ThermoGenesis Holdings, Inc. - Quarter Report: 2021 March (Form 10-Q)

 

 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-Q

 

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2021.

 

or

 

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition from _____________ to _______________.

 

Commission File Number: 333-82900   ThermoGenesis Holdings, Inc. (Exact name of registrant as specified in its charter)
Delaware (State of incorporation)		94-3018487 (I.R.S. Employer Identification No.)
2711 Citrus Road Rancho Cordova, California 95742 (Address of principal executive offices) (Zip Code)   (916) 858-5100 (Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading symbol(s)		Name of each exchange on which registered
Common Stock, $.001 par value		THMO		Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class		Outstanding at May 11, 2021
Common stock, $.001 par value		11,911,784

 

 

 

ThermoGenesis Holdings, Inc.

 

 

INDEX

 

		Page Number
PART I	FINANCIAL INFORMATION
ITEM 1.	Financial Statements	1
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	21
ITEM 4.	Controls and Procedures	22
PART I	OTHER INFORMATION
ITEM 1.	Legal Proceedings	23
ITEM 1A.	Risk Factors	23
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
ITEM 3.	Defaults upon Senior Securities	23
ITEM 4.	Mine Safety Disclosure	23
ITEM 5.	Other Information	23
ITEM 6.	Exhibits	23
Signatures		25

 

 

 

		March 31, 2021				December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents		$	10,014,000			$	7,161,000
Accounts receivable, net of allowance for doubtful accounts of $214,000 and at December 31, 2020			826,000				1,382,000
Inventories			5,334,000				5,877,000
Prepaid expenses and other current assets			730,000				878,000
Total current assets			16,904,000				15,298,000
Inventories, non-current			2,486,000				1,221,000
Equipment and leasehold improvements, net			1,337,000				1,424,000
Right-of-use operating lease assets, net			693,000				730,000
Goodwill			781,000				781,000
Other intangible assets, net			1,342,000				1,358,000
Other assets			48,000				48,000
Total assets		$	23,591,000			$	20,860,000
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	1,328,000			$	1,366,000
Accrued payroll and related expenses			473,000				349,000
Deferred revenue – short-term			696,000				608,000
Convertible promissory note – related party, net			6,762,000				-
Interest payable – related party			550,000				2,082,000
Note payable – short-term			-				447,000
Other current liabilities			682,000				1,291,000
Total current liabilities			10,491,000				6,143,000
Convertible promissory note – related party, net			-				5,935,000
Convertible promissory note, net			572,000				493,000
Note payable			-				199,000
Operating lease obligations – long-term			558,000				604,000
Deferred revenue – long-term			1,520,000				1,596,000
Other noncurrent liabilities			20,000				20,000
Total liabilities			13,161,000				14,990,000
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized, none outstanding			--				--
Common stock, $0.001 par value; 350,000,000 shares authorized; 11,911,784 issued and outstanding (8,934,952 at December 31, 2020)			12,000				9,000
Additional paid in capital			266,145,000				259,058,000
Accumulated deficit			(255,696,000	)			(253,283,000	)
Accumulated other comprehensive loss			17,000				16,000
Total ThermoGenesis Holdings, Inc. stockholders’ equity			10,478,000				5,800,000
Noncontrolling interests			(48,000	)			70,000
Total equity			10,430,000				5,870,000
Total liabilities and equity		$	23,591,000			$	20,860,000

 

		Three Months Ended March 31,
		2021				2020
Net revenues		$	1,517,000			$	3,200,000
Cost of revenues			809,000				1,708,000
Gross profit			708,000				1,492,000
Expenses:
Selling, general and administrative			1,992,000				2,092,000
Research and development			379,000				609,000
Total operating expenses			2,371,000				2,701,000
Loss from operations			(1,663,000	)			(1,209,000	)
Other income (expenses):
Interest expense			(1,519,000	)			(3,531,000	)
Other income (expenses)			(1,000	)			(3,000	)
Gain on extinguishment of debt			652,000				-
Total other expenses			(868,000	)			(3,534,000	)
Net loss			(2,531,000	)			(4,743,000	)
Loss attributable to noncontrolling interests			(118,000	)			(141,000	)
Net loss attributable to common stockholders		$	(2,413,000	)		$	(4,602,000	)
COMPREHENSIVE LOSS
Net loss		$	(2,531,000	)		$	(4,743,000	)
Other comprehensive loss:
Foreign currency translation adjustments gain (loss)			1,000				38,000
Comprehensive loss			(2,530,000	)			(4,705,000	)
Comprehensive loss attributable to noncontrolling interests			(118,000	)			(141,000	)
Comprehensive loss attributable to common stockholders		$	(2,412,000	)		$	(4,564,000	)
Per share data:
Basic and diluted net loss per common share		$	(0.21	)		$	(1.11	)
Weighted average common shares outstanding basic and diluted			11,446,366				4,135,644

 

		Shares				Common Stock				Paid in Capital in Excess of Par				Accumulated Deficit				AOCL*				Non- Controlling interests				Total Equity
Balance at January 1, 2021			8,934,952			$	9,000			$	259,058,000			$	(253,283,000	)		$	16,000			$	70,000			$	5,870,000
Stock-based compensation expense			--				--				258,000				--				--				--				258,000
Issuance of common stock via at-the-market offering, net			2,976,832				3,000				6,829,000				--				--				--				6,832,000
Foreign currency translation gain			--				--				--				--				1,000				--				1,000
Net loss			--				--				--				(2,413,000	)			--				(118,000	)			(2,531,000	)
Balance at March 31, 2021			11,911,784			$	12,000			$	266,145,000			$	(255,696,000	)		$	17,000			$	(48,000	)		$	10,430,000
Balance at January 1, 2020			2,843,601			$	3,000			$	237,313,000			$	(236,932,000	)		$	2,000			$	530,000			$	916,000
Stock-based compensation expense			--				--				67,000				--				--				--				67,000
Exercise of pre-funded warrants			100,000				--				10,000				--				--				--				10,000
Exercise of warrants			7,866				--				47,000				--				--				--				47,000
Discount due to beneficial conversion features			--				--				1,869,000				--				--				--				1,869,000
Conversion of related party note payable to common stock			1,666,670				2,000				2,998,000				--				--				--				3,000,000
Conversion of note payable to common stock			100,000				--				180,000				--				--				--				180,000
Issuance of common stock for cash in a registered direct offering, net of issuance costs			1,000,002				1,000				3,106,000				--				--				--				3,107,000
Issuance of common stock via at-the-market offering, net			50,746				--				114,000				--				--				--				114,000
Foreign currency translation gain			--				--				--				--				38,000				--				38,000
Net loss			--				--				--				(4,602,000	)			--				(141,000	)			(4,743,000	)
Balance at March 31, 2020			5,768,885			$	6,000			$	245,704,000			$	(241,534,000	)		$	40,000			$	389,000			$	4,605,000

 

		Three Months Ended March 31,
		2021				2020
Cash flows from operating activities:
Net loss		$	(2,531,000	)		$	(4,743,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			166,000				199,000
Stock-based compensation expense			258,000				67,000
Amortization of debt discount/premium			908,000				522,000
Amortization of accelerated debt discount due to conversion			--				2,486,000
Reserve for excess and slow-moving inventories			(4,000	)			6,000
Reserve for bad debt expense			--				1,000
Gain on extinguishment of debt			(652,000	)			--
Net change in operating assets and liabilities:
Accounts receivable			556,000				(752,000	)
Inventories			(718,000	)			(400,000	)
Prepaid expenses and other assets			148,000				330,000
Accounts payable			(38,000	)			1,035,000
Interest payable – related party			(1,532,000	)			(1,426,000	)
Accrued payroll and related expenses			124,000				118,000
Deferred revenue – short term			88,000				(3,000	)
Other current liabilities			(603,000	)			129,000
Long-term deferred revenue and other noncurrent liabilities			(122,000	)			(110,000	)
Net cash used in operating activities			(3,952,000	)			(2,541,000	)
Cash flows from investing activities:
Capital expenditures			(27,000	)			(23,000	)
Net cash used in investing activities			(27,000	)			(23,000	)
Cash flows from financing activities:
Proceeds from convertible promissory note-related party			--				1,869,000
Payment on finance lease obligations			--				(13,000	)
Proceeds from issuance of common stock, net of expenses			6,832,000				3,220,000
Proceeds from the exercise of options, warrants and pre-funded warrants			--				57,000
Net cash provided by financing activities			6,832,000				5,133,000
Effects of foreign currency rate changes on cash and cash equivalents			--				(5,000	)
Net increase (decrease) in cash, cash equivalents and restricted cash			2,853,000				2,562,000
Cash, cash equivalents and restricted cash at beginning of period			7,161,000				4,157,000
Cash, cash equivalents and restricted cash at end of period		$	10,014,000			$	6,719,000
Supplemental disclosures of cash flow information:
Cash paid for interest		$	2,142,000			$	1,950,000
Supplemental non-cash financing and investing information:
Recording of beneficial conversion feature on debt		$	--			$	1,869,000
Related party promissory note converted to common stock		$	--			$	3,000,000
Convertible promissory note converted to common stock		$	--			$	180,000

 

1.	DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

 

Description of Business

ThermoGenesis Holdings, Inc. (“ThermoGenesis Holdings,” the “Company,” “we,” “our,” “us”), develops, commercializes and markets a range of automated technologies for CAR-T and other cell-based therapies. The Company currently markets a full suite of solutions for automated clinical biobanking, point-of-care applications, and automation for immuno-oncology, including its semi-automated, functionally closed CAR-TXpress™ platform, which streamlines the manufacturing process for the emerging CAR-T immunotherapy market. The Company was founded in 1986 and is incorporated in the State of Delaware and headquartered in Rancho Cordova, CA.

 

The Company provides the AutoXpress® and BioArchive® platforms for automated clinical bio-banking, PXP® platform for point-of-care cell-based therapies and CAR-TXpress™ platform for bio-manufacturing for immuno-oncology applications. The Company and its subsidiaries currently manufacture and market the following products:

 

Clinical Bio-Banking Applications:

●

AXP® II Automated Cell Separation System – an automated, fully closed cell separation system for isolating stem and progenitor cells from umbilical cord blood, registered as a U.S. FDA 510(k) medical device.

●

BioArchive® Automated Cryopreservation System – an automated, robotic, liquid nitrogen controlled-rate-freezing and cryogenic storage system for cord blood samples and cell therapeutic products used in clinical applications, registered as a U.S. FDA 510(k) medical device.

 

Point-of-Care Applications:

●

PXP® Point-of-Care System – an automated, fully closed, sterile system allows for the rapid, automated processing of autologous peripheral blood or bone marrow aspirate derived stem cells at the point-of-care, such as surgical centers or clinics, registered as a U.S. FDA 510(k) medical device.

●

PXP-LAVARE System – an automated, fully closed system that is designed to wash, re-suspend and volume reduce cell suspensions. It allows for volume manipulation, supernatant or media exchange, and cell washing to occur without comprising cell viabilities and maximizing recoveries, registered as a U.S. FDA 510(k) medical device.

●

PXP-1000 System – an automated, fully closed system that provides fast, reproducible separation of multiple cellular components from blood with minimal red blood cell contamination, registered as a U.S. FDA 510(k) medical device.

 

Large Scale Cell Processing and Biomanufacturing:

●

X-Series® Products: X-Lab® for cell isolation, X-Wash® System for cell washing and reformulation, X-Mini® for high efficiency small scale cell purification, and X-BACS® System under development for large scale cell purification using our proprietary buoyancy-activated cell sorting (“BACS”) technology.

●

CAR-TXpress™ Platform – a modular designed, functionally closed platform that addresses the critical unmet need for large scale cellular processing and chemistry, manufacturing and controls (“CMC”) needs for manufacturing chimeric antigen receptor (“CAR”) T cell therapies. The CAR-TXpress Platform is owned and developed through a subsidiary CAR-TXpress Bio, Inc. (“CARTXpress Bio”) in which the Company owns 80% of the equity interest.

 

 

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such Securities and Exchange Commission (SEC) rules and regulations and accounting principles applicable for interim periods. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Events subsequent to the balance sheet date have been evaluated for inclusion in the accompanying condensed consolidated financial statements through the date of issuance.

 

Operating results for the three-month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in ThermoGenesis Holdings’ Annual Report on Form 10-K for the year ended December 31, 2020.

 

Principles of Consolidation

The consolidated financial statements include the accounts of ThermoGenesis Holdings and its wholly-owned subsidiaries, ThermoGenesis Corp. and TotipotentRX Cell Therapy, Pvt. Ltd and ThermoGenesis Corp’s majority-owned subsidiary, CARTXpress Bio. All significant intercompany accounts and transactions have been eliminated upon consolidation.

 

The 20% ownership interest of CARTXpress Bio that is not owned by ThermoGenesis Holdings is accounted for as a non-controlling interest as the Company has an 80% ownership interest in CARTXpress Bio. Earnings or losses attributable to other stockholders of a consolidated affiliated company are classified separately as "non-controlling interest" in the Company's consolidated statements of operations. Net loss attributable to non-controlling interests reflects only its share of the after-tax earnings or losses of an affiliated company. The Company's condensed consolidated balance sheets reflect non-controlling interests within the equity section.

 

2.	GOING CONCERN

 

At March 31, 2021, the Company had cash and cash equivalents of $10,014,000 and working capital of $6,413,000. The Company has incurred recurring operating losses and as of March 31, 2021 had an accumulated deficit of $255,696,000. These recurring losses 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 may need to raise additional capital to grow its business, fund operating expenses and make interest payments. 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 debt borrowings, 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 the Company, if at all.

 

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the above conditions raise substantial doubt about the Company’s ability to do so. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

 

 

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

There have been no material changes in the Company’s significant accounting policies to those disclosed in the 2020 Annual Report.

 

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting of Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. The Company was not profitable for the three months ended March 31, 2021 and has a full valuation allowance on all net operating loss (“NOL”) tax carryforwards. As such, the adoption of this standard did not have a material impact on the Company’s financial statements.

 

In January 2020, the FASB issued ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815”. The new guidance clarifies the interaction of accounting for the transition into and out of the equity method and the accounting for measuring certain purchased options and forward contracts to acquire investments. It is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The adoption of this standard did not have a material impact on the Company’s financial statements.

 

Revenue Recognition

Revenue is recognized based on the five-step process outlined in Accounting Standards Codification (“ASC”) 606: (i) identification of the contract with the customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when the performance obligation is satisfied.

 

Disaggregation of Revenue

The Company’s primary revenue streams include device sales and service revenue from device maintenance contracts, as summarized in the following table:

 

 

 

 

Performance Obligations

In most cases, there is no right of return provided for distributors or customers. For distributors, the Company has no control over the movement of goods to the end customer. The Company’s distributors control the timing, terms and conditions of the transfer of goods to the end customer. If a right of return does exist, the Company records an allowance for expected returns and records revenue net of the allowance.

 

Payments from domestic customers are normally due in two months or less after the title transfers, the service contract is executed or the services have been rendered. For international customers payment terms may extend up to 120 days. All sales have fixed pricing and there are currently no variable components included in the Company’s revenue.

 

Contract Balances

Generally, all sales are contract sales (with either an underlying contract or purchase order). The Company does not have any material contract assets. When invoicing occurs prior to revenue recognition, a contract liability is recorded (as deferred revenue on the consolidated balance sheet). Revenues recognized during the three months ended March 31, 2021 that were included in the beginning balance of deferred revenue were $273,000. Short-term deferred revenues were $696,000 and $608,000 at March 31, 2021 and December 31, 2020, respectively. Long-term deferred revenue was $1,520,000 and $1,596,000 at March 31, 2021 and December 31, 2020, respectively.

 

Exclusivity Fee

On August 30, 2019, the Company entered into a Supply Agreement with Corning Incorporated (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 to any amounts payable throughout the Term for the Products, as consideration for the exclusive worldwide distribution rights for the Products, Corning paid a $2,000,000 exclusivity fee. For the three months ended March 31, 2021 and 2020, the Company recorded revenue of $71,000 related to the exclusivity fee. The remaining balance of the $2,000,000 payment of $1,548,000 was recorded to deferred revenue, with $286,000 in short term deferred revenue and $1,262,000 recorded in long-term deferred revenue.

 

 

Backlog of Remaining Customer Performance Obligations

The following table includes revenue expected to be recognized and recorded as sales in the future from the backlog of performance obligations that are unsatisfied (or partially unsatisfied) at the end of the reporting period.

 

 

Revenues are net of normal discounts. Shipping and handling fees billed to customers are included in net revenues, while the related costs are included in cost of revenues.

 

Fair Value Measurements

In accordance with ASC 820, “Fair Value Measurements and Disclosures,” fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.

 

The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:

 

Level 1:   Quoted market prices in active markets for identical assets or liabilities.

Level 2:   Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3:   Unobservable inputs which are supported by little or no market activity.

 

The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their short duration. The fair value of the Company’s derivative obligation liability is classified as Level 3 within the fair value hierarchy since the valuation model of the derivative obligation is based on unobservable inputs.

 

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.  The reclassifications did not have an impact on net loss as previously reported.  For the three month period ended March 31, 2021, sales and marketing and general and administrative expenses were combined into one line item identified as sales, general and administrative expenses on the Statement of Operations.

 

4.	NET LOSS PER SHARE

 

Net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding plus the pre-funded warrants. For the purpose of calculating basic net loss per share, the additional shares of common stock that are issuable upon exercise of the pre-funded warrants have been included since the shares are issuable for a negligible consideration and have no vesting or other contingencies associated with them. There were 224,445 pre-funded warrants included in the quarter ended March 31, 2020 calculation.

 

 

The calculation of the basic and diluted earnings per share is the same for all periods presented, as the effect of the potential common stock equivalents noted below is anti-dilutive due to the Company’s net loss position for all periods presented. Anti-dilutive securities consisted of the following at March 31:

 

___________

(1)

The unvested Series A warrants were subject to vesting based upon the amount of funds actually received by the Company in the second close of the August 2015 financing which never occurred. The warrants remained outstanding but unvested until they expired in February 2021.

 

5.	RELATED PARTY TRANSACTIONS

 

HealthBanks Biotech (USA) Inc.

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

 

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

 

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

 

For the quarter ended March 31, 2021 and 2020, the Company recorded $0 and a loss of $13,000, respectively on its equity investment in ImmuneCyte. At March 31, 2021, the value of the Company’s investment in ImmuneCyte on its Balance Sheet is $0. For the quarter ended March 31, 2021, ImmuneCyte had a net loss of $253,000, its current assets were $3,514,000 and current liabilities were $2,375,000.

 

Convertible Promissory Note and Revolving Credit Agreement

In March 2017, ThermoGenesis Holdings entered into a Credit Agreement with Boyalife Asset Holding II, Inc. (the “Lender”). The Lender is a wholly owned subsidiary of the Boyalife Group (USA), Inc., which is owned and controlled by the Company’s Chief Executive Officer and Chairman of our Board of Directors. The Credit Agreement, as amended, grants to the Company the right to borrow up to $10,000,000 (the “Loan”) at any time prior to March 6, 2022 (the “Maturity Date”). As of March 31, 2021 and December 31, 2020, the Company had an outstanding principal balance on the Loan of $10,000,000.

 

 

The Credit Agreement and the Convertible Promissory Note issued thereunder (as amended, the “Note”) provide that the principal and all accrued and unpaid interest under the Loan will be due and payable on the Maturity Date, with payments of interest-only due on the last day of each calendar year. The Loan bears interest at 22% per annum, simple interest.  The Company has five business days after the Lender demands payment to pay the interest due before the Loan is considered in default.  In January 2021, the Company paid the Lender, the interest due as of December 31, 2020 in the amount of $2,082,000. The Note can be prepaid in whole or in part by the Company at any time without penalty.

 

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

 

The following summarizes the Note:

 

 

The Company amortized $827,000 and $546,000 of debt discount to interest expense for the three months ended March 31, 2021 and 2020, respectively. In addition to the amortization, the Company also recorded interest expense of $550,000 and $443,000 for the three months ended March 31, 2021 and 2020, respectively. The interest payable balance as of March 31, 2021 and December 31, 2020 was $550,000 and $2,082,000, respectively.

 

6.	CONVERTIBLE PROMISSORY NOTE

 

July 2019 Note

On July 23, 2019, the Company entered into a private placement with the Accredited Investor, pursuant to which the Company issued and sold to such investor an unsecured convertible promissory note in the original principal amount of $1,000,000 (the “July 2019 Note”). The July 2019 Note is convertible into shares of the Company's common stock at a conversion price equal to the lower of (a) $1.80 per share or (b) 90% of the closing sale price of the Company’s common stock on the date of conversion (subject to a floor conversion price of $0.50). The July 2019 Note bears interest at the rate of twenty-four percent (24%) per annum and is payable quarterly in arrears. Unless sooner converted in the manner described below, all principal under the July 2019 Note, together with all accrued and unpaid interest thereupon, will be due and payable three years from the date of the issuance on July 31, 2022.

 

The following summarizes the July 2019 Note:

 

 

The Company recorded amortization expense of $80,000 on the July 2019 Note for the three months ended March 31, 2021 and interest expense of $60,000 for both the three months ended March 31, 2021 and 2020.

 

 

7.

LEASES

 

The Company leases an approximately 28,000 square foot facility located in Rancho Cordova, California for its corporate offices and in-house manufacturing. The lease was renewed in the first quarter of 2019 and is accounted for as an operating lease. The lease expires in May 2024.

 

Operating Leases

Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we use the Company’s cost of capital based on existing debt instruments. Our material leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term.

 

The following summarizes the Company’s operating leases:

 

 

Maturities of lease liabilities by year for our operating leases are as follows:

 

 

Statement of Cash Flows

In January 2019, the Company signed an amendment to its Rancho Cordova, California lease. The amendment was accounted for as a modification and resulted in a right-of-use asset of $966,000 being recognized as a non-cash addition on the date of the amendment. Cash paid for amounts included in the measurement of operating lease liabilities was $76,000 and $74,000 for the quarters ended March 31, 2021 and 2020, respectively, and is included in cash flows from operating activities.

 

 

Operating Lease Costs

Operating lease costs were $109,000 and $103,000 for the quarters ended March 31, 2021 and 2020, respectively. These costs are primarily related to long-term operating leases, but also include amounts for variable lease costs, as well as immaterial and short-term leases.

 

Finance Leases

Finance leases are included in equipment and other current and non-current liabilities on the condensed consolidated balance sheet. The amortization and interest expense are included in general and administrative expense and interest expense, respectively on the statement of operations. These leases were not material for the quarter ended March 31, 2021 or March 31, 2020.

 

8.	COMMITMENTS AND CONTINGENCIES

 

Contingencies

In the normal course of operations, the Company may have disagreements or disputes with customers, employees or vendors. Such potential disputes are seen by management as a normal part of business. As of March 31, 2021, except as disclosed, management believes any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the Company’s condensed consolidated financial position, operating results or cash flows.

 

Financial Covenants

On July 13, 2020, the Company, entered into a Manufacturing and Supply Amending Agreement #2 with CBR Systems, Inc. (“CBR”) with an effective date of July 13, 2020 (the “Amendment”). The Amendment amends the Manufacturing and Supply Agreement entered into on May 15, 2017 and Amendment #1 dated March 16, 2020 by the Company and CBR. The Amendment, among other things, revised the amount of certain products to be purchased, pricing of those products and removal of the safety stock requirement. In addition, the Amendment updated the financial requirement to exclude convertible debt from the definition of short-term debt under events or conditions that constitute a default. The Amendment states that the Company’s cash balance and short-term investments net of non-convertible debt and borrowed funds that are payable within one year must be greater than $1,000,000 at any month end. The Company was in compliance with this agreement as of March 31, 2021.

 

Warranty

The Company offers a warranty on all of its non-disposable products of one to two years. The Company warrants disposable products through their expiration date. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

 

The warranty liability is included in other current liabilities in the unaudited condensed consolidated balance sheets. The change in the warranty liability for the three months ended March 31, 2021 is summarized in the following table:

 

 

 

 

9.	PAYMENT PROTECTION PROGRAM

 

On April 21, 2020, the Company entered into a promissory note and received a Paycheck Protection Program loan “PPP Loan” from the Small Business Association “SBA”, which was established under the CARES Act. The Company received net proceeds of $646,000 from the PPP Loan. The term of the PPP Loan is two years with an interest rate of 1.00% per annum, which was deferred for the first six months of the term of the loan or after an application is filed for loan forgiveness, whichever is later. Each monthly payment shall be in the amount which would fully amortize the principal balance outstanding under the PPP Loan. Pursuant to the terms of the CARES Act, the proceeds of the PPP Loan may be used for payroll costs, mortgage interest, rent or utility costs. The promissory note of the PPP Loan contains customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions of the promissory note. The occurrence of an event of default may result in a claim for the immediate repayment of the amount outstanding under the PPP Loan. In late December 2020, the Company applied with the SBA for forgiveness of the PPP Loan and was notified on March 30, 2021 that the SBA had approved our application to forgive the entire amount of the loan and accrued interest. For the three months ended March 31, 2021, the Company recorded a gain on extinguishment of debt of $652,000 representing the principal and accrued interest for the PPP Loan.

 

10.	STOCKHOLDERS’ EQUITY

 

Common Stock

On December 13, 2019, the Company entered into an At The Market Offering Agreement, by and between the Company and H.C. Wainwright & Co., LLC, as agent (“H.C. Wainwright”) (the “ATM Agreement”), pursuant to which the Company may offer and sell, from time to time through H.C. Wainwright, shares of the Company’s common stock, having an aggregate offering price of up to $4,400,000 and on May 19, 2020 the ATM Agreement was amended to increase the aggregate value of up to $15,280,313 (the “HCW Shares”). As of March 31, 2021, the Company sold a total of 5,597,484 shares of the Company’s common stock for aggregate gross proceeds of $15,280,000 at an average selling price of $2.73 per share, resulting in net proceeds of approximately $14,568,000 after deducting legal expenses, audit fees, commissions and other transaction costs of approximately $712,000. For the three months ended March 31, 2021, the Company sold 2,976,832 shares of common stock for net proceeds of $6,832,000 after deducting $224,000 in commissions and other transaction costs.

 

Stock Based Compensation

The Company recorded stock-based compensation of $258,000 and $67,000 for the three months ended March 31, 2021 and 2020, respectively, as comprised of the following:

 

 

 

The following is a summary of option activity for the Company’s stock option plans:

 

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock. There were no options exercised during the three months ended March 31, 2021.

 

Warrants

A summary of warrant activity for the three months ended March 31, 2021 follows:

 

 

 

11.	MAJOR CUSTOMERS AND ACCOUNTS RECEIVABLE

 

The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable as follows:

 

For the three months ended March 31, 2021 and 2020, one customer accounted for 21% and 2% of revenue, a second customer accounted for 15% and 6% of revenue, and a third customer accounted for 3% and 50%, respectively.

 

At March 31, 2021, three customers accounted for 67% of accounts receivable.  At December 31, 2020, three customers accounted for 72% of accounts receivable.

 

 

12.	SUBSEQUENT EVENTS

 

The Company has evaluated events subsequent to the balance sheet date for inclusion in the accompanying consolidated financial statements through the date of issuance and determined that no subsequent events have occurred that would require recognition in the consolidated financial statements or disclosures in the notes thereto.