 156%. The increase was primarily due to AXP sales, generating approximately $1,925,000 more in gross profit from disposables and approximately $275,000 from sales of AXP II devices. The increase in AXP disposable gross profit was due to approximately 1,375 more cases being sold in 2019 as compared to 2018 and lower product costs through price efficiencies from contract manufacturers. The other main driver of the increase is lower overhead costs of approximately $600,000 in 2019 as compared to 2018 as a result of the June 2018 reorganization. The remainder of the increase is due to increased gross profit from service revenue of approximately $250,000 and additional sales of CAR-TXpress which resulted in approximately $300,000 more gross profit.

Sales and Marketing Expenses

Consolidated sales and marketing expenses were $1,656,000 for the year ended December 31, 2019, as compared to $1,359,000 for the year ended December 31, 2018, an increase of $297,000 or 22%. The increase was driven by stock compensation expense of approximately $125,000 for performance awards granted and achieved by employees during the current year and approximately $200,000 in increased salaries and benefits.

Research and Development Expenses

Consolidated research and development expenses were $2,396,000 for the year ended December 31, 2019, compared to $3,012,000 for the year ended December 31, 2018, a decrease of $616,000 or 20%. Research and development in the Device Segment decreased by $406,000 and the Clinical Development Segment decreased by $210,000. The decrease in both segments is primarily due to a decline in personnel costs related to corporate reorganization in June 2018.

General and Administrative Expenses

Consolidated general and administrative expenses for the year ended December 31, 2019 were $6,377,000, compared to $8,286,000 for the year ended December 31, 2018, a decrease of $1,909,000 or 23%. The decrease was driven by a loss on the disposal of fixed assets in 2018 of approximately $1,300,000 related to medical devices purchased for clinical trials and implementation costs for a new ERP system as a result of halting the clinical programs in 2018. Additionally, personnel costs decreased by approximately $630,000 due to the June 2018 reorganization and other headcount reductions in 2018, severance expenses of approximately $525,000 in 2018, and a one-time legal settlement of $150,000 in 2018. In 2019, the Company had stock compensation expense, patent legal expense and travel expenses of approximately $300,000 less combined as compared to 2018. India general and administrative expenses were also approximately $300,000 less in 2019 due to lower payroll expenses resulting from a reorganization in India in the first quarter of 2019 and a renegotiated settlement of an outstanding debt. These decreases were offset by a $1,400,000 expense as the result of the verdict against the Company in the Mavericks lawsuit.

Impairment Charges

The Company incurred no impairment charges during the year ended December 31, 2019 as compared to impairment charges of $33,081,000 during the year ended December 31, 2018. During the twelve months ended December 31, 2018, the Company experienced a significant and sustained decline in its stock price resulting in its market capitalization falling significantly below the recorded value of its consolidated assets. The Company performed a quantitative assessment which determined that the carrying amount for the Company’s goodwill and indefinite lived intangible assets relating to the clinical protocols exceeded its estimated fair value. As a result, impairment charges of $13,195,000 to goodwill and $19,886,000 to the Company’s intangible assets in the Clinical Development Segment were recorded during the twelve months ended December 31, 2018.

Interest Expense

Interest expense increased to $4,479,000 for the year ended December 31, 2019 as compared to $2,697,000 for the year ended December 31, 2018, a difference of $1,782,000. The increase is driven by interest recorded and the amortization of the debt discount, interest expense and the loss on the extinguishment of debt related to the January 2019 Note and Amended Note of approximately $950,000, as well as approximately $800,000 more in interest and amortization of the debt discount on the beneficial conversion feature related to the Revolving Credit Agreement with Boyalife, for which amortization started in May 2018 and July 2019 Note interest of $105,000.

Loss on Extinguishment of Debt

The Company recorded a loss of extinguishment of debt of $840,000 for the year ended December 31, 2019 as compared to $0 for the year ended December 31, 2018. The increase is due to the loss on the extinguishment of the January 2019 Note.

Benefit for Income Taxes

For the year ended December 31, 2019, the Company has no income tax benefit compared to $4,730,000 for the year ended December 31, 2018. The benefit for income tax for the year ended December 31, 2018 was due to the impairment of the indefinite lived intangible assets for the clinical protocols and goodwill. The Company’s deferred tax liability is tied to the intangible assets and goodwill.

Non-GAAP Measures

In addition to the results reported in accordance with US GAAP, we also use a non-GAAP measure, adjusted EBITDA, to evaluate operating performance and to facilitate the comparison of our historical results and trends. The Company calculates adjusted EBITDA as income (or loss) from operations less depreciation, amortization, stock compensation and impairment of intangible assets. This financial measure is not a measure of financial performance under US GAAP and should not be considered in isolation or as a substitute for loss as a measure of performance. The calculation of this non-GAAP measure may not be comparable to similarly titled measures used by other companies. Reconciliations to the most directly comparable GAAP measure are provided below.

The adjusted EBITDA loss was $3,314,000 for the year ended December 31, 2019 compared to a loss of $9,142,000 for the year ended December 31, 2018, an increase of $5,828,000 or 64%. The increase was due to $3,441,000 in additional gross profit as the result of higher sales, decreasing overhead expenses and lowering disposable costs through price efficiencies from contract manufacturers. Additionally, the Company decreased salary related expenses in operating expenses by approximately $1,000,000 as a result of the June 2018 reorganization and the elimination of other positions during 2018. The year ended December 31, 2018 also included severance expenses of $525,000, a one-time legal settlement of $150,000 and a loss on the disposal of fixed assets of approximately $1,300,000. These decreases were offset by a $1,400,000 expense as the result of the verdict against the company in the Mavericks lawsuit.

Liquidity and Capital Resources

At December 31, 2019, we had cash and cash equivalents of $3,157,000 and working capital of $3,176,000. This compared to cash and cash equivalents of $2,400,000 and working capital of $2,261,000 at December 31, 2018. We have primarily financed operations through private and public placement of equity securities and our line of credit facility.

For the year ended December 31, 2019, we used $3,260,000 of cash for operations primarily the result of the net loss $10,099,000 in 2019. The loss was offset by approximately $4,800,000 of non-cash charges, related to the amortization of debt discount, stock-based compensation expense, depreciation and amortization, reserves for slow-moving inventories and loss on the extinguishment of debt.  Other drivers of the cash from operations was an increase long term deferred revenue and other noncurrent liabilities of $1,492,000, primarily due to the exclusivity fee received from Corning; an increase in other current liabilities of $1,143,000 primarily due to the short-term portion and an increase in interest payable and an increase prepaid expenses and other assets of $540,000.  These increases were offset by a reduction in accounts payable and accrued payroll of $1,381,000 and a decrease in inventories of $610,000.

Cash used in investing activities for the year ended December 31, 2019 was $182,000 as the result of capital purchases.

Cash generated in financing activities for the year ended December 31, 2019 was $4,199,000, primarily due to $1,800,000 received from the issuance of long-term debt from convertible notes issued in January 2019 and July 2019, $1,513,000 from the draw-down of funds from our related party long-term convertible promissory note, the issuance of 444,445 pre-funded warrants in April of 2019 for $756,000 and $154,000 from the exercise of 18,764 warrants and 416,500 pre-funded warrants during the year.

The Company has a Revolving Credit Agreement with Boyalife Asset Holding II, Inc. As of December 31, 2019, the Company had drawn down $8,713,000 of the $10,000,000 available under the Revolving Credit Agreement. Future draw-downs may be limited for various reasons including 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. Boyalife Investment Fund II, Inc. is a wholly-owned subsidiary of Boyalife Group Inc., which is owned and controlled by the Company’s Chief Executive Officer and Chairman of our Board of Directors.

The Company has incurred recurring operating losses and as of December 31, 2019 had an accumulated deficit of $236,932,000.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year from the filing of this report. The Company anticipates requiring additional capital to grow the business, to fund other operating expenses and to make interest payments on the line of credit with Boyalife.  The Company’s ability to fund its cash needs is subject to various risks, many of which are beyond its control. The Company may seek additional funding through bank borrowings or public or private sales of debt or equity securities or strategic partnerships. The Company cannot guarantee that such funding will be available on a timely basis, in needed quantities or on terms favorable to us, if at all.

One customer had an accounts receivable balance of $337,000 or 27% and $494,000 or 39% at December 31, 2019 and 2018, respectively. One distributor had an accounts receivable balance of $177,000 or 14% and $220,000 or 18% at December 31, 2019 and 2018, respectively. A second distributor had an accounts receivable balance of $170,000 or 14% and $0 at December 31, 2019 and 2018, respectively.

Revenues from one customer totaled $3,575,000 or 28% and $2,120,000 or 22% for the years ended December 31, 2019 and 2018, respectively. Revenues from one distributor totaled $1,470,000 or 11%, and $460,000 or 4% for the year ended December 31, 2019 and the year ended December 31, 2018, respectively.

We manage the concentration of credit risk with these customers and distributors through a variety of methods including, letters of credit with financial institutions, pre-shipment deposits, credit reference checks and credit limits. Although management believes that these customers and distributors are sound and creditworthy, a severe adverse impact on their business operations could have a corresponding material effect on their ability to pay timely and therefore on our net revenues, cash flows and financial condition.

Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to stock-based compensation, depreciation, fair values of intangibles and goodwill, bad debts, inventories, warranties, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See Note 2 “Summary of Significant Accounting Policies” to the Notes to the Consolidated Financial Statements contained in Item 8.

We believe the following critical accounting policies affect the more significant judgments and estimates used by the Company in the preparation of its consolidated financial statements.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

We are a “smaller reporting company” as defined by Rule 12b-2 of the Exchange Act, and as such, we are not required to provide the disclosure required under this item.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

ThermoGenesis Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of ThermoGenesis Holdings, Inc. (the “Company”), formerly known as Cesca Therapeutics Inc., as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, equity and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”).  In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has incurred recurring losses. These recurring losses raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases in 2019 due to the adoption of the guidance in ASC Topic 842, Leases (“Topic 842”).

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Marcum LLP

Marcum LLP

We have served as the Company’s auditor since 2015.

New York, NY
March 23, 2020

THERMOGENESIS HOLDINGS, Inc.

Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.

THERMOGENESIS HOLDINGS, Inc.

Consolidated Statements of Operations and Comprehensive loss

See accompanying notes to consolidated financial statements.

THERMOGENESIS HOLDINGS, Inc.

Consolidated Statements of Equity

* Accumulated other comprehensive loss.

See accompanying notes to consolidated financial statements.

THERMOGENESIS HOLDINGS, Inc.

Consolidated Statements of Cash Flows

See accompanying notes to consolidated financial statements.

THERMOGENESIS HOLDINGS, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THERMOGENESIS HOLDINGS, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)