ThermoGenesis Holdings, Inc.
See accompanying notes.
ThermoGenesis Holdings, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
See accompanying notes.
ThermoGenesis Holdings, Inc.
* Accumulated other comprehensive loss.
See accompanying notes.
ThermoGenesis Holdings, Inc.
See accompanying notes.
ThermoGenesis Holdings, Inc.
3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
There have been no material changes in the Company’s significant accounting policies to those disclosed in the 2020Company’s Annual Report.Report filed on its Form 10-K for the year ended December 31, 2020.
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-122019-12 “Income Taxes (Topic 740)740): Simplifying the Accounting of Income Taxes”, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-122019-12 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 threenine months ended March 31,September 30, 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 2020-01,2020-01, “Investments – Equity Securities (Topic 321)321), Investments—Equity Method and Joint Ventures (Topic 323)323), and Derivatives and Hedging (Topic 815)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-stepfive-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.606.
Disaggregation of Revenue
The Company’s primary revenue streams include device sales and service revenue from device maintenance contracts, as summarized infollowing tables summarize the following table:revenues by product line:
| | | Three Months Ended March 31, 2021 | | | Three Months Ended September 30, 2021 | |
| | | Device Revenue | | | Service Revenue | | | Other Revenue | | | Total Revenue | | | Device Revenue | | | Service Revenue | | | Other Revenue | | | Total Revenue | |
AXP | | $ | 225,000 | | | $ | 39,000 | | | $ | -- | | | $ | 264,000 | | | $ | 2,217,000 | | | $ | 72,000 | | | $ | 21,000 | | | $ | 2,310,000 | |
BioArchive | | | 208,000 | | | | 542,000 | | | | -- | | | | 750,000 | | | 221,000 | | | 297,000 | | | -- | | | 518,000 | |
CAR-TXpress | | | 255,000 | | | | 28,000 | | | | 71,000 | | | | 354,000 | | | 160,000 | | | 31,000 | | | 71,000 | | | 262,000 | |
Manual Disposables | | | 129,000 | | | | -- | | | | -- | | | | 129,000 | | | 55,000 | | | -- | | | -- | | | 55,000 | |
Other | | | 7,000 | | | | -- | | | | 13,000 | | | | 20,000 | | | | 9,000 | | | | -- | | | | 4,000 | | | | 13,000 | |
Total | | $ | 824,000 | | | $ | 609,000 | | | $ | 84,000 | | | $ | 1,517,000 | | | $ | 2,662,000 | | | $ | 400,000 | | | $ | 96,000 | | | $ | 3,158,000 | |
| | | Nine Months Ended September 30, 2021 | |
| | | Device Revenue | | | Service Revenue | | | Other Revenue | | | Total Revenue | |
AXP | | $ | 3,490,000 | | | $ | 159,000 | | | $ | 1,000 | | | $ | 3,670,000 | |
BioArchive | | | 652,000 | | | | 1,165,000 | | | | -- | | | | 1,817,000 | |
CAR-TXpress | | | 702,000 | | | | 89,000 | | | | 214,000 | | | | 1,005,000 | |
Manual Disposables | | | 300,000 | | | | -- | | | | -- | | | | 300,000 | |
Other | | | 46,000 | | | | -- | | | | 38,000 | | | | 84,000 | |
Total | | $ | 5,190,000 | | | $ | 1,413,000 | | | $ | 273,000 | | | $ | 6,876,000 | |
| | | Three Months Ended September 30, 2020 | |
| | | Device Revenue | | | Service Revenue | | | Other Revenue | | | Total Revenue | |
AXP | | $ | 1,137,000 | | | $ | 32,000 | | | $ | -- | | | $ | 1,169,000 | |
BioArchive | | | 337,000 | | | | 282,000 | | | | -- | | | | 619,000 | |
CAR-TXpress | | | 332,000 | | | | 22,000 | | | | 71,000 | | | | 425,000 | |
Manual Disposables | | | 100,000 | | | | -- | | | | -- | | | | 100,000 | |
Other | | | 26,000 | | | | -- | | | | 16,000 | | | | 42,000 | |
Total | | $ | 1,932,000 | | | $ | 336,000 | | | $ | 87,000 | | | $ | 2,355,000 | |
| | | Three Months Ended March 31, 2020 | |
| | | Device Revenue | | | Service Revenue | | | Other Revenue | | | Total Revenue | |
AXP | | $ | 2,208,000 | | | $ | 24,000 | | | $ | -- | | | $ | 2,232,000 | |
BioArchive | | | 164,000 | | | | 332,000 | | | | -- | | | | 496,000 | |
CAR-TXpress | | | 152,000 | | | | 12,000 | | | | 71,000 | | | | 235,000 | |
Manual Disposables | | | 203,000 | | | | -- | | | | -- | | | | 203,000 | |
Other | | | 14,000 | | | | -- | | | | 20,000 | | | | 34,000 | |
Total | | $ | 2,741,000 | | | $ | 368,000 | | | $ | 91,000 | | | $ | 3,200,000 | |
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.
| | | Nine Months Ended September 30, 2020 | |
| | | Device Revenue | | | Service Revenue | | | Other Revenue | | | Total Revenue | |
AXP | | $ | 4,009,000 | | | $ | 103,000 | | | $ | -- | | | $ | 4,112,000 | |
BioArchive | | | 675,000 | | | | 900,000 | | | | -- | | | | 1,575,000 | |
CAR-TXpress | | | 1,035,000 | | | | 47,000 | | | | 214,000 | | | | 1,296,000 | |
Manual Disposables | | | 499,000 | | | | -- | | | | -- | | | | 499,000 | |
Other | | | 276,000 | | | | -- | | | | 39,000 | | | | 315,000 | |
Total | | $ | 6,494,000 | | | $ | 1,050,000 | | | $ | 253,000 | | | $ | 7,797,000 | |
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 and nine months ended March 31,September 30, 2021 that were included in the beginning balance of deferred revenue were $273,000.$118,000 and $521,000, respectively. Short-term deferred revenues were $696,000increased from $608,000 to $943,000 and $608,000 at March 31,long-term deferred revenues decreased from $1,596,000 to $1,395,000 during the nine months ended September 30, 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,Corning having two options to renew for an additional two-years (up to four years total), 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®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 and nine months ended March 31,September 30, 2021 and 2020, the Company recorded revenue of $71,000 related to the exclusivity fee.fee of $71,000 and $214,000, respectively. The remaining balance of the $2,000,000 payment of $1,548,000 was$1,405,000 is recorded toas deferred revenue, with $286,000 in short termshort-term deferred revenue and $1,262,000$1,119,000 recorded in long-term deferred revenue.
Distribution Agreement
The Company signed a new agreement with its AXP distributor in China through 2023. The new agreement called for the distributor to purchase a minimum of $1,400,000 of AXP disposables in 2021, then $650,000 in each of the next two years. In return for the minimum purchase commitment, the Company is providing the distributor with AXP processing devices to use during the term of the agreement. The Company maintains ownership of these devices and they must be returned to the Company at the end of the agreement in 2024. The Company analyzed the relevant accounting guidance and determined that the equipment and AXP bagsets represented distinct performance obligations. The equipment was concluded to be an embedded lease, accounted for as a sales-type operating lease. At September 30, 2021, the value of those assets was approximately $180,000 and they will be amortized over their accounting estimated useful life of five years. A portion of the revenue from each bagset shipment will be allocated and recorded as deferred revenue to be recognized as lease revenue over the term of the agreement. The expected lease revenue is $21,000 per quarter. At September 30, 2021, the Company had $82,000 in short term and $27,000 in long term deferred revenue related to future lease 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.
| | | Remainder of 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 and beyond | | | Total | | | Remainder of 2021 | | | 2022 | | | 2023 | | | 2024 | | | 2025 and beyond | | | Total | |
Service revenue | | $ | 1,013,000 | | | $ | 804,000 | | | $ | 412,000 | | | $ | 152,000 | | | $ | 85,000 | | | $ | 2,466,000 | | | $ | 359,000 | | | $ | 962,000 | | | $ | 462,000 | | | $ | 189,000 | | | $ | 85,000 | | | $ | 2,057,000 | |
Clinical revenue | | | 10,000 | | | | 13,000 | | | | 13,000 | | | | 13,000 | | | | 162,000 | | | | 211,000 | | | | 3,000 | | | | 13,000 | | | | 13,000 | | | | 13,000 | | | | 160,000 | | | | 202,000 | |
Device revenue(1) | | | | 21,000 | | | | 674,000 | | | | 674,000 | | | | 41,000 | | | | -- | | | | 1,410,000 | |
Exclusivity fee | | | 214,000 | | | | 286,000 | | | | 286,000 | | | | 286,000 | | | | 476,000 | | | | 1,548,000 | | | | 72,000 | | | | 286,000 | | | | 286,000 | | | | 286,000 | | | | 476,000 | | | | 1,406,000 | |
Total | | $ | 1,237,000 | | | $ | 1,103,000 | | | $ | 711,000 | | | $ | 451,000 | | | $ | 723,000 | | | $ | 4,225,000 | | | $ | 455,000 | | | $ | 1,935,000 | | | $ | 1,435,000 | | | $ | 529,000 | | | $ | 721,000 | | | $ | 5,075,000 | |
| (1) | Represents the minimum purchase requirements related to the Company AXP distributor in China |
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 and nine month periodperiods ended March 31,September 30, 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. Additionally, the loss on equity method investments was combined with other income on the Statement of Operations.
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:September 30:
| | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
Common stock equivalents of convertible promissory note and accrued interest | | | 6,449,950 | | | | 5,159,496 | | |
Common stock equivalents of convertible promissory notes and accrued interest | | | 7,071,241 | | | 6,988,334 | |
Vested Series A warrants | | | -- | | | | 40,441 | | | -- | | | 40,441 | |
Unvested Series A warrants(1) | | | -- | | | | 69,853 | | | -- | | | 69,853 | |
Warrants – other | | | 653,248 | | | | 1,273,461 | | | 653,248 | | | 1,006,190 | |
Stock options | | | 889,636 | | | | 287,849 | | | | 366,595 | | | | 892,149 | |
Total | | | 7,992,834 | | | | 6,831,100 | | | | 8,091,084 | | | | 8,996,967 | |
___________
| | (1)(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, asat the time of the quarter ended March 31, 2021,acquisition, 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,As of September 30, 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,September 30, 2021, ImmuneCyte had a consolidated net loss of $253,000,$750,000; its current assets were $3,514,000$3,283,000 and current liabilities were $2,375,000.$2,970,000.
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(the “Maturity Date”). As of March 31,September 30, 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:
| | Maturity Date | | Stated Interest Rate | | | Conversion Price | | | Face Value | | | Remaining Debt Discount | | | Carrying Value | | Maturity Date | | Stated Interest Rate | | Conversion Price | | Face Value | | Remaining Debt Discount | | Carrying Value | |
At March 31, 2021 | 3/6/2022 | | | 22% | | | $ | 1.80 | | | $ | 10,000,000 | | | $ | (3,238,000 | ) | | $ | 6,762,000 | | |
At September 30, 2021 | | 3/6/2022 | | 22% | | | | $1.80 | | | | $10,000,000 | | | | $(1,583,000) | | | | $8,417,000 | |
At December 31, 2020 | 3/6/2022 | | | 22% | | | $ | 1.80 | | | $ | 10,000,000 | | | $ | (4,065,000 | ) | | $ | 5,935,000 | | 3/6/2022 | | 22% | | | | $1.80 | | | | $10,000,000 | | | | $(4,065,000) | | | | $5,935,000 | |
The Company amortized $827,000 and $546,000$2,482,000 of debt discount to interest expense for the three and nine months ended March 31,September 30, 2021 and $827,000 and $2,103,000 for the three and nine months ended September 30 2020, respectively. In addition to the amortization, the Company also recorded interest expense of $550,000$562,000 and $443,000$1,668,000 for the three and nine months ended March 31,September 30, 2021 and $562,000 and $1,519,000 for the three and nine months ended September 30 2020, respectively. The interest payable balance as of March 31,September 30, 2021 and December 31, 2020 was $550,000$1,668,000 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“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:
| | Maturity Date | | Stated Interest Rate | | | Conversion Price | | | Face Value | | | Remaining Debt Discount | | | Carrying Value | | Maturity Date | | Stated Interest Rate | | Conversion Price | | Face Value | | Remaining Debt Discount | | Carrying Value | |
At March 31, 2021 | 7/31/2022 | | | 24% | | | $ | 1.80 | | | $ | 1,000,000 | | | $ | (428,000 | ) | | $ | 572,000 | | |
At September 30, 2021 | | 7/31/2022 | | 24% | | | | $1.80 | | | | $1,000,000 | | | | $(267,000) | | | | $733,000 | |
At December 31, 2020 | 7/31/2022 | | | 24% | | | $ | 1.80 | | | $ | 1,000,000 | | | $ | (507,000 | ) | | $ | 493,000 | | 7/31/2022 | | 24% | | | | $1.80 | | | | $1,000,000 | | | | $(507,000) | | | | $493,000 | |
The Company recorded amortization expense of $80,000for the debt discount on the July 2019 Note for the three and nine months ended March 31,September 30, 2021 of $80,000 and interest expense of $60,000$241,000, respectively; and $27,000 and $107,000 for both the three and nine months ended March 31,September 30, 2020. Interest expense related to the July 2019 Note was $60,000 and $180,000 for the three and nine months ended September 30, 2021 and 2020.
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:
| | | March 31, 2021 | | | December 31, 2020 | | | September 30, 2021 | | December 31, 2020 | |
Right-of-use operating lease assets, net | | $ | 693,000 | | | $ | 730,000 | | | $ | 614,000 | | | $ | 730,000 | |
Current lease liability (included in other current liabilities) | | | 168,000 | | | | 157,000 | | | 193,000 | | | 157,000 | |
Non-current lease liability | | | 558,000 | | | | 604,000 | | | 455,000 | | | 604,000 | |
| | | | | | | | | | |
Weighted average remaining lease term | | | 3.2 | | | | 3.4 | | | 2.7 | | | 3.4 | |
Discount rate | | | 22 | % | | | 22 | % | | 22 | % | | 22 | % |
Maturities of lease liabilities by year for our operating leases are as follows:
2021 (Remaining) | | $ | 234,000 | | | $ | 78,000 | |
2022 | | | 319,000 | | | 319,000 | |
2023 | | | 328,000 | | | 328,000 | |
2024 | | | 139,000 | | | | 139,000 | |
Total lease payments | | $ | 1,020,000 | | | $ | 864,000 | |
Less: imputed interest | | | (294,000 | ) | | | (217,000 | ) |
Present value of operating lease liabilities | | $ | 726,000 | | | $ | 647,000 | |
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 flowsflow from operating activities.activities was $78,000 and $231,000 for the three and nine months ended September 30, 2021 and $76,000 and $225,000 for the three and nine months ended September 30, 2020, respectively.
Operating Lease Costs
Operating lease costs were $109,000$107,000 and $103,000$316,000 for the quartersthree and nine months ended March 31,September 30, 2021 and $135,000 and $343,000 for the three and nine months ended September 30, 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 quarterthree and nine months ended March 31,September 30, 2021 or March 31, and 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,September 30, 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(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,September 30, 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 threenine months ended March 31,September 30, 2021 is summarized in the following table:
Balance at December 31, 2020 | | $ | 154,000 | | | $ | 154,000 | |
Warranties issued during the period | | | 6,000 | | | 53,000 | |
Settlements made during the period | | | (66,000 | ) | | (140,000 | ) |
Changes in liability for pre-existing warranties during the period | | | 12,000 | | | | -- | |
Balance at March 31, 2021 | | $ | 106,000 | | |
Balance at September 30, 2021 | | | $ | 67,000 | |
9. | PAYMENTPAYCHECK 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 firstsix 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 threenine months ended March 31,September 30, 2021, the Company recorded a gain on extinguishment of debt of $652,000 representing the principal and accrued interest for the PPP Loan.
Loan at the time of forgiveness.
10. | STOCKHOLDERSEMPLOYEE RETENTION TAX CREDIT’ EQUITY
|
Employee Retention Tax Credits (“ERTC”), created in the March 2020 CARES Act and then subsequently amended by the Consolidated Appropriation Act (“CAA”) of 2021 and the American Rescue Plan Act (“ARPA”) of 2021, is a refundable payroll credit for qualifying businesses keeping employees on their payroll during the COVID-19 pandemic. Under CAA and ARPA amendments, employers can claim a refundable tax credit against the employer share of social security tax equal to 70% of the qualified wages (including certain health care expenses) paid to employees from January 1, 2021 to December 31, 2021. Qualified wages are limited to $10,000 per employee per quarter in 2021 so the maximum ERTC available is $7,000 per employee per quarter.
The Company is eligible to receive the ERTC credits under the gross receipts decline test when comparing the first, second and third quarters of 2021 to the same quarters in 2019, which qualified the Company to claim ERTC the firstthree quarters of 2021 under the amended ERTC program. The Company qualified for a refundable payroll tax credit totaling $842,000 for the firstthree quarters of 2021, which is recorded in other income on the Company’s consolidated statement of operations for the three and nine months ended September 30, 2021, and prepaid and other current assets on the Company’s consolidated balance sheet as of September 30, 2021.
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,September 30, 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 threenine months ended March 31,September 30, 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:
| | | Three Months Ended March 31, | |
| | | 2021 | | | 2020 | |
Cost of goods sold | | $ | 5,000 | | | $ | -- | |
Sales, general and administrative | | | 216,000 | | | | 52,000 | |
Research and development | | | 37,000 | | | | 15,000 | |
| | | $ | 258,000 | | | $ | 67,000 | |
Stock Based Compensation
In May 2021, five Company executives voluntarily surrendered the options they were awarded in June 2020. At the time they were surrendered, the exercise price of the options was underwater. No payment or other consideration was paid to the Company executives for surrendering the options. In total 490,000 options were cancelled. As a result of the cancellation, the remaining unamortized expense of $2,008,000 was accelerated and recorded in the three months ended June 30, 2021.
The Company recorded stock-based compensation of $92,000 and $2,449,000 for the three and nine months ended September 30, 2021, and $234,000 and $615,000 for the three and nine months ended September 30, 2020, respectively, as comprised of the following:
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
Cost of revenues | | $ | 4,000 | | | $ | 3,000 | | | $ | 14,000 | | | $ | 5,000 | |
Selling, general and administrative | | | 64,000 | | | | 195,000 | | | | 2,194,000 | | | | 538,000 | |
Research and development | | | 24,000 | | | | 36,000 | | | | 241,000 | | | | 72,000 | |
| | | $ | 92,000 | | | $ | 234,000 | | | $ | 2,449,000 | | | $ | 615,000 | |
The following is a summary of option activity for the Company’s stock option plans:
| | | Number of Shares | | | Weighted- Average Exercise Price | | | Weighted- Average Remaining Contractual Life | | | Aggregate Intrinsic Value | |
Outstanding at December 31, 2020 | | | 889,636 | | | $ | 8.57 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Forfeited | | | -- | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Outstanding at March 31, 2021 | | | 889,636 | | | | 8.57 | | | | 8.5 | | | $ | -- | |
| | | | | | | | | | | | | | | | | |
Vested and expected to vest at March 31, 2021 | | | 631,053 | | | $ | 9.54 | | | | 8.3 | | | $ | -- | |
| | | | | | | | | | | | | | | | | |
Exercisable at March 31, 2021 | | | 230,836 | | | $ | 15.21 | | | | 7.2 | | | $ | -- | |
| | | Number of Shares | | | Weighted- Average Exercise Price | | | Weighted- Average Remaining Contractual Life | | | Aggregate Intrinsic Value | |
Outstanding at December 31, 2020 | | | 889,636 | | | $ | 8.57 | | | | 8.7 | | | $ | -- | |
| | | | | | | | | | | | | | | | | |
Cancelled / Forfeited | | | 523,041 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Outstanding at September 30, 2021 | | | 366,595 | | | $ | 11.86 | | | | 7.1 | | | $ | -- | |
| | | | | | | | | | | | | | | | | |
Vested and expected to vest at September 30, 2021 | | | 331,128 | | | $ | 12.36 | | | | 6.9 | | | $ | -- | |
| | | | | | | | | | | | | | | | | |
Exercisable at September 30, 2021 | | | 244,245 | | | $ | 13.97 | | | | 7.0 | | | $ | -- | |
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 no0 options exercised during the threenine months ended March 31,September 30, 2021.
Warrants
A summary of warrant activity for the threenine months ended March 31,September 30, 2021is as follows:
| | | Number of Shares | | | Weighted-Average Exercise Price Per Share | | | Weighted- Average Remaining Contract Term | |
Balance at December 31, 2020 | | | 1,116,484 | | | $ | 37.27 | | | | 0.49 | |
Warrants expired | | | 463,236 | | | | | | | | | |
Warrants exercised | | | -- | | | $ | -- | | | | | |
| | | | | | | | | | | | | |
Outstanding at March 31, 2021 | | | 653,248 | | | $ | 6.97 | | | | 2.20 | |
| | | | | | | | | | | | | |
Exercisable at March 31, 2021 | | | 653,248 | | | $ | 6.97 | | | | 2.20 | |
| | | Number of Shares | | | Weighted-Average Exercise Price Per Share | | | Weighted- Average Remaining Contract Term | |
Balance at December 31, 2020 | | | 1,116,484 | | | $ | 37.27 | | | | 0.49 | |
Warrants expired | | | 463,236 | | | | | | | | | |
Warrants exercised | | | -- | | | $ | -- | | | | | |
Outstanding at September 30, 2021 | | | 653,248 | | | $ | 6.97 | | | | 1.70 | |
Exercisable at September 30, 2021 | | | 653,248 | | | $ | 6.97 | | | | 1.70 | |
11.12.
| 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, net revenues, one customer accounted for 21%42% and 2% of revenue,20%, a second customer accounted for 15%24% and 6% of revenue,22% and a third customer accounted for 3%0% and 50%10% for the three months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2020,one customer accounted for 19% and 12%, a second customer accounted for 17% and 27%, while a third customer accounted for 10% and 12% of net revenues, respectively.
At March 31,September 30, 2021, three2 customers accounted for 67% of accounts receivable. At December 31, 2020, three3 customers accounted for 72% of accounts receivable.
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.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Note Regarding Forward‑Looking Statements
This report contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements contained herein. When used in this report, the words "anticipate," "believe," "estimate," "expect" and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. Actual results, performance or achievements could differ materially from the results expressed in, or implied by these forward-looking statements. Readers should be aware of important factors that, in some cases, have affected, and in the future could affect, actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. These factors include without limitation, the ability to obtain capital and other financing in the amounts and at the times needed to launch new products, market acceptance of new products, the nature and timing of regulatory approvals for both new products and existing products for which the Company proposes new claims, realization of forecasted revenues, expenses and income, initiatives by competitors, price pressures, failure to meet U.S. Food and Drug Administration (“FDA”) regulated requirements governing the Company’s products and operations (including the potential for product recalls associated with such regulations), risks associated with initiating manufacturing for new products, failure to meet Foreign Corrupt Practice Act regulations, legal proceedings, uncertainty associated with the COVID-19 pandemic, and other risk factors listed from time to time in our reports with the Securities and Exchange Commission (“SEC”), including, in particular, those set forth in ThermoGenesis Holdings’The Company’s Form 10-K for the year ended December 31, 2020.
Business Overview
ThermoGenesis Holdings, Inc. 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, cell separationsterile system allows for isolatingthe rapid, automated processing of autologous peripheral blood or bone marrow aspirate derived stem and progenitor cells from umbilical cord blood, registeredat the point-of-care, such as surgical centers or clinics, 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-CarePXP-LAVARE System – an automated, fully closed sterile system that is designed to wash, re-suspend and volume reduce cell suspensions. It allows for the rapid, automated processing of autologous peripheral bloodvolume manipulation, supernatant or bone marrow aspirate derived stem cells at the point-of-care, suchmedia exchange, and cell washing to occur without comprising cell viabilities and maximizing recoveries, registered 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.
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| | ● | 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”) TCAR-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. |
ThermoGenesis Holdings is an affiliate of the Boyalife Group, a global diversified life science holding company that focuses on stem cell technology and cell-based therapeutics.
COVID-19
We believe that the COVID-19 pandemic has had a material negative impact on the Company’s business and results of operations. The pandemic had a significant impact on the cord blood industry, with fewer cord blood units being stored globally after the start of the pandemic. The continued impact of the pandemic on the Company’s business and results of operations will depend on future developments relating to the pandemic in general and the cord blood industry in particular, and such future developments are highly uncertain and cannot be predicted. Such developments may include the continued 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 continued impact on the U.S. or global economy.economy and supply chains. As a result, at the time of this filing, it is impossible to predict the continued impact of the pandemic on the Company’s business, liquidity, capital resources and financial results.
Critical Accounting Policies
Management’s discussion and analysis of its financial condition and results of operations is based upon the condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Estimates are based 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. For a full discussion of our accounting estimates and assumptions that have been identified as critical in the preparation of the Company’s condensed consolidated financial statements, please refer to ThermoGenesis Holdings’ Form 10-K for the year ended December 31, 2020.
Results of Operations for the Three Months Ended March 31,September 30, 2021 as Compared to the Three Months Ended March 31,September 30, 2020
The following tables summarizes revenues by product line:
| | | Three Months Ended September 30, | | | | | | | | | |
| | | 2021 | | | 2020 | | | $ Change | | | % Change | |
AXP | | $ | 2,310,000 | | | $ | 1,169,000 | | | $ | 1,141,000 | | | | 98 | % |
BioArchive | | | 518,000 | | | | 619,000 | | | | (101,000 | ) | | | (16 | )% |
CAR-TXpress | | | 262,000 | | | | 425,000 | | | | (163,000 | ) | | | (38 | )% |
Manual Disposables | | | 55,000 | | | | 100,000 | | | | (45,000 | ) | | | (45 | )% |
Other | | | 13,000 | | | | 42,000 | | | | (29,000 | ) | | | (69 | )% |
Total | | $ | 3,158,000 | | | $ | 2,355,000 | | | $ | 803,000 | | | | 34 | % |
Net Revenues
Net revenues increased by $803,000 or 34%, from $2,355,000 to $3,158,000 for the three months ended March 31,September 30, 2021 were $1,517,000as compared to $3,200,000 for the three months ended March 31, 2020, a decrease of $1,683,000 or 53%.September 30, 2020. The decreaseincrease was primarily driven by AXP® disposableAXP sales, which declinedincreased by approximately $1,900,000 with approximately 900 fewer cases sold$1,141,000 or 98% in the first quarter ofthree months ended September 30, 2021 as compared to the same period in 2020. The primary driverincreased AXP revenue related to the new three year contract the Company signed with its distributor in China. The contract called for the distributor to purchase approximately three containers of the decrease was the COVID-19 pandemic which has had a significant impact on our sales since it began over a year ago. As the pandemic has begun to subsideAXP bagsets in 2021, representing approximately $1,400,000 in revenue. Those containers were shipped in the firstthird quarter of 2021. This resulted increased revenue of approximately $1,000,000 in the third quarter of 2021 we are hopeful thatrelated to the industry will startCompany’s distributor in China as compared to turn aroundthe same period in 2020, as they only purchased approximately $450,000 of AXP bagsets in the second quarter. Inquiries for ordersthree months ended September 30, 2020. The remainder of the increase relates to domestic AXP bagset sales, which increased in March and we currently expect revenue to reboundby approximately 100 cases or $200,000 in the second quarter and return to pre-pandemic levels by the end of 2021. The decrease was offset by approximately $250,000 more in BioArchive® sales, primarily due to increased service revenue in the first quarter ofthree months ended September 30, 2021 as compared to the same period in 2020. Revenues in the Company’s other product lines decreased by a combined $338,000. The largest decrease is related to CAR-TXpress sales. The Company sells this product line primarily through its exclusive worldwide distributor for x-series products, Corning Incorporated. They have indicated that the COVID-19 pandemic is still hindering their ability to expand revenue for the product line, as they are unable to on site demos and other sales activities that occurred prior to the start of the pandemic.
| | | March 31, 2021 | | | March 31, 2020 | |
AXP | | $ | 264,000 | | | $ | 2,232,000 | |
BioArchive | | | 750,000 | | | | 496,000 | |
CAR-TXpress | | | 354,000 | | | | 235,000 | |
Manual Disposables | | | 129,000 | | | | 203,000 | |
Other | | | 20,000 | | | | 34,000 | |
| | | $ | 1,517,000 | | | $ | 3,200,000 | |
Gross Profit
The Company’s gross profit was $708,000$1,115,000 or 47%35% of net revenues for the three months ended March 31,September 30, 2021, compared to $1,492,000$1,511,000 or 47%64% of net revenues for the three months ended March 31,September 30, 2020, a decrease of $784,000.$396,000 or 26%. The decrease was driven by a refund of $800,000 received in the declinethree months ended September 30, 2020 from ImmuneCyte relating to COVID-19 testing kits which were previously reserved by the Company in AXP® disposables sold resulting in approximately $1,075,000 less gross profit. Thisa prior quarter. The decrease was offset by higher gross profit from AXP disposables of approximately $250,000 more in BioArchive service revenue and approximately $50,000 more in CAR-TXpress revenue$400,000 generated by the increased sales of AXP disposables in the quarterthree months ended March 31,September 30, 2021.
Selling, General and Administrative
Sales, general and administrative expenses for the three months ended March 31,September 30, 2021 were $1,992,000$1,677,000 compared to $2,092,000$1,844,000 for the three months ended March 31,September 30, 2020, a decrease of $100,000$167,000 or 5%9%. The decrease was driven by the absence of legallower personnel expenses which decreased by approximately $225,000, and other expenses related to the Mavericks lawsuit that were incurredlower stock compensation expense, which decreased by approximately $130,000, in the quarterthree months ended March 31, 2020, of approximately $220,000 and reduced travel expenses of approximately $60,000September 30, 2021 as compared to the first quarter ofsame period in 2020. These decreases were offset by increased stock compensation expenseconsulting expenses of $164,000 in the current quarter.approximately $200,000.
Research and Development Expenses
Research and development expenses were $379,000$543,000 for the three months ended March 31,September 30, 2021 as compared to $609,000$750,000 for the three months ended March 31,September 30, 2020, a decrease of $230,000$207,000 or 38%28%. The decrease was driven by lowerdevelopment expenses for salaries and benefitsthe Company’s COVID-19 cartridge reader of approximately $225,000$150,000 incurred in the quarterthree months ended March 31,September 30, 2020 and lower stock compensation expense of approximately $50,000 in the three months ended September 30, 2021.
Interest Expense
Interest expense for the three months ended March 31,September 30, 2021 was $1,519,000, as$1,530,000, compared to $3,531,000$1,531,000 for the three months ended March 31,September 30, 2020, a decrease of $2,012,000$1,000. Interest expense was essentially flat year over year due the interest expense and amortization of the debt discount related to the Revolving Credit Agreement with Boyalife Asset Holding II, Inc. being the same in both periods.
Results of Operations for the Nine Months Ended September 30, 2021 as Compared to the Nine Months Ended September 30, 2020
The following tables summarizes revenues by product line:
| | | Nine Months Ended September 30, | | | | | | | | | |
| | | 2021 | | | 2020 | | | $ Change | | | % Change | |
AXP | | $ | 3,670,000 | | | $ | 4,112,000 | | | | (442,000 | ) | | | (11 | )% |
BioArchive | | | 1,817,000 | | | | 1,575,000 | | | | 242,000 | | | | 15 | % |
CAR-TXpress | | | 1,005,000 | | | | 1,296,000 | | | | (291,000 | ) | | | (22 | )% |
Manual Disposales | | | 300,000 | | | | 499,000 | | | | (199,000 | ) | | | (40 | )% |
Other | | | 84,000 | | | | 315,000 | | | | (231,000 | ) | | | (73 | )% |
Total | | $ | 6,876,000 | | | $ | 7,797,000 | | | $ | (921,000 | ) | | | (12 | )% |
Net Revenues
Net revenues decreased by $921,000 or 57%12%, from $7,797,000 to $6,876,000 for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The decrease was driven by lower AXP® disposable sales which declined by approximately $350,000 with 100 fewer cases sold in the nine months ended September 30, 2021 as compared to the same period in 2020. Additionally, there were decreases in the CAR-TXpress and manual disposable product lines of $291,000 and $199,000, respectively, primarily as a result of the COVID-19 pandemic. Other revenues also decreased by $231,000 due to COVID-19 testing kits of which the Company didn’t sell in the nine months ended September 30, 2021. Offsetting the decreases, was an increase in BioArchive service revenue of $265,000 in the nine months ended September 30, 2021, as compared to the same period in 2020.
Gross Profit
The Company’s gross profit was $2,809,000 or 41% of net revenues for the nine months ended September 30, 2021, compared to $371,000 or 5% for the nine months ended September 30, 2020, an increase of $2,438,000. The current year gross profit is consistent with the Company’s standard profit margins. The gross profit was lower in the prior year due to increased inventory reserve expenses of approximately $2,800,000. The inventory reserve expense recognized in 2020 was primarily for COVID-19 testing kits, which are no longer being sold by the Company. Offsetting the increase was a decrease in gross profit provided by AXP disposables of approximately $300,000.
Selling, General and Administrative
Selling, general and administrative expenses for the nine months ended September 30, 2021 were $7,171,000 compared to $5,913,000 for the nine months ended September 30, 2020, an increase of $1,258,000 or 21%. The increase was driven by stock compensation expense, which increased by approximately $1,700,000 primarily due to the accelerated expense for the stock options that were voluntarily surrendered by Company executives and increased consulting expenses of approximately $200,000 in the nine months ended September 30, 2021. The increase is offset by a decrease of approximately $325,000 in lower legal expenses primarily due to the absence of expenses related to the Mavericks lawsuit incurred in the prior year, approximately $100,000 less in fixed asset impairment expense, approximately $125,000 less in patent expense and approximately $60,000 less in investor relations related expenses in the nine months ended September 30, 2021 as compared to the same period in 2020.
Research and Development Expenses
Consolidated research and development expenses were $1,544,000 for the nine months ended September 30, 2021, compared to $1,937,000 for the nine months ended September 30, 2020, a decrease of $393,000 or 20%. The decrease was driven by lower salaries and benefits of approximately $550,000 offset by increased stock compensation expense of approximately $175,000 in the nine months ended September 30, 2021 as compared to the same period in 2020.
Interest Expense
Interest expense decreased to $4,573,000 for the nine months ended September 30, 2021 as compared to $6,377,000 for the nine months ended September 30, 2020, a decrease of $1,804,000. The decrease is driven an accelerated expense of $2,486,000 for the unamortized debt discount of $2,486,000 for the beneficial conversion feature associated with the portions of the Revolving Credit Agreement with Boyalife Asset Holding II, Inc. which were converted duringin the first quarter ofnine months ended September 30, 2020. TheThis decrease was offset by approximately $450,000 more inadditional interest expense and debt discount amortization and interest expenseof approximately $500,000 related to the additional draw down from the Loan completed byRevolving Credit Agreement with Boyalife Asset Holding II, Inc. that occurred in the Company in Aprilsecond quarter of 2020.
Liquidity and Capital Resources
At March 31,September 30, 2021, the Company had cash and cash equivalents of $10,014,000$7,634,000 and working capital of $6,413,000.$2,146,000. This compares to cash and cash equivalents of $7,161,000 and working capital of $9,155,000 at December 31, 2020. We have primarily financed operations through private and public placement of equity securities and our line of credit facility.
The Company has a Revolving Credit Agreement with Boyalife Asset Holding II, Inc. As of March 31,September 30, 2021, the Company had drawn down the full $10,000,000 that is available under the Revolving Credit Agreement, which matures in March of 2022. Boyalife Asset Holding II, Inc. is a wholly-owned subsidiary of Boyalife Group Inc. (USA), which is owned and controlled by the Company’s Chief Executive Officer and Chairman of our Board of Directors.
During 2020, the Company received a loan totalling net proceeds of $646,000 from the SBA under the Payment Protection Program of the CARES Act, in response to the CoronavirusCOVID-19 pandemic described above. The CARES Act permits that a loan may be forgiven if certain criteria are met. In March 2021, the SBA approved the Company’s application to forgive the entire amount of the debt. In the nine months ended September 30, 2021, the Company recognized a gain of the forgiveness of debt for $652,000 representing the principal balance and accrued interest related to the loan at the time of forgiveness.
The Company has incurred recurringhistorical losses from operations and expects to continue to incur operating losses and as of March 31, 2021 had an accumulated deficit of $255,696,000.in the near future. 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 may require additional capital to grow the business, to fund other operating expenses and to 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 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.
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, equity method investments 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.
| | | Three Months Ended March 31, | |
| | | 2021 | | | 2020 | |
Net loss | | $ | (2,531,000 | ) | | $ | (4,743,000 | ) |
| | | | | | | | | |
Deduct: | | | | | | | | |
Interest expense | | | (1,519,000 | ) | | | (3,531,000 | ) |
Other income / expense | | | (1,000 | ) | | | (3,000 | ) |
Gain on extinguishment of debt | | | 652,000 | | | | -- | |
Loss from operations | | $ | (1,663,000 | ) | | $ | (1,209,000 | ) |
| | | | | | | | | |
Add: | | | | | | | | |
Depreciation and amortization | | | 166,000 | | | | 199,000 | |
Stock-based compensation expense | | | 258,000 | | | | 67,000 | |
Adjusted EBITDA | | $ | (1,239,000 | ) | | $ | (943,000 | ) |
Three months ended September 30, 2021 and 2020, respectively:
| | | Three Months Ended September 30, | |
| | | 2021 | | | 2020 | |
Net loss | | $ | (1,792,000 | ) | | $ | (2,609,000 | ) |
| | | | | | | | | |
Deduct: | | | | | | | | |
Interest expense | | | (1,530,000 | ) | | | (1,531,000 | ) |
Other expense | | | 843,000 | | | | 5,000 | |
Loss from operations | | $ | (1,105,000 | ) | | $ | (1,083,000 | ) |
| | | | | | | | | |
Add: | | | | | | | | |
Depreciation and amortization | | | 157,000 | | | | 177,000 | |
Stock-based compensation expense | | | 92,000 | | | | 234,000 | |
Adjusted EBITDA | | $ | (856,000 | ) | | $ | (672,000 | ) |
Adjusted EBITDA for the three months ended September 30, 2021 was a loss of $856,000, compared to a loss of $672,000 for the three months ended September 30, 2020, a decrease of $184,000. The adjusted EBITDA decrease was primarily due to $287,000 less in gross profit and $200,000 more in consulting fees incurred in the three months ended September 30, 2021 as compared to the same period in 2020. These decreasing items were offset by approximately $225,000 less in selling, general and administrative personnel expenses.
Nine months ended September 30, 2021 and 2020, respectively:
| | | Nine Months Ended September 30, | |
| | | 2021 | | | 2020 | |
Net Loss | | $ | (8,994,000 | ) | | $ | (13,862,000 | ) |
| | | | | | | | | |
Deduct: | | | | | | | | |
Interest expense | | | (4,573,000 | ) | | | (6,377,000 | ) |
Other income (expense) | | | 833,000 | | | | (6,000 | ) |
Gain on extinguishment of debt | | | 652,000 | | | | -- | |
Loss from operations | | $ | (5,906,000 | ) | | $ | (7,479,000 | ) |
| | | | | | | | | |
Add: | | | | | | | | |
Depreciation and amortization | | | 477,000 | | | | 569,000 | |
Stock-based compensation expense | | | 2,449,000 | | | | 615,000 | |
Adjusted EBITDA | | $ | (2,980,000 | ) | | $ | (6,295,000 | ) |
The adjusted EBITDA loss was $1,239,000$2,980,000 for the threenine months ended March 31,September 30, 2021 compared to an adjusted EBITDAa loss of $943,000$6,295,000 for the threenine months ended March 31,September 30, 2020, an increase in the adjusted EBITDA loss of $296,000 or 31%.$3,315,000. The adjusted EBITDA loss increaseimprovement was primarily due to lower inventory reserve expense of approximately $3,300,000 primarily related to COVID-19 testing kits which was incurred in the nine months ended September 30, 2020. Additionally, the nine months ended September 30, 2020 also had approximately $325,000 less in legal expenses primarily due to the decreaseabsence of $784,000legal and other expenses related to the Mavericks lawsuit, approximately $100,000 less due to a fixed asset impairment expense incurred in gross profit driven by lower AXP disposable sales, offset by a $100,000 decreasethe nine months ended September 30, 2020 and approximately $125,000 less in Selling, General and Administrative expenses, a $230,000 decrease in Research and Development expenses and lower stock compensationpatent expense in the quarternine months ended March 31,September 30, 2021 of $191,000 as compared to the first quartersame period in 2020. Offsetting these decreases was approximately $200,000 more incurred in consulting expenses.
Off-Balance Sheet Arrangements
As of March 31, 2021, the Company had no off-balance sheet arrangements.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
ThermoGenesis Holdings is a smaller reporting company as defined by Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) and is not required to provide information under this item.
ITEM 4. Controls and Procedures
The Company carried out an evaluation, under the supervision, and with the participation of management, including both the Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined by Exchange Act Rule 13a-15(e) or 15d-15(e)) as of March 31,September 30, 2021. Disclosure controls and procedures cover controls and other procedures that are designed to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have both concluded that the Company’s disclosure controls and procedures were effective as of March 31,September 30, 2021.
There were no changes in the Company’s internal controls over financial reporting that occurred during the three months ended March 31,September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Management believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company, have been detected.
PART II - OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS. |
In the normal course of operations, we may have disagreements or disputes with distributors, vendors, employees or employees.other parties. 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.
The material set forth in Note 8, “Commitments and Contingencies,” in “Item 1. Financial Statements – Notes to Condensed Consolidated Financial Statements” is incorporated herein by reference.
There have been no material changes to the risk factors relating to the Company set forth in f, “Item IA. Risk Factors” of its Annual Report on Form 10-K for the year ended December 31, 2020.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
None.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
None.
ITEM 4. | MINE SAFETY DISCLOSURE. |
Not applicable.
ITEM 5. | OTHER INFORMATION. |
None.
An index of exhibits is found on page 26 of this report.
Item 6.
| Exhibits.
Item 6. Exhibits. |
Footnotes to Exhibit Index
ThermoGenesis Holdings, Inc.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | ThermoGenesis Holdings, Inc. (Registrant) | |
| | | |
| | | |
Dated: May 13,November 12, 2021 | /s/ Xiaochun (Chris) Xu, Ph.D. | |
| | Xiaochun (Chris) Xu, Ph.D. Chief Executive Officer (Principal Executive Officer) | |
| | | |
| | | |
Dated: May 13,November 12, 2021 | /s/ Jeffery Cauble | |
| | Jeffery Cauble Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | | |
