thmo20220630

thmo20220630_10q.htm

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 June 30, 2022.

☐	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 August 9, 2022
	Common stock, $.001 par value		31,321,362

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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	13

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	18

ITEM 4.	Controls and Procedures	18

PART II	OTHER INFORMATION

ITEM 1.	Legal Proceedings	19
ITEM 1A.	Risk Factors	19
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
ITEM 3.	Defaults upon Senior Securities	19
ITEM 4.	Mine Safety Disclosure	19
ITEM 5.	Other Information	19
ITEM 6.	Exhibits	20

Signatures		21

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ThermoGenesis Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

	June 30, 2022			December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	4,001,000		$	7,280,000
Accounts receivable, net of allowance for doubtful accounts of $156,000 at June 30, 2022 and December 31, 2021		2,309,000			733,000
Inventories		5,493,000			5,373,000
Prepaid expenses and other current assets		681,000			1,578,000
Total current assets		12,484,000			14,964,000

Inventories non-current, net		994,000			1,709,000
Equipment and leasehold improvements, net		1,279,000			1,261,000
Right-of-use operating lease assets, net		477,000			571,000
Right-of-use operating lease assets – related party, net		3,754,000			--
Goodwill		781,000			781,000
Other intangible assets, net		1,302,000			1,318,000
Other assets		256,000			48,000
Total assets	$	21,327,000		$	20,652,000

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	1,240,000		$	1,280,000
Accrued payroll and related expenses		376,000			348,000
Deferred revenue – short-term		1,029,000			719,000
Convertible promissory note – related party		5,267,000			--
Interest payable – related party		709,000			2,231,000
Convertible promissory note, net		1,000,000			813,000
Other current liabilities		1,070,000			957,000
Total current liabilities		10,691,000			6,348,000

Convertible promissory note – related party, net		--			9,245,000
Operating lease obligations – long-term		274,000			398,000
Operating lease obligations – related party – long-term		3,740,000			--
Deferred revenue – long-term		1,095,000			1,244,000
Other noncurrent liabilities		18,000			20,000
Total liabilities		15,818,000			17,255,000

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; 27,779,440 issued and outstanding (11,911,784 at December 31, 2021)		28,000			12,000
Additional paid in capital		265,596,000			268,447,000
Accumulated deficit		(259,521,000	)		(264,662,000	)
Accumulated other comprehensive loss		76,000			31,000
Total ThermoGenesis Holdings, Inc. stockholders’ equity		6,179,000			3,828,000

Noncontrolling interests		(670,000	)		(431,000	)
Total equity		5,509,000			3,397,000
Total liabilities and equity	$	21,327,000		$	20,652,000

See accompanying notes to the condensed consolidated financial statements.

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ThermoGenesis Holdings, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021

Net revenues	$	3,029,000		$	2,201,000		$	5,692,000		$	3,718,000
Cost of revenues		2,090,000			1,215,000			3,813,000			2,024,000

Gross profit		939,000			986,000			1,879,000			1,694,000

Expenses:
Selling, general and administrative		1,989,000			3,502,000			3,682,000			5,494,000
Research and development		392,000			622,000			847,000			1,001,000

Total operating expenses		2,381,000			4,124,000			4,529,000			6,495,000

Loss from operations		(1,442,000	)		(3,138,000	)		(2,650,000	)		(4,801,000	)

Other expenses:

Interest expense		(1,359,000	)		(1,524,000	)		(2,182,000	)		(3,043,000	)
Other income (expenses)		--			(10,000	)		(4,000	)		(11,000	)
Gain on extinguishment of debt		--			--			--			652,000
Total other expense		(1,359,000	)		(1,534,000	)		(2,186,000	)		(2,402,000	)

Net loss		(2,801,000	)		(4,672,000	)		(4,836,000	)		(7,203,000	)

Loss attributable to noncontrolling interests		(113,000	)		(133,000	)		(239,000	)		(251,000	)
Net loss attributable to common stockholders	$	(2,688,000	)	$	(4,539,000	)	$	(4,597,000	)	$	(6,952,000	)

COMPREHENSIVE LOSS
Net loss	$	(2,801,000	)	$	(4,672,000	)	$	(4,836,000	)	$	(7,203,000	)
Other comprehensive loss:
Foreign currency translation adjustments gain (loss)		31,000			12,000			45,000			13,000
Comprehensive loss		(2,770,000	)		(4,660,000	)		(4,791,000	)		(7,190,000	)
Comprehensive loss attributable to noncontrolling interests		(113,000	)		(133,000	)		(239,000	)		(251,000	)
Comprehensive loss attributable to common stockholders	$	(2,657,000	)	$	(4,527,000	)	$	(4,552,000	)	$	(6,939,000	)

Per share data:

Basic and diluted net loss per common share	$	(0.20	)	$	(0.38	)	$	(0.36	)	$	(0.59	)

Weighted average common shares outstanding – basic and diluted		13,463,137			11,911,784			12,879,072			11,679,075

See accompanying notes to the condensed consolidated financial statements.

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ThermoGenesis Holdings, Inc.

Condensed Consolidated Statements of Equity

For the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)

	Shares		Common Stock		Paid in Capital in Excess of Par			Accumulated Deficit			AOCL*		Non- Controlling Interests			Total Equity
Balance at January 1, 2022		11,911,784	$	12,000	$	268,447,000		$	(264,662,000	)	$	31,000	$	(431,000	)	$	3,397,000

Adoption of ASU 2020-06		--		--		(10,681,000	)		9,739,000			--		--			(942,000	)
Stock-based compensation expense		--		--		42,000			--			--		--			42,000
Issuance of common stock via at-the-market offering, net		918,093		1,000		593,000			--			--		--			594,000
Related party convertible note price reset						213,000											213,000
Foreign currency translation gain		--		--		--			--			14,000		--			14,000
Net loss		--		--		--			(1,910,000	)		--		(126,000	)		(2,036,000	)
Balance at March 31, 2022		12,829,877	$	13,000	$	258,614,000		$	(256,833,000	)	$	45,000	$	(557,000	)	$	1,282,000

Stock-based compensation expense		--		--		72,000			--			--		--			72,000
Issuance of common stock via at-the-market offering, net		4,397,329		4,000		1,446,000			--			--		--			1,450,000
Related party convertible note price reset		--		--		2,475,000			--			--		--			2,475,000
Conversion of related party note payable to common stock		10,552,234		11,000		2,989,000			--			--		--			3,000,000
Foreign currency translation gain		--		--		--			--			31,000		--			31,000
Net loss		--		--		--			(2,688,000	)		--		(113,000	)		(2,801,000	)
Balance at June 30, 2022		27,779,440	$	28,000	$	265,596,000		$	(259,521,000	)	$	76,000	$	(670,000	)	$	5,509,000

	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

Stock-based compensation expense		--		--		2,099,000		--			--		--			2,099,000
Foreign currency translation gain		--		--		--		--			12,000		--			12,000
Net loss		--		--		--		(4,539,000	)		--		(133,000	)		(4,672,000	)
Balance at June 30, 2021		11,911,784	$	12,000	$	268,244,000	$	(260,235,000	)	$	29,000	$	(181,000	)	$	7,869,000

* Accumulated other comprehensive loss.

See accompanying notes to the condensed consolidated financial statements.

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ThermoGenesis Holdings, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended June 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(4,836,000	)	$	(7,203,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		410,000			320,000
Stock based compensation expense		114,000			2,357,000
Amortization of debt discount/premium, net		955,000			1,815,000
Reserve for excess and slow-moving inventories		555,000			98,000
Gain on extinguishment of debt		--			(652,000	)
Net change in operating assets and liabilities:
Accounts receivable		(1,576,000	)		140,000
Inventories		37,000			(1,042,000	)
Prepaid expenses and other assets		689,000			524,000
Accounts payable		1,000			(236,000	)
Interest payable – related party		(1,522,000	)		(976,000	)
Accrued payroll and related expenses		28,000			(4,000	)
Deferred revenue – short-term		310,000			294,000
Other current liabilities		119,000			(434,000	)
Long-term deferred revenue and other noncurrent liabilities		(385,000	)		(245,000	)

Net cash used in operating activities		(5,101,000	)		(5,244,000	)

Cash flows from investing activities:
Capital expenditures		(219,000	)		(80,000	)

Net cash used in investing activities		(219,000	)		(80,000	)

Cash flows from financing activities:

Proceeds from issuance of common stock, net of expenses		2,044,000			6,832,000

Net cash provided by financing activities		2,044,000			6,832,000

Effects of foreign currency rate changes on cash and cash equivalents		(3,000	)		(1,000	)
Net increase (decrease) in cash, cash equivalents and restricted cash		(3,279,000	)		1,507,000

Cash, cash equivalents and restricted cash at beginning of period		7,280,000			7,161,000
Cash, cash equivalents and restricted cash at end of period	$	4,001,000		$	8,668,000

Supplemental disclosures of cash flow information:
Cash paid for related party interest	$	2,628,000		$	2,082,000
Cash paid for interest	$	120,000		$	120,000
Right-to-use asset acquired under operating lease	$	3,863,000			--
Related party promissory note converted to common stock	$	3,000,000			--
Related party convertible note price reset	$	2,688,000			--

See accompanying notes to the condensed consolidated financial statements.

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ThermoGenesis Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Description of Business

ThermoGenesis Holdings, Inc. (“ThermoGenesis Holdings,” the “Company,” “we,” “our,” “us”) develops and commercializes a range of automated technologies for cell-banking, cell-processing, and cell-based therapeutics. Since the 1990’s ThermoGenesis Holdings has been a pioneer in, and a leading provider of automated systems that isolate, purify and cryogenically store units of hematopoietic stem and progenitor cells for the cord blood banking industry. The Company was founded in 1986 and is incorporated in the State of Delaware and headquartered in Rancho Cordova, CA.

Medical Device Products for Automated Cell Processing

The Company provides the AutoXpress® and BioArchive® platforms for automated clinical bio-banking, PXP® platform for point-of-care cell-based therapies and the CAR-TXpress™ platform for large scale cell manufacturing services. All product lines are reporting as a single reporting segment in the financial statements.

Planned CDMO Business

In March 2022, our Board of Directors approved the planned expansion of the Company’s business to include contract development and manufacturing services for cell and cell-based gene therapies. The Company plans to develop and build-out the capabilities to become a Contract Development and Manufacturing Organization (“CDMO”) for cell and cell-based gene therapies by partnering with Boyalife Genomics Tianjin Ltd., a China-based CDMO (“Boyalife Genomics”), to in-license certain know-how and other intellectual property from Boyalife Genomics, and by leasing and building out a cell manufacturing facility in Sacramento, California. We intend to leverage our existing technology and combine it with the in-licensed technologies to develop a proprietary manufacturing platform for cell manufacturing activities and other cell manufacturing solutions for clients with therapeutic candidates in various stages of development. We are targeting the launch of our CDMO services to customers in 2023.

2. Going Concern

The Company has incurred historical losses from operations and expects to continue to incur operating losses in the near future. 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 liquidity 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. These factors and other indicators raise substantial doubt about the Company’s ability to continue as a going concern within one year from the filing date of this report.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The 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 Polices

There have been no material changes in the Company’s significant accounting policies to those disclosed in the 2021 Annual Report.

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.

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Operating results for the three and six month period ended June 30, 2022 are not necessarily indicative of the results that may be expected for the Company’s fiscal year ended December 31, 2022. 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, 2021.

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.

Recently Adopted Accounting Standards

On January 1, 2022, we adopted Accounting Standards Update (“ASU”) 2020-06 “Debt-Debt with Conversion and Other Options (“Subtopic 470-20”) and Derivatives and Hedging-Contracts in Entity’s Own Equity (“Subtopic 815-40”): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” using the modified retrospective method. ASU 2020-06 provides guidance on how to account for contracts on an entity’s own equity. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Specifically, the ASU eliminated the need for the Company to assess whether a contract on the entity’s own equity (1) permits settlement in unregistered shares, (2) whether counterparty rights rank higher than shareholder’s rights, and (3) whether collateral is required. The Company recognized a cumulative effect of $9,739,000 of initially applying the ASU as an adjustment to the January 1, 2022 opening balance of accumulated deficit. Due to the recombination of the equity conversion component of our convertible debt outstanding, the 2022 opening balance of additional paid in capital was reduced by $10,681,000 and the debt discounts of the convertible promissory notes were reduced $942,000.

4. Related Party Transactions

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, 2023 (the “Maturity Date”). The Company performed a debt extinguishment vs. modification analysis. The analysis determined that the extension would be considered an extinguishment from an accounting standpoint, due to the change in the value of the conversion option. In June 2022, the Lender converted a total of $3,000,000 of the outstanding balance of the convertible note into 10,552,234 shares of our common stock. As of June 30, 2022, the outstanding principle balance of the Loan was $7,000,000.

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

The following summarizes the Note:

Maturity

Date

Stated

Interest

Rate

Conversion

Price

Face

Value

Debt

Discount

Carrying

Value

June 30, 2022

3/6/2023

0.28

7,000,000

(1,733,000

)

5,267,000

December 31, 2021

3/6/2022

1.80

10,000,000

(755,000

)

9,245,000

The Note includes a down-round anti-dilution provision that lowers its conversion price if the Company sells shares of common stock at a lower price per share. In February 2022, the Company sold shares of common stock at a price lower than the conversion price of the Note, resulting in a down round triggering event lowering the conversion price of the Note to $0.64 per share. The Company determined that the triggering event created incremental value of $213,000 which was treated as a debt discount and amortized over the remaining term of the Note. A Black-Scholes pricing model was utilized to determine the change in the before and after incremental value of the conversion option with the following inputs:

	Before			After
Conversion Price	$	1.80		$	0.64
Term (in years)		0.02			0.02
Volatility		39.53	%		39.53	%
Dividend rate		0	%		0	%
Risk free rate		1.97	%		1.97	%

In June 2022, the Company sold shares of common stock at a price lower than the conversion price of the Note, resulting in another down round triggering event lowering the conversion price of the Note to $0.28 per share. This triggering event created incremental value of $2,475,000 which was treated as a debt discount and will be amortized over the remaining term of the Note. A Black-Scholes pricing model was utilized to determine the change in the before and after incremental value of the conversion option with the following inputs:

	Before			After
Conversion Price	$	0.64		$	0.28
Term (in years)		0.69			0.69
Volatility		85.6	%		85.6	%
Dividend rate		0	%		0	%
Risk free rate		3.2	%		3.2	%

The Company amortized $742,000 and $955,000 of debt discount to interest expense for the three and six months ended June 30, 2022. The $742,000 amortized in the three months ended June 30, 2022 relates to accelerated amortization for the portion of the Note that was converted in June 2022. In addition to the amortization, the Company also recorded interest expense of $556,000 and $1,106,000 for the three and six months ended June 30, 2022 and 2021. The interest payable balance as of June 30, 2022 and December 31, 2021 was $709,000 and $2,231,000, respectively.

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Boyalife Genomics

On March 24, 2022, the Company entered into a License and Technology Access Agreement with Boyalife Genomics Tianjin Ltd. (“Boyalife Genomics”), a China-based CDMO and an affiliate of ThermoGenesis’ Chairman and Chief Executive Officer, Chris Xu, Ph.D. The agreement provides for a U.S. license to certain existing and future know-how and other intellectual property relating to cell manufacturing and related processes. The Company plans to develop and operate the CDMO cell therapy manufacturing business through a newly formed division named TG Biosynthesis.

Under the terms of the agreement, the Company transferred its remaining 8.64% interest in ImmuneCyte to Boyalife Genomics and agreed to pay a running royalty of 7.5% of its annual net sales of products and services that are covered by one or more of Boyalife Genomics’ granted U.S. patents and a royalty of 5.0% of other products and services covered by other licensed intellectual property. In the three and six months ended June 30, 2022, no sales were recorded under the license agreement and no royalty payments were made to Boyalife Genomics.

5. Related Party Lease

Z3 Investment

On March 24, 2022, the Company entered into a five year Lease Agreement with Z3 Investment LLC, an affiliate of the Company’s Chairman and CEO, beginning April 1, 2022, for approximately 35,000 square feet of laboratory and office space in Rancho Cordova, California. Under the terms of the agreement, monthly rent will be $46,000 per month for the first six months, then increasing to $104,000 per month (with a 4% annual increase) thereafter. Additionally, the Company will pay all operating expenses as they become due estimated to be approximately $5,000 per month and will be expensed in the period incurred. The Company has the option to renew the lease for two 5-year periods. Additionally, the Company has the ability to opt out of the lease after 1 year if the CDMO facility is unable to be constructed as planned at the facility.

The Company performed an analysis of the lease and determined it to be an operating lease. A right-of-use asset and lease obligation were recorded at the lease inception.

Operating Lease

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. We recognize the expense for this lease on a straight-line basis over the lease term.

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The following summarizes the Company’s operating lease:

	June 30, 2022
Right-of-use operating lease assets – related party, net	$	3,754,000
Current lease liability (included in other current liabilities)		200,000
Non-current lease liability		3,740,000

Weighted average remaining lease term		5.3
Discount rate		22	%

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

2022 (Remaining)	$	449,000
2023		1,256,000
2024		1,307,000
2025		1,359,000
2026		1,428,000
Thereafter		1,133,000
Total lease payments	$	6,932,000
Less: imputed interest		(2,992,000	)
Present value of operating lease liabilities	$	3,940,000

Statement of Cash Flows

Cash paid for amounts included in the measurement of operating lease liabilities was $138,000 and $0 for the quarters ended June 30, 2022 and 2021, 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, would have been due and payable three years from the date of the issuance on July 31, 2022, provided that the July 2019 Note was amended as set forth below.

Subsequent to June 30, 2022, the Company entered into an Amendment No. 2 to the July 2019 Note (the "Note Amendment”). The Note Amendment extended the maturity date of the July 2019 Note to January 31, 2023 and modified when interest is due from quarterly to January 31, 2023. The Note Amendment changed the fixed conversion price to $0.21 per share, provided that in the event that the Company issues shares, options, warrants, or convertible securities, subject to certain exceptions, at an effective price per common share lower than $0.21, then the conversion price would be adjusted to such lower issuance price.

Table of Contents

The following summarizes the July 2019 Note:

Maturity

Date

Stated

Interest Rate

Conversion

Price

Carrying

Value

June 30, 2022

1/31/2023

0.50

1,000,000

December 31, 2021

7/31/2022

0.91

813,000

Amortization of debt discount on the July 2019 Note was $0 for the three and six months ended June 30, 2022 and $80,000 and $161,000 for the three and six months ended June 30, 2021, respectively. Interest expense related to the July 2019 Note was $60,000 and $120,000 for the three and six months ended June 30, 2022 and 2021.

7. Stockholders’ Equity

Common Stock

On February 3, 2022, the Company entered into Amendment No. 2 to the At the Market Offering Agreement (the “Offering Agreement”) with H.C. Wainwright & Co., LLC to further increase the maximum aggregate offering price of shares of Common Stock that may be offered and sold from time to time under the Offering Agreement from $15,280,000 to $19,555,000, which enables the Company to sell an additional $4,275,000 of shares after taking into account prior sales under the Offering Agreement (the “Additional Shares”). After filing the Company’s 2021 Form 10-K in March 2022, the total offering price was updated to $18,573,000 based on the shares currently available on Company’s existing Form S-3. The terms and conditions of the Offering Agreement otherwise remain unchanged. For the six months ended June 30, 2022, the Company sold a total of 5,315,422 shares of common stock under the Offering Agreement for aggregate gross proceeds of $2,255,000 at an average selling price of $0.42 per share, resulting in net proceeds of approximately $2,044,000 after deducting commissions and other transaction costs of approximately $211,000.

Equity Plans

On January 13, 2022, the Company’s stockholders approved an amendment of the Company’s Amended 2016 Equity Incentive Plan to increase the aggregate number of shares of the Company’s common stock that may be issued under the plan from 392,500 shares to 1,200,000 shares.

Net Loss Per Share

Net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding. 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 June 30:

	2022		2021
Common stock equivalents of convertible promissory note and accrued interest		29,235,002		6,758,897
Warrants – other		653,248		653,248
Stock options		293,670		386,461
Total		30,181,920		7,798,606

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8. Revenue

The following table presents net sales by geographic areas:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
United States	$	1,573,000	$	1,016,000	$	3,439,000	$	2,041,000
China		1,117,000		46,000

SEC Form 10-Q filed by ThermoGenesis Holdings Inc.