UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2023
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ____________
Commission file number: 001-36763
MEDOVEX CORP.H-CYTE, INC
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)its charter)
| Nevada | 46-3312262 | |
| (State or | (IRS Employer | |
| Identification |
| 2202 N. West Shore Blvd. Ste 200 | ||
| Tampa, Florida | 33607 | |
| (Address of | (Zip Code) |
(844)633-6839
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||
| Common Stock, par value $0.001 per share | ||||
| OTC Capital Markets |
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.
[X] Yes [ ] No
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
[X] Yes [ ] No
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | Accelerated filer | |
| Non-accelerated filer | Smaller Reporting Company | |
| Emerging |
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. [X]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ]
☐ Yes [X] ☒ No
As of November 14, 2017, 21,113,023May 19, 2023, shares of the registrant’s common stock were outstanding.
H-CYTE, INC AND SUBSIDIARIES
MEDOVEX CORP.
TABLE OF CONTENTS
| 2 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined under United States federal securities laws. These statements involve known and unknown risks, uncertainties, and other factors that may cause ourthe Company’s actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
| ● | ||
● | ||
| ● | ||
| ● | the estimates regarding the sufficiency of |
In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these words. Although we believethe Company believes that we haveit has a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that these statements are based on a combination of facts and factors currently known by usthe Company and ourits projections of the future, about which weit cannot be certain. You should also refer to the section of our Annual report on Form 10-K entitled “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, wethe Company cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if ourthe forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by usthe Company, or any other person, that weit will achieve ourits objectives and plans in any specified time frame, or at all. We doThe Company does not undertake to update any of the forward-looking statements after the date of this Quarterly Report, except to the extent required by applicable securities laws.
| 3 |
PART I – FINANCIAL INFORMATION
H-CYTE, INC AND SUBSIDIARIES
MEDOVEX CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited March 31, 2023 | December 31, 2022 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 116,011 | $ | - | ||||
| Patient financing receivable, current portion | 17,124 | 29,464 | ||||||
| Prepaid expenses | 170,162 | 54,381 | ||||||
| Total Current Assets | 303,297 | 83,845 | ||||||
| Property and equipment, net | 18,771 | 20,394 | ||||||
| Patient financing receivable, net of current portion | 5,894 | 14,436 | ||||||
| Other assets | 21,393 | 18,682 | ||||||
| Total assets | $ | 349,355 | $ | 137,357 | ||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 1,044,972 | $ | 971,492 | ||||
| Accrued liabilities | 1,450,373 | 1,418,368 | ||||||
| Other current liabilities | 242,519 | 139,330 | ||||||
| Notes payable, current portion | 122,472 | 104,468 | ||||||
| Convertible notes payable, related parties | 3,325,000 | 3,325,000 | ||||||
| Convertible notes payable | 455,095 | 430,095 | ||||||
| Convertible notes payable carried at fair value, related parties | 1,219,533 | - | ||||||
| Convertible notes payable carried at fair value | 656,671 | - | ||||||
| Lease liability, current portion | 38,276 | 63,291 | ||||||
| Anti-dilution share contingent consideration liability | 501,531 | 501,531 | ||||||
| Interest payable, related parties | 474,001 | 400,042 | ||||||
| Interest payable | 129,520 | 123,276 | ||||||
| Total Current Liabilities | 9,659,963 | 7,476,893 | ||||||
| Long-term Liabilities | ||||||||
| Royalty liability | 1,697,000 | 1,697,000 | ||||||
| Milestone payment contingent consideration liability | 320,850 | 320,850 | ||||||
| Total Long-term Liabilities | 2,017,850 | 2,017,850 | ||||||
| Total Liabilities | 11,677,813 | 9,494,743 | ||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred Stock - $par value: shares authorized; Series A Preferred Stock - $par value: shares authorized, shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively. | 438,773 | 438,773 | ||||||
| Common stock - $ par value: shares authorized, and shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively. | 628 | 618 | ||||||
| Additional paid-in capital | 49,650,254 | 49,531,216 | ||||||
| Accumulated deficit | (61,418,113 | ) | (59,327,993 | ) | ||||
| Total Stockholders’ Deficit | (11,328,458 | ) | (9,357,386 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 349,355 | $ | 137,357 | ||||
| September 30, 2017 | December 31, 2016 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 1,930,780 | $ | 892,814 | ||||
| Accounts receivable | 94,779 | — | ||||||
| Other receivables | 23,369 | — | ||||||
| Inventory | 164,867 | — | ||||||
| Prepaid expenses | 140,406 | 364,822 | ||||||
| Short-term receivable | 150,000 | — | ||||||
| Total Current Assets | 2,504,201 | 1,257,636 | ||||||
| Long Term Receivable | — | 150,000 | ||||||
| Property and Equipment, net of accumulated depreciation | 92,398 | 97,590 | ||||||
| Deposits | 2,751 | 2,751 | ||||||
| Total Assets | $ | 2,599,350 | $ | 1,507,977 | ||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Interest payable | $ | 69,222 | $ | 69,222 | ||||
| Accounts payable | 268,831 | 225,725 | ||||||
| Accounts payable to related parties | 671 | — | ||||||
| Accrued liabilities | 135,000 | 459,800 | ||||||
| Notes payable, current portion | 62,147 | 126,086 | ||||||
| Short-term note payable, net of debt discount | — | 970,240 | ||||||
| Total Current Liabilities | 535,871 | 1,851,073 | ||||||
| Long-Term Liabilities | ||||||||
| Notes payable, net of current portion | 55,336 | 103,742 | ||||||
| Deferred rent | 983 | 1,179 | ||||||
| Total Long-Term Liabilities | 56,319 | 104,921 | ||||||
| Total Liabilities | 592,190 | 1,955,994 | ||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock - $.001 par value: 500,000 shares authorized, 12,740 shares issued and outstanding at September 30, 2017 (unaudited), no shares issued and outstanding at December 31, 2016 | 13 | — | ||||||
| Common stock - $.001 par value: 49,500,000 shares authorized, 20,922,634 and 14,855,181 shares issued and outstanding at September 30, 2017 (unaudited) and December 31, 2016, respectively | 20,923 | 14,855 | ||||||
| Additional paid-in capital | 33,188,741 | 25,898,054 | ||||||
| Accumulated deficit | (31,202,517 | ) | (26,360,926 | ) | ||||
| Total Stockholders’ Equity (Deficit) | 2,007,160 | (448,017 | ) | |||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | 2,599,350 | $ | 1,507,977 | ||||
See accompanying notes to condensedthe consolidated financial statements
| 4 |
H-CYTE, INC AND SUBSIDIARIES
MEDOVEX CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues | $ | 117,277 | $ | — | $ | 117,277 | $ | — | ||||||||
| Cost of Goods Sold | (96,683 | ) | — | (96,683 | ) | — | ||||||||||
| Gross Profit | 20,594 | — | 20,594 | — | ||||||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | 1,092,084 | 1,230,833 | 3,540,500 | 3,384,322 | ||||||||||||
| Sales and marketing | 216,950 | 107,001 | 444,708 | 166,240 | ||||||||||||
| Research and development | 70,151 | 395,752 | 461,924 | 772,238 | ||||||||||||
| Depreciation | 7,109 | 2,033 | 20,000 | 6,042 | ||||||||||||
| Impairment of goodwill | — | — | — | 6,455,645 | ||||||||||||
| Total Operating Expenses | 1,386,294 | 1,735,619 | 4,467,132 | 10,784,487 | ||||||||||||
| Operating Loss | (1,365,700 | ) | (1,735,619 | ) | (4,446,538 | ) | (10,784,487 | ) | ||||||||
| Other Expenses | ||||||||||||||||
| Interest expense | 1,654 | 15,887 | 393,890 | 359,981 | ||||||||||||
| Total Other Expenses | 1,654 | 15,887 | 393,890 | 359,981 | ||||||||||||
| Total Loss from Continuing Operations | (1,367,354 | ) | (1,751,506 | ) | (4,840,428 | ) | (11,144,468 | ) | ||||||||
| Discontinued Operations | ||||||||||||||||
| Loss from discontinued operations | — | 57,023 | 1,163 | 456,083 | ||||||||||||
| Impairment loss | — | — | — | 1,584,048 | ||||||||||||
| Total Loss from Discontinued Operations | — | (57,023 | ) | (1,163 | ) | (2,040,131 | ) | |||||||||
| Net Loss | $ | (1,367,354 | ) | $ | (1,808,529 | ) | $ | (4,841,591 | ) | $ | (13,184,599 | ) | ||||
| Loss per share – Basic and Diluted: | ||||||||||||||||
| Continuing Operations | $ | (0.07 | ) | $ | (0.13 | ) | $ | (0.26 | ) | $ | (0.87 | ) | ||||
| Discontinued Operations | — | — | — | (0.16 | ) | |||||||||||
| Net Loss per share | $ | (0.07 | ) | $ | (0.13 | ) | $ | (0.26 | ) | $ | (1.03 | ) | ||||
| Weighted average outstanding shares used to compute basic and diluted net loss per share | 20,504,932 | 13,847,346 | 18,332,398 | 12,843,008 | ||||||||||||
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | - | $ | 379,560 | ||||
| Cost of Sales | - | (86,505 | ) | |||||
| Gross Profit | - | 293,055 | ||||||
| Operating Expenses | ||||||||
| Salaries and related costs | 165,257 | 347,219 | ||||||
| Share based compensation | 41,228 | 226,079 | ||||||
| Other general and administrative | 214,199 | 509,911 | ||||||
| Total Operating Expenses | 420,684 | 1,083,209 | ||||||
| Operating Loss | (420,684 | ) | (790,154 | ) | ||||
| Other Expense | ||||||||
| Day one loss on convertible notes carried at fair value | (1,521,768 | ) | - | |||||
| Gain on convertible notes carried at fair value | 2,744 | - | ||||||
| Inducement expense | - | (3,024,872 | ) | |||||
| Interest expense | (150,213 | ) | (72,352 | ) | ||||
| Other expense | (199 | ) | (4,405 | ) | ||||
| Total Other Expense | (1,669,436 | ) | (3,101,629 | ) | ||||
| Net Loss | $ | (2,090,120 | ) | $ | (3,891,783 | ) | ||
| Net Loss attributable to common stockholders | $ | (2,090,120 | ) | $ | (3,891,783 | ) | ||
| Loss per share - Basic and Diluted | (3.38 | ) | (23.01 | ) | ||||
| Weighted average outstanding shares - basic and diluted | 618,875 | 169,155 | ||||||
See accompanying notes to condensedthe consolidated financial statements
| 5 |
H-CYTE, INC AND SUBSIDIARIES
MEDOVEX CORP. AND SUBSIDIARY
CONDENSEDCONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
For the ninethree months ended September 30, 2017March 31, 2023 and 2022
| Common Stock | Preferred Stock | Additional | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Paid-in Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance – December 31, 2016 | 14,855,181 | $ | 14,855 | — | $ | — | $ | 25,898,054 | $ | (26,360,926 | ) | $ | (448,017 | ) | ||||||||||||||
| Issuance of common stock in exchange for BOD fees in January 2017 | 173,912 | 174 | — | — | 239,826 | — | 240,000 | |||||||||||||||||||||
| Issuance of common stock pursuant to a private placement complete in February 2017 | 1,631,730 | 1,632 | — | — | 794,602 | — | 796,234 | |||||||||||||||||||||
| Issuance of preferred stock pursuant to a private placement completed in February 2017 | — | — | 12,740 | 13 | 1,019,798 | — | 1,019,811 | |||||||||||||||||||||
| Issuance of warrants pursuant to a private placement completed in February 2017 | — | — | — | — | 802,014 | — | 802,014 | |||||||||||||||||||||
| Issuance of common stock pursuant to the conversion of a short term note in February 2017 | 165,865 | 166 | — | — | 126,554 | — | 126,720 | |||||||||||||||||||||
| Issuance of preferred stock pursuant to the conversion of a short term note in February 2017 | — | — | 9,399 | 9 | 718,070 | — | 718,079 | |||||||||||||||||||||
| Issuance of warrants pursuant to the conversion of a short term note in February 2017 | — | — | — | — | 305,201 | — | 305,201 | |||||||||||||||||||||
| Issuance of common stock pursuant to warrant cancellations in February 2017 | 200,000 | 200 | — | — | 207,800 | — | 208,000 | |||||||||||||||||||||
| Issuance of common stock pursuant to preferred stock conversion in March 2017 | 414,663 | 415 | (4,147 | ) | (4 | ) | (411 | ) | — | — | ||||||||||||||||||
| Issuance of common stock pursuant to preferred stock conversion in April 2017 | 525,240 | 525 | (5,252 | ) | (5 | ) | (520 | ) | — | — | ||||||||||||||||||
| Issuance of common stock pursuant to a private placement completed in July 2017 | 2,956,043 | 2,956 | — | — | 2,019,670 | — | 2,022,626 | |||||||||||||||||||||
| Issuance of warrants pursuant to a private placement completed in July 2017 | — | — | — | — | 446,561 | — | 446,561 | |||||||||||||||||||||
| Stock based compensation | — | — | — | — | 611,522 | — | 611,522 | |||||||||||||||||||||
| Net loss | — | — | — | — | — | (4,841,591 | ) | (4,841,591 | ) | |||||||||||||||||||
| Balance – September 30, 2017 | 20,922,634 | $ | 20,923 | 12,740 | $ | 13 | $ | 33,188,741 | $ | (31,202,517 | ) | $ | 2,007,160 | |||||||||||||||
(Unaudited)
| Preferred Series A Stock | Common Stock | Additional Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balances - December 31, 2021 | 501,887,534 | $ | 501,887 | 166,394 | $ | 164,199 | $ | 43,700,084 | $ | (49,028,413 | ) | $ | (4,662,243 | ) | ||||||||||||||
| Conversion of Series A Preferred Stock to Common Stock | (3,657,730 | ) | (3,658 | ) | 3,658 | 3,658 | - | - | - | |||||||||||||||||||
| Inducement expense | - | - | - | - | 3,024,872 | - | 3,024,872 | |||||||||||||||||||||
| Conversion of warrants to Common Stock | - | - | 83,579 | 83,580 | 1,086,530 | 1,170,110 | ||||||||||||||||||||||
| Share based compensation | - | - | - | - | 226,079 | - | 226,079 | |||||||||||||||||||||
| Net Loss | - | - | - | - | - | (3,891,783 | ) | (3,891,783 | ) | |||||||||||||||||||
| Balances - March 31, 2022 | 498,229,804 | $ | 498,229 | 253,631 | $ | 251,437 | $ | 48,037,565 | $ | (52,920,196 | ) | $ | (4,132,965 | ) | ||||||||||||||
| Balances | 498,229,804 | $ | 498,229 | 253,631 | $ | 251,437 | $ | 48,037,565 | $ | (52,920,196 | ) | $ | (4,132,965 | ) | ||||||||||||||
| Preferred Series A Stock | Common Stock | Additional Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balances - December 31, 2022 | 438,776,170 | $ | 438,773 | 618,506 | $ | 618 | $ | 49,531,216 | $ | (59,327,993 | ) | $ | (9,357,386 | ) | ||||||||||||||
| Balance | 438,776,170 | $ | 438,773 | 618,506 | $ | 618 | $ | 49,531,216 | $ | (59,327,993 | ) | $ | (9,357,386 | ) | ||||||||||||||
| Share based compensation | - | - | - | - | 41,228 | - | 41,228 | |||||||||||||||||||||
| Issuance of warrants pursuant to convertible notes payable | - | - | - | - | 67,820 | - | 67,820 | |||||||||||||||||||||
| Conversion of convertible notes payable to Common Stock | - | - | 9,615 | 10 | 9,990 | - | 10,000 | |||||||||||||||||||||
| Net loss | - | - | - | - | - | (2,090,120 | ) | (2,090,120 | ) | |||||||||||||||||||
| Balances - March 31, 2023 | 438,776,170 | $ | 438,773 | 628,121 | $ | 628 | $ | 49,650,254 | $ | (61,418,113 | ) | $ | (11,328,458 | ) | ||||||||||||||
| Balance | 438,776,170 | $ | 438,773 | 628,121 | $ | 628 | $ | 49,650,254 | $ | (61,418,113 | ) | $ | (11,328,458 | ) | ||||||||||||||
See accompanying notes to condensedthe consolidated financial statements
| 6 |
H-CYTE, INC AND SUBSIDIARIES
MEDOVEX CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | (4,841,591 | ) | $ | (13,184,599 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 20,000 | 6,171 | ||||||
| Amortization of intangible assets | — | 189,522 | ||||||
| Amortization of debt discount | 31,772 | 261,973 | ||||||
| Debt conversion expense | 355,985 | 68,694 | ||||||
| Impairment loss | — | 1,584,048 | ||||||
| Goodwill impairment loss | — | 6,455,645 | ||||||
| Stock based compensation | 611,522 | 562,209 | ||||||
| Straight-line rent adjustment | (196 | ) | 688 | |||||
| Non-cash consulting services | — | 249,300 | ||||||
| Non-cash directors fees | — | 15,000 | ||||||
| Adjustment of fair value of warrant modification | — | 25,720 | ||||||
| Changes in operating assets and liabilities, net of effects of acquisition: | ||||||||
| Accounts receivable | (94,779 | ) | 33,045 | |||||
| Other receivables | (23,369 | ) | — | |||||
| Prepaid expenses | 224,416 | (368,165 | ) | |||||
| Inventory | (164,867 | ) | — | |||||
| Accounts payable | 43,106 | (80,152 | ) | |||||
| Accounts payable to related parties | 671 | — | ||||||
| Interest payable | — | (2,061 | ) | |||||
| Accrued liabilities | (84,800 | ) | 173,427 | |||||
| Net Cash Used in Operating Activities | (3,922,130 | ) | (4,009,535 | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Expenditures for property and equipment | (14,808 | ) | (6,221 | ) | ||||
| Net Cash Used in Investing Activities | (14,808 | ) | (6,221 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Principal payments under note payable obligations | (112,342 | ) | (111,530 | ) | ||||
| Proceeds from issuance of common and preferred stock, net of offering costs | 3,838,671 | 1,934,622 | ||||||
| Proceeds from issuance of warrants, net of offering costs | 1,248,575 | 541,648 | ||||||
| Proceeds from issuance of short term loan | — | 995,000 | ||||||
| Net Cash Provided by Financing Activities | 4,974,904 | 3,359,740 | ||||||
| Net Increase/(Decrease) in Cash | 1,037,966 | (656,016) | ||||||
| Cash - Beginning of period | 892,814 | 1,570,167 | ||||||
| Cash - End of period | $ | 1,930,780 | $ | 914,151 | ||||
| Supplementary Cash Flow Information | ||||||||
| Cash paid for interest | $ | 6,130 | $ | 6,168 | ||||
| Non-cash investing and financing activities | ||||||||
| Financing agreement for insurance policy | $ | 66,895 | $ | — | ||||
| Conversion of note and accrued interest to common stock | 718,079 | 1,072,513 | ||||||
| Conversion of short-term loan to common stock | 126,720 | — | ||||||
| Issuance of warrants for conversion of notes | 305,201 | — | ||||||
| Issuance of common stock for consulting services | — | 249,300 | ||||||
| Common stock issued for board fees | 240,000 | — | ||||||
| Issuance of common stock for preferred stock conversion | 931 | — | ||||||
| Issuance of common stock warrants for placement agent fees | 304,183 | — | ||||||
| Repayment of due from stockholder through foregone director fees | — | 15,000 | ||||||
| Issuance of common stock for consideration of cancellation of warrants | 208,000 | — | ||||||
| For the three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net loss | $ | (2,090,120 | ) | $ | (3,891,783 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 1,623 | 3,177 | ||||||
| Inducement expense | - | 3,024,872 | ||||||
| Share based compensation expense | 41,228 | 226,079 | ||||||
| Day one loss on convertible notes carried at fair value | 1,521,768 | - | ||||||
| Gain on convertible notes carried at fair value | (2,744 | ) | - | |||||
| Bad debt expense | 17,320 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | - | 6,262 | ||||||
| Patient financing receivable | 3,562 | (13,756 | ) | |||||
| Other assets | (2,711 | ) | (3,831 | ) | ||||
| Prepaid expenses | (115,781 | ) | (148,334 | ) | ||||
| Accounts payable | 73,480 | 94,913 | ||||||
| Accrued liabilities | 32,005 | (14,427 | ) | |||||
| Other current liabilities | 78,174 | 111,324 | ||||||
| Deferred revenue | - | (353,098 | ) | |||||
| Interest payable, related parties | 73,959 | 39,937 | ||||||
| Interest payable | 6,244 | 34,406 | ||||||
| Net Cash Used in Operating Activities | (361,993 | ) | (884,259 | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from notes payable | 18,004 | - | ||||||
| Proceeds from convertible note payable | 150,000 | - | ||||||
| Payment on convertible note payable | (115,000 | ) | - | |||||
| Proceeds from convertible notes payable carried at fair value, related parties | 275,000 | |||||||
| Proceeds from convertible notes payable carried at fair value | 150,000 | |||||||
| Proceeds from warrants exercise related to inducement | - | 1,170,110 | ||||||
| Payment on PPP Loan | - | (39,739 | ) | |||||
| Net Cash Provided by Financing Activities | 478,004 | 1,130,371 | ||||||
| Net Change in Cash | 116,011 | 246,112 | ||||||
| Cash - Beginning of period | - | 95,172 | ||||||
| Cash - End of period | $ | 116,011 | $ | 341,284 | ||||
| Supplementary Cash Flow Information | ||||||||
| Cash paid for interest | $ | 70,010 | $ | 1,378 | ||||
| Non Cash Investing & Financing Activity | ||||||||
| Conversion of Series A Preferred Stock to Common Stock | $ | - | $ | 3,658 | ||||
| Issuance of warrants pursuant to inducement agreements | $ | - | $ | 2,993,872 | ||||
| Issuance of warrants for services rendered | $ | - | $ | 31,000 | ||||
| Conversion of convertible notes payable to Common Stock | $ | 10,000 | $ | - | ||||
| Issuance of warrants pursuant to convertible notes payable-related parties | $ | 44,255 | $ | - | ||||
| Issuance of warrants pursuant to convertible notes payable | $ | 23,565 | $ | - | ||||
See accompanying notes to condensedthe consolidated financial statements
| 7 |
H-CYTE, INC
MEDOVEX CORP.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Description of the Company
DESCRIPTION OF THE COMPANY
MedoveX Corp. (the “Company” or “MedoveX”H-CYTE, Inc (“the Company”) was incorporated in Nevadahas evolved from focusing on July 30, 2013 as SpineZ Corp. (“SpineZ”) and changedtreating chronic lung conditions after the closure of its namelung treatment clinics due to MedoveX Corp. on March 20, 2014. MedoveX is the parent company of Debride Inc. (“Debride”), which was incorporated under the laws of the State of Florida on October 1, 2012.COVID-19. The Company is currently focusing on acquiring and developing early-stage companies or their technologies in the businessareas of designing and marketing proprietarytherapeutics, medical devices, for commercial useand diagnostics. The goal is to develop these companies and incubate their technologies to meaningful clinical inflection points.
On June 3, 2022, the Company closed its clinic in Scottsdale, Arizona. The Company has now closed all of its clinical operations in the United Statesautologous infusion therapy business which delivered treatments for patients with chronic respiratory and Europe.pulmonary disorders. The Company received CE marking in June 2017 for the DenerveX Systemwill continue to pursue Food and it is now commercially available throughout the European Union and several other countries that accept CE marking. The Company’s first sale of the DenerveX System occurred in July 2017. The Company plans to seek approval for the DenerveX System from the Food & Drug Administration (“FDA”) approval of the device that was utilized in the United States.treatment provided at the clinics. The Company also has a continued interest in the commercialization of the DenerveX device through a joint venture. The Company has implemented the transition into a biologics and therapeutic device incubator company to bring new technologies to market.
The consolidated results for H-CYTE include the following wholly-owned subsidiaries: H-CYTE Management, LLC, Medovex Corp, Cognitive Health Institute, LLC, and Lung Institute Tampa, LLC and the results include Lung Institute Dallas, LLC (“LI Dallas”), Lung Institute Nashville, LLC (“LI Nashville”), Lung Institute Pittsburgh, LLC (“LI Pittsburgh”), and Lung Institute Scottsdale, LLC (“LI Scottsdale”), as Variable Interest Entities (“VIEs”). Additionally, H-CYTE Management, LLC was the operator and manager of the various Lung Health Institute (LHI) clinics: LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale. The LI Dallas and LI Pittsburgh clinics did not reopen in 2020 after the temporary closure of all LI clinics due to COVID-19. During the first quarter of 2022, the Company decided to close the LI Tampa and LI Nashville clinics. During the second quarter of 2022, the Company closed the LI Scottsdale clinic. All LHI clinics are closed as of March 31, 2023. The Company leases a shared office space for its corporate address as the Company’s employees continue to work remotely.
On June 10, 2022, the Company amended (the “Amendment”) its Articles of Incorporation to effectuate a one-for-one thousand reverse stock split (the “Reverse Split”) of its common stock. The Reverse Split was approved by FINRA on June 10, 2022 and effectuated on June 13, 2022. Pursuant to the Amendment, the Company also reduced the authorized shares of common stock to . As a result of the Reverse Split, as of March 31, 2023, the Company has shares of common stock outstanding and shares of Series A Preferred Stock outstanding. As a result of the Reverse Stock Split, the Series A Preferred Stock conversion ratio is now one thousand shares of Series A Preferred Stock converts into one share of common stock. Accordingly, the outstanding shares of Series A Preferred Stock are now convertible into an aggregate of shares of common stock.
On September 7, 2022, the Company acquired all of the membership interests, with common stock, of Jantibody LLC (“Jantibody”), a Nevada limited liability company. Jantibody is focused on the development of novel proprietary immunotherapies targeted towards ovarian cancer, pancreatic cancer, and mesothelioma (see Note 9).
On December 22, 2022, the Company acquired all the membership interests, with common stock, in Scion Solutions, LLC (“Scion”). Scion is a life sciences company that has developed a new technology in regenerative medicine specifically for limb salvage. Their proprietary product SkinDisc (patent pending) is a combination of stem cells and several other molecular components that stimulate tissue regeneration (see Note 9).
Note 2 – Basis of presentation
BASIS OF PRESENTATION
The accompanying unaudited condensedinterim consolidated financial statements have been prepared in accordance with United States (“based upon U.S.”) generally accepted accounting principles (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission (“SEC”)rules that permit reduced disclosure for interim periods. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statementsTherefore, they do not include all information and in the opinionfootnote disclosures necessary for a complete presentation of management, reflect all adjustments which included only normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows, in conformity with generally accepted accounting principles. The Company filed audited consolidated financial statements as of September 30, 2017 and for the fiscal years ended December 31, 2016,2022 and 2021, which included all information and notes necessary for such complete presentation in conjunction with its 2022 Annual Report on Form 10-K.
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
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The results of operations for the three and nine monthsinterim period ended September 30, 2017 and 2016, and cash flows for the nine months ended September 30, 2017 and 2016. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended DecemberMarch 31, 2016, included in the Company’s Annual Report on Form 10-K. The results for the three and nine months ended September 30, 20172023, are not necessarily indicative of the results to be expected for any future period or the entire fiscal year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022, which are contained in the Company’s 2022 Annual Report on Form 10-K. For further discussion refer to Note 2 – “Basis Of Presentation And Summary of Significant Accounting Policies” to the consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Note 3 – Liquidity, Going Concern and Sources of Liquidity
LIQUIDITY, GOING CONCERN AND SOURCES OF LIQUIDITY
The Company incurred net losses of approximately $2,090,000 and $3,892,000 for the three months ended March 31, 2023 and 2022, respectively. The Company has historically incurred losses from operations and expects to continue to generate negative cash flows as it implements its plan around acquiring and developing early-stage companies or their technologies in the areas of therapeutics, medical devices, and diagnostics. The consolidated financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) as applicable to a going concern.
The Company had cash on hand of approximately $116,000 as of March 31, 2023 and approximately $4,000, as of May 19, 2023. The Company’s cash is insufficient to fund its operations over the next year and the Company is currently working to obtain additional debt or equity financing to help support short-term working capital needs.
There can be no assurance that the Company will be able to raise additional funds or that the terms and conditions of any future financings will be workable or acceptable to the Company or its shareholders. If the Company is unable to fund its operations from existing cash on hand, operating cash flows, additional borrowings, or raising equity capital, the Company may be forced to cease operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
On February 24, 2023, the Company and certain investors entered into Securities Purchase Agreements (the “SPA”), whereby the Company sold and issued to the certain investors an aggregate of three hundred thousand dollars ($300,000) of the Company’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $0.001 par value (“Common Stock”). In connection with the aforementioned Notes, the Company also issued to the investors a warrant to purchase (the “Purchase Warrant”) a certain number of shares of Common Stock, which are equal to 20% of the shares of Common Stock issuable upon conversion of the Note, based on a price of $ per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to terminate earlier, the offering and the sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company extended this offering to June 30, 2023, per terms of the agreement.
The Notes have a maturity date of the earlier of (i) one year from issuance; or (ii) upon the closing of a qualified offering. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum, and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid interest into shares of the Company’s Common Stock at a conversion price equal to a 20% discount to the offering price.
Further, in connection with the SPA, the Company also issued Common Stock Purchase Warrants to certain investors, which are exercisable on or prior to the close of business on the five (5) year anniversary of the initial issue date, to purchase up to a certain amount of shares of Common Stock, with % of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company, dated February 24, 2023. The Company issued Warrants to purchase an aggregate of 30,000 shares of Common Stock. The exercise price per share of the Common Stock under these Warrants is $2.00.
On February 28, 2023, the Company entered into a securities purchase agreement for a total of $150,000 with an accredited investor. The note issued is convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The note bears interest at 10% and is due one year from issuance. For the first six months, the Company has the right to prepay the note at a premium of between 25% and 40% depending on when it is repaid.
On March 27, 2023, the Company and three related party investors entered into Securities Purchase Agreements (the “SPA”), whereby, the Company sold and issued to the certain investors, an aggregate of one hundred twenty five thousand dollars ($125,000) of the Company’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $par value (“Common Stock”). On April 12, 2023, the Company and an additional investor entered into the SPA, whereby, the Company sold and issued an aggregate of thirty five thousand dollars ($35,000) of the Company’s Notes. In connection with the aforementioned Notes, the Company also issued to the investors a warrant to purchase (the “Purchase Warrant”) a certain number of shares of Common Stock, which are equal to 20% of the shares of Common Stock issuable upon conversion of the Note, based on a price of $2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to terminate earlier, the offering and the sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company extended this offering to June 30, 2023, per terms of the agreement.
The March 27, 2023 Notes have a maturity date of the earlier of (i) one year from issuance; or (ii) upon the closing of a qualified offering. The April 12, 2023 Note has a maturity date 60 days from issuance. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s Common Stock at a conversion price equal to a 20% discount to the offering price.
Further, in connection with the SPA, the Company also issued Common Stock Purchase Warrants to certain investors, which are exercisable on or prior to the close of business on the five (5) year anniversary of the initial issue date, to purchase up to a certain amount of shares of Common Stock, with % of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company. The Company issued Warrants to purchase an aggregate of 12,500 shares of Common Stock. The exercise price per share of the Common Stock under these Warrants is $2.00.
Note 4 – Fair Value of Financial Instruments
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures certain financial instruments and certain financial instruments with related parties at fair value on a recurring basis. The Company elected the fair value option of accounting for certain debt instruments. Under the fair value option, the financial instrument is initially measured at its issue date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis each reporting period with the resulting fair value adjustment recognized as other income (expense) in the consolidated statement of operations. As of March 31, 2023, the fair value of these instruments was as follows:
SCHEDULE OF FAIR VALUE INSTRUMENT
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | $ | - | $ | - | $ | - | $ | - | ||||||||
| Liabilities: | ||||||||||||||||
| Convertible Notes at fair value | $ | 1,876,204 | $ | - | $ | - | $ | 1,876,204 | ||||||||
The following is a reconciliation of the beginning and ending balances for the Convertible Notes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2023:
SCHEDULE OF CONVERTIBLE NOTE MEASURED AT FAIR VALUE
| Balance at December 31, 2022 | $ | -- | ||
| Fair value of Convertible Notes issued | (1,878,948 | ) | ||
| Gain on change in fair value of Convertible Notes | 2,744 | |||
| Balance at March 31, 2023 | $ | (1,876,204 | ) |
The estimated fair values reported utilize the Company’s common stock price along with certain Level 3 inputs, as discussed below, in the development of Monte Carlo simulation models. The estimated fair values are subjective and are affected by changes in inputs to the valuation models /analyses, including the Company’s common stock price, the Company’s dividend yield, risk-free rates based on U.S. Treasury security yields, and certain other Level-3 inputs including, assumptions regarding the estimated volatility in the value of the Company’s common stock price, the probability of a Qualified Offering, the estimated price of a Qualified Offering, and credit-risk adjusted discount rates. Changes in these assumptions can materially affect the estimated fair values.
Note 5 – Related Party Transactions
RELATED PARTY TRANSACTIONS
Officers and Board Members and Related Expenses
On January 12, 2021, Mr. Raymond Monteleone was appointed as Chairman of the Board, Audit Committee Chair, and Compensation Committee Chair. There are understandings between the Company and Mr. Monteleone for him to receive $7,500 per month to serve on the Board of Directors and an additional $2,500 per quarter to serve as Chairman of the Board, Audit Committee Chair, and Compensation Committee Chair. Effective July 1, 2022, due to lack of working capital, Mr. Monteleone receives $3,750 per month to serve on the Board of Directors and to serve as Chairman of the Board, Audit Committee Chair, and Compensation Committee Chair. For the three months ended March 31, 2023 and 2022, the Company expensed $11,250 and $25,000, respectively, for board of director fees to Mr. Monteleone. Due to lack of financial resources, the Company has been unable to pay Mr. Monteleone for his services totaling $46,250, which is included in accounts payable as of March 31, 2023.
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On January 12, 2021, Mr. William Horne stepped down as Chairman of the Board. Mr. Horne will remain a member of the Board. Mr. Horne agreed to continue to defer the $108,000 in base salary deferred by him in 2018 until such time as there is a positive cash flow to meet the Company’s financial obligations and then the Company and Mr. Horne will work together in good faith to negotiate a payment plan for such deferred salary. Effective December 1, 2021, Mr. Horne will receive $5,000 per month to serve on the Board of Directors. Effective July 1, 2022, due to lack of working capital, Mr. Horne receives $2,500 per month to serve on the Board of Directors. For the three months ended March 31, 2023 and 2022, the Company expensed approximately $7,500 and $20,000, respectively, in compensation and board of director fees to Mr. Horne. Due to lack of financial resources, the Company has been unable to pay Mr. Horne for his services totaling $25,000, which is included in accrued liabilities as of March 31, 2023.
Mr. Richard Rosenblum entered into an oral agreement with the Company effective January 17, 2022, in which Mr. Rosenblum will receive $5,000 per month to serve on the Board of Directors. Effective July 1, 2022, due to lack of working capital, Mr. Rosenblum receives $2,500 per month to serve on the Board of Directors. For the three months ended March 31, 2023 and 2022, the Company expensed $7,500 and $12,500, respectively, for board of director fees to Mr. Rosenblum. Due to lack of financial resources, the Company has been unable to pay Mr. Rosenblum for his services totaling $25,000, which is included in accrued liabilities as of March 31, 2023.
Mr. Matthew Anderer entered into an oral agreement with the Company effective January 17, 2022, in which Mr. Anderer will receive $5,000 per month to serve on the Board of Directors. Effective July 1, 2022, due to lack of working capital, Mr. Anderer receives $2,500 per month to serve on the Board of Directors. For the three months ended March 31, 2023 and 2022, the Company expensed $7,500 and $12,500, respectively, for board of director fees to Mr. Anderer. Due to lack of financial resources, the Company has been unable to pay Mr. Anderer for his services totaling $25,000, which is included in accrued liabilities as of March 31, 2023.
Debt and Other Obligations
Convertible Notes Payable
On April 1, 2021, the Company, entered into a Secured Convertible Note Purchase Agreement (the “April 2021 Note Purchase Agreement”) with five (5) related party investors (the “Holders”). Pursuant to the terms of the April 2021 Note Purchase Agreement, the Company sold promissory notes in the aggregate principal amount of $2,575,000 maturing on June 17, 2022 with an annual interest rate of 8%. The Notes are convertible into shares of Common Stock at a discount of 20% to the price paid for such New Securities in the next round of financing that meets the definition of Qualified Financing as defined in the April 2021 Note Purchase Agreement. The Notes are secured by the assets of the Company under a security agreement with the Holders. The lead investor of the April 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $1,500,000 of the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC, LLC, which is a principal stockholder and related party of the Company. An additional affiliate of FWHC, LLC provided an additional $25,000 as part of the April 2021 Note Purchase Agreement.
On October 14, 2021, the Company entered into the Second Closing Bring Down Agreement (the “October 2021 Note Purchase Agreement”) whereby the five (5) related party investors who had entered into the April 2021 Note Purchase Agreement purchased new notes in the Company in the aggregate principal amount of $750,000. The Notes are due and payable on June 17, 2022 and bear interest at an annual rate of 8%. The Notes are convertible into shares of Common Stock at a discount of 20% to the price paid for such New Securities in the next financing that meets the definition of a Qualified Financing as defined in the Note Purchase Agreement. The Notes are secured by all of the assets of the Company under a security agreement with the Holders. The lead investor of the October 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $437,000 of the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC, LLC, which is a principal stockholder and related party of the Company. An additional affiliate of FWHC, LLC provided an additional $7,000 as part of the October 2021 Note Purchase Agreement.
On February 22, 2022, the Company entered into a Debt Conversion Agreement (the “Amendment Agreement”) which i) provided for an additional round of convertible debt financing (“Tranche 2 Notes”) of up to $500,000 and ii) amended the conversion price on the convertible notes issued April 1, 2021 and October 8, 2021 (“Tranche 1 Notes”) from % of the price paid in a Qualified Financing (proceeds of at least $ million), to the lesser of (x) $0.002 and (y) the price paid in a Qualified Financing (proceeds of at least $10 million). The Amendment Agreement also provides the following Milestone Payments:
| 1) | $1,000,000 after filing a premarket notification pursuant to Section 510(k) of the Food, Drug and Cosmetic Act, of its intent to market its PRP cellular therapy | |
| 2) | Following the closing of a Qualified Financing, 25% of all proceeds raised in excess of $10 million (not to exceed $1 million) |
The Milestone Payments are not to exceed $2 million, and the Amendment Agreement also specifies that a Qualified Financing will not occur prior to the closing of the acquisition of Jantibody, LLC.
The Company evaluated the Amendment Agreement under ASC 470-50, “Debt – Modification and Extinguishment”, and concluded that probability of having to pay a Milestone payment was minimal and the change in the fair value of the conversion feature was not material. The Amendment did not cause a material change in cash flows so extinguishment accounting was not applicable.
On April 29, 2022, the Company entered into an Amended and Restated Note Conversion Agreement (the “Note Conversion Agreement”) with certain holders of its Tranche 1 Notes (i) providing for a conversion price equal to the lesser of (x) $0.002 per share (pre-split) and (y) the price per share paid by the investors in a Qualified Financing for such New Securities purchased for cash and not through conversion of Notes (as such terms are defined in the Note Conversion Agreement), in each case subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization, (ii) automatic conversion upon the occurrence of a Qualified Financing, and (iii) amendment of the maturity date from March 31, 2022 to June 17, 2022 (the “New Notes”). Upon the effective date of the Company’s 1,000-1 reverse split, the conversion price adjusted to the lesser of (a) the price in the Qualified Financing or (b) $2.00 per share. The New Notes also provided the investors with Royalty Payments equal to 15% of all net sales generated by the Company with respect to the sale of products or services associated with the 510(k) Notification related to the Company’s autologous cellular therapy (PRP-PBMC) to treat chronic lung disorder. The Royalty Payments are in lieu of the Milestone Payments but are perpetual and there is no limit to the aggregate amount of Royalty Payments that may be paid.
Due to changes in key provisions of the Tranche 1 Notes, the Company analyzed the before and after cash flows between the (i) fair value of the New Notes and (ii) reacquisition price of the Tranche 1 Notes prior to the (A) change in the maturity date from March 31, 2022 to June 17, 2022, (B) change in the conversion price to the lesser of (x) $2.00 and (y) the price paid in a Qualified Financing, and (C) the fair value of the potential Royalty Payments, to determine whether these changes resulted in a modification or extinguishment of the Tranche 1 Notes.
| 10 |
The Company used a discounted cash flow method with Monte Carlo Simulation to value the Royalty Payments. Future Royalty Payments were estimated based on management’s best estimate of future cash flows under various scenarios which were discounted to present value using a risk-adjusted rate of 70%.
Based on the before and after cash flows of each note, the change was considered significantly different. Consequently, the New Notes were accounted for as a debt extinguishment of the Tranche 1 Notes and a new debt issuance of the New Notes. The Company recorded a $2.2 million loss upon extinguishment of debt in the year ended December 31, 2022, which was comprised of the following:
SCHEDULE OF LOSS UPON EXTINGUISHMENT
| Carrying value of Tranche 1 Notes | $ | 3,580,738 | ||
| Less: Fair value of New Notes | (4,079,838 | ) | ||
| Less: Fair value of Royalty Payments | (1,697,000 | ) | ||
| Loss on Extinguishment | $ | (2,196,100 | ) |
The Note Conversion Agreement also provided for the consummation of a Tranche 2 Financing (the “Tranche 2 Notes”) subject to (i) the aggregate principal amount of indebtedness represented by the Tranche 2 Notes being capped at $500,000 and (ii) Tranche 2 Notes’ being an unsecured obligation of the Company and expressly subordinate in all respects to all indebtedness of the Company under the Notes and including language in which the holders of such Tranche 2 Notes acknowledge, confirm and agree to the foregoing subordination terms. Pursuant to the terms of the Note Conversion Agreement, the Investors have agreed not to sell any capital stock of the Company for a period of 12 months following the Qualified Financing. For the year ended December 31, 2022, approximately $499,000 of amortization of the debt premium is included in interest income. The Company is currently working with the noteholders on the extension of the maturity of the outstanding notes.
On February 24, 2023, the Company and certain investors entered into Securities Purchase Agreements (the “SPA”), whereby the Company sold and issued to the certain investors an aggregate of three hundred thousand dollars ($300,000) of the Company’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $ par value (“Common Stock”). In connection with the aforementioned Notes, the Company also issued to the investors a warrant to purchase (the “Purchase Warrant”) a certain number of shares of Common Stock, which are equal to % of the shares of Common Stock issuable upon conversion of the Note, based on a price of $2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to terminate earlier, the offering and the sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company extended this offering to June 30, 2023 per terms of the agreement.
The Notes have a maturity date of the earlier of (i) one year from issuance; or (ii) upon the closing of a qualified offering. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum, and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s Common Stock at a conversion price equal to a 20% discount to the offering price.
Further, in connection with the February 2023 SPA, the Company also issued Common Stock Purchase Warrants to certain investors, which are exercisable on or prior to the close of business on the five (5) year anniversary of the initial issue date, to purchase up to a certain amount of shares of Common Stock, with 20% of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company, dated February 24, 2023. The Company issued Warrants to purchase an aggregate of 30,000 shares of Common Stock. The exercise price per share of the Common Stock under these Warrants is $2.00.
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On March 27, 2023, the Company and three related party investors entered into Securities Purchase Agreements (the “SPA”), whereby, the Company sold and issued to the certain investors, an aggregate of one hundred twenty five thousand dollars ($125,000) of the Company’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $ par value (“Common Stock”).
On April 12, 2023, the Company and an additional investor entered into the SPA, whereby the Company sold and issued thirty five thousand dollars ($35,000) of the Company’s Notes. In connection with the aforementioned Notes, the Company also issued to the investors a warrant to purchase (the “Purchase Warrant”) a certain number of shares of Common Stock, which are equal to % of the shares of Common Stock issuable upon conversion of the Note, based on a price of $2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to terminate earlier, the offering and the sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company extended this offering to June 30, 2023 per terms of the agreement.
The March 27, 2023, Notes have a maturity date of the earlier of (i) one year from issuance; or (ii) upon the closing of a qualified offering. The April 12, 2023, Note has a maturity date 60 days from issuance. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum, and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s Common Stock at a conversion price equal to a 20% discount to the offering price.
Further, in connection with the March 2023 and April 2023 SPA, the Company also issued Common Stock Purchase Warrants to certain investors, which are exercisable on or prior to the close of business on the five (5) year anniversary of the initial issue date, to purchase up to a certain amount of shares of Common Stock, with 20% of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company. The Company issued Warrants to purchase an aggregate of 12,500 shares of Common Stock. The exercise price per share of the Common Stock under these Warrants is $2.00.
We evaluated the February 2023, March 2023, and April 2023 SPA in accordance with ASC Topic 815, Derivatives and Hedging, and determined that they contained a variable share settlement feature tied to the price of a future financing which functions as a redemption option. FASB ASC 825-10-25 allows the Company to elect the fair value option for recording financial instruments when they are initially recognized or if there is an event that requires re-measurement of the instruments at fair value, such as a significant modification of the debt. The Company elected to initially and subsequently measure the Convertible Notes in their entirety at fair value, with changes in fair value recognized in earnings. Management believes the fair value option best reflects the underlying economics of these Convertible Notes.
Because these Convertible Notes are carried in their entirety at fair value, the value of the contingent conversion feature is embodied in that fair value. The Company estimates the fair value based on a probability weighted analysis which considers the present value of the cash flows using a credit risk adjusted rate enhanced by the conversion feature valued using a Monte Carlo model. This method was considered by management to be the most appropriate method of encompassing the credit risk and exercise behavior that a market participant would consider when valuing a hybrid financial instrument. Inputs used to value the Convertible Notes at inception included, (i) present value of future cash flows using a credit risk adjusted rate ranging from 19.0%-20.0%, (ii) remaining term of approximately one year, (iii) volatility ranging from 258%-261%, (iv) closing stock price on the valuation date, and (v) the conversion price based on the estimated price of a Qualified Offering, less a 20% discount, in accordance with the terms of the Note. A Qualified Offering is defined as an offering that results in the Company’s Common Stock being listed on a National Exchange (NASDAQ or the NYSE/AMEX). Changes due to instrument-specific credit risk are recorded in Other Comprehensive Income with all other changes in value being recorded in net income.
At inception, the fair value of the Convertible Notes using the fair value option was $1,878,948, and the fair value of the related Warrants issued was $67,820. Because the fair value of the hybrid instrument was in excess of the proceeds received of $425,000, the Company recorded a day one loss on convertible notes of $1,521,768. On March 31, 2023, the debt instruments were revalued at $1,876,204 resulting in a gain of $2,744.
Other Obligations
During the year ending December 31, 2017 or for any other interim period or for any future year.
principles of consolidation
These unaudited condensed consolidated financial statements that present2022, Michael Yurkowsky, CEO, advanced the Company’s results of operations forCompany approximately $40,000 as a non-interest-bearing note with no established repayment terms. During the three and nine months ended September 30, 2017 and 2016, and cash flows for the nine months ended September 30, 2017 and 2016, include Debride and the accounts of the Company as well as its formerly wholly-owned subsidiary, Streamline Inc. (“Streamline”). All intercompany accounts and transactions have been eliminatedMarch 31, 2023, approximately $ in consolidation.
Use of Estimates
In preparing the financial statements, U.S. GAAP requires disclosure regarding estimates and assumptions used by management that affect the amounts reported in financial statements and accompanying notes.additional advances were made. The Company’s significant estimates include the deferred income tax asset and the related valuation allowance, and the fair value of its share based payment arrangements.
For those estimates that are sensitive to the outcome of future events, actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
The Company considers the applicability and impact of all ASUs issued, both effective and not yet effective.
In May 2014, the FASB issued ASU 2014-09, “Revenue Recognition - Revenue from Contracts with Customers” (ASU 2014-09) that requires companies to recognize revenue when a customer obtains control rather than when companies have transferred substantially all risks and rewards of a good or service. This updatebalance owed is effective for annual reporting periods beginning on or after December 15, 2017 and interim periods therein and requires expanded disclosures. We have decided to adopt the guidance of Topic 606 now, commensurate with our first reported revenues from our primary product, so we will not have to make any changes in our revenue recognition process going forward.
In August 2014, FASB issued ASU 2014-15,Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, or ASU 2014-15. ASU 2014-15 explicitly requires a company’s management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The new standard is effective in the first annual period ending after December 15, 2016. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In April 2015, FASB issued ASU No. 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the presentation of Debt Issuance Costs, to reduce the complexity of having different balance sheet presentation requirements for debt issuance costs and debt discounts and premiums. The guidance requires debt issuance costs related to a recognized debt liability be reported on the balance sheet as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 is effective for public companies for annual reporting periods beginning after December 15, 2015, and interim periods within those fiscal years.The Company adopted the amendments of ASU 2015-03 effective January 1, 2016. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330),” which requires inventory measured using any method other than last-in, first-out or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than the lower of cost or market. ASU No. 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. The Company adopted the amendments of ASU 2015-11 effective January 1, 2017. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In November 2015, FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the presentation of deferred taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. The guidance may be adopted prospectively or retrospectively and early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-02 will have on its consolidated financial statements.
Note 3 – Accounts Receivable
Accounts receivable primarily represent amounts due from customers for which revenue has been recognized. Generally, the Company does not require collateral or any other security to support its receivables.
Note 4 – Other Receivables
Other receivables include input and importation value added tax (VAT) paid by the Company for conducting business in the European Union (“EU”) and for importing goods from outside the EU.
Note 5 - Inventory
Inventories consist of finished goods and are valued at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method.
Inventories consisted of the following itemsapproximately $53,000 as of September 30, 2017, and DecemberMarch 31, 2016:2023.
| September 30, 2017 | December 31, 2016 | |||||||
| Split Return Electrodes | $ | 334 | $ | — | ||||
| Denervex device | 29,533 | — | ||||||
| Pro-40 generator | 135,000 | — | ||||||
| Total | $ | 164,867 | $ | — | ||||
Note 6 - Property and Equipment
Property and equipment, net, consists of the following:
| Useful Life | September 30, 2017 | December 31, 2016 | ||||||||
| Furniture and fixtures | 5 years | $ | 67,777 | $ | 65,987 | |||||
| Computers and software | 3 years | 29,866 | 19,928 | |||||||
| Leasehold improvements | 5 years | 35,673 | 32,593 | |||||||
| 133,316 | 118,508 | |||||||||
| Less accumulated depreciation | (40,918 | ) | (20,918 | ) | ||||||
| Total | $ | 92,398 | $ | 97,590 | ||||||
Depreciation expense amounted to $7,109 and $20,000, respectively, for the three and nine months ended September 30, 2017. Depreciation and amortization expense, excluding depreciation and amortization from Streamline, amounted to $2,033 and $6,042, respectively, for the three and nine months ended September 30, 2016.
Note 76 - Equity Transactions
EQUITY TRANSACTIONS
In January 2022, the Company offered certain warrant holders the opportunity to receive an additional warrant to purchase the Company’s Common Stock at $14.00 per share, for a period of five (5) years from issuance for the exercise by March 31, 2022 of each existing warrant originally issued in April 2020. As of December 31, 2022, the Company had eleven warrant holders exercise an aggregate of 83,579 warrants at $14.00 per share resulting in cash proceeds of approximately $1,170,000 to the Company.
On June 10, 2022, the Company amended (the “Amendment”) its Articles of Incorporation to effectuate a one-for-one thousand reverse stock issuance
In November 2016,split (the “Reverse Split”) of its common stock. The Reverse Split was approved by FINRA on June 10, 2022, and effectuated on June 13, 2022. Pursuant to the BoardAmendment, the Company also reduced the authorized the issuance of shares of common stock to all Board members, both current. As a result of the Reverse Split, the Company had approximately shares of common stock outstanding and former, in an amount equivalent to $240,000, representing their accrued but unpaid directors’ fees shares of Series A Preferred Stock outstanding as of December 31, 2016. In January 2017,2022. As a result of the Company issuedReverse Stock Split, the Series A Preferred Stock is convertible at a ratio of one thousand shares of Series A Preferred Stock into one share of common stock. Accordingly, the outstanding shares of Series A Preferred Stock are now convertible into an aggregate of 173,911 shares at $1.38 per share, which wasof common stock.
On September 29, 2022, the average closing priceCompany entered into a securities purchase agreement with two related party accredited investors for the sale of shares of Common Stock and warrants (the “Purchase Agreement”). Pursuant to the Company’s stock during 2016, to fulfill this obligation. The closing pricePurchase Agreement, the Company sold an aggregate of the Company’s stock on January 17, 2017, the day the shares were issued, was $1.16 per share.
In August 2017, the Board authorized the issuance of shares of common stock and warrants to all Board members, both currentpurchase 56,250 shares of Common Stock exercisable at $2.50 per share for gross proceeds of approximately $225,000.
On November 14, 2022, pursuant to the Purchase Agreement, the Company sold an aggregate of shares of common stock and former, in an amount equivalentwarrants to $135,000, representing their accrued but unpaid directors’ fees aspurchase 7,250 shares of September 30, 2017. In October 2017,Common Stock exercisable at $2.50 per share for gross proceeds of $30,000.
On March 17, 2023, the Company issued an aggregate shares of 115,389 sharesCommon Stock to a convertible noteholder who, at $1.17 per share, which was the average closing pricerequest of the noteholder, converted $10,000 of convertible notes into the Company’s Common Stock.
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The following table summarizes the Company’s common and preferred stock through September 30, 2017,outstanding by class. The number of common stock shares has been adjusted to fulfill this obligation. The closing pricereflect a one-for-one thousand reverse stock split that became effective on June 13, 2022.
SCHEDULE OF COMMON AND PREFERRED STOCK OUTSTANDING
| March 31, 2023 | December 31, 2022 | |||||||
| Common Stock | 628,121 | 618,506 | ||||||
| Series A Preferred Stock | 438,776,170 | 438,776,170 | ||||||
Series A Preferred Stock
During the quarter ended March 31, 2023, shares of Series A Preferred Stock were converted to Common Stock.
Voting Rights
Holders of Series A Preferred Stock (“Series A Holders”) have the right to receive notice of any meeting of holders of common stock and to vote upon any matter submitted to a vote of the Company’sholders of common stock. Each Series A Holder shall vote on each matter on an as converted basis submitted to them with the holders of common stock.
Conversion
Series A Preferred Stock converts to common stock on October 30, 2017,at a 1000:1 ratio immediately upon request of the daySeries A Holder.
Liquidation, Dissolution, or Winding Up
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares were issued, was $1.09 per share. See Note 17.
Stock-Based Compensation Plan
2013of Series A Preferred Stock Option Incentive Plan
Duringthen outstanding shall be entitled to be paid out of the nine months ended September 30, 2017,assets of the Company available for distribution to its stockholders and, in the event of a Deemed Liquidation Event (as defined in the Second Amended and Restated Articles of Incorporation), the holders of shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the consideration payable to stockholders in such Deemed Liquidation Event or out of the consideration received by the Company for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors authorizedof the Company), together with any other assets of the Company available for distribution to issue optionsits stockholders, all to purchasethe extent permitted by Nevada law governing distributions to stockholders, as applicable, before any payment shall be made to the holders of Common Stock by reason of their ownership thereof, an aggregateamount per share equal to one (1) times the Series A Original Issue Price for such share of 189,159Series A Preferred Stock, plus any Series A Accruing Dividends accrued but unpaid thereon, whether or not declared. If upon any such liquidation, dissolution or winding up of the Company or Deemed Liquidation Event, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of common stockSeries A Preferred Stock the full amount to certain employees. The stock options vest as follows: 25% on date of grant and 25% on eachwhich they shall be entitled under subsection 2.1 of the next three yearsSecond Amended and Restated Articles of Incorporation, the holders of shares of Series A Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, after the grant date. The options granted were atpayment in full of all Series A Liquidation Amounts (as defined in the market valueSecond Amended and Restated Articles of Incorporation) required to be paid to the holders of shares of Series A Preferred Stock the remaining assets of the common stockCompany available for distribution to its stockholders or, in the case of a Deemed Liquidation Event, the consideration not payable to the holders of shares of Series A Preferred Stock shall be distributed among the holders of the shares of Series A Preferred Stock and Common Stock, pro rata based on the datenumber of shares held by each such holder, treating for this purpose all shares of Series A Preferred Stock as if they had been converted to Common Stock pursuant to the terms of the grant.Second Amended and Restated Articles of Incorporation immediately prior to such liquidation, dissolution or winding up of the Company.
We utilizeShare-Based Compensation Plan
The Company utilizes the Black-Scholes valuation method to recognize share-based compensation expense over the vesting period. The expected life represents the period that our stock-basedthe share-based compensation awards are expected to be outstanding.
We use a simplified method provided in Securities and Exchange Commission release,Staff Accounting Bulletin No. 110, which averages an award’s weighted average vesting period and contractual term for “plain vanilla” share options. The expected volatility was estimated by analyzing the historic volatility of similar public biotech companies in an early stage of development. No dividend payouts were assumed as we have not historically paid, and do not anticipate paying, dividends in the foreseeable future. The risk-free rate of return reflects the weighted average interest rate offered for US treasury rates over the expected term of the options.
The significant assumptions used to estimate the fair value of the equity awards granted are:
| Grant date | February 3 | March 28 | ||||||
| Fair value of options granted | $ | 0.7992 | $ | 0.9114 | ||||
| Expected term (years) | 6 | 6 | ||||||
| Risk-free interest rate | 2.10 | % | 2.11 | % | ||||
| Volatility | 82.53 | % | 76.86 | % | ||||
| Dividend yield | None | None |
For the three and nine months ended September 30, 2017, the Company recognized approximately $111,000 and $612,000, respectively, as compensation expense with respect to stock options. For the three and nine months ended September 30, 2016, the Company recognized approximately $230,000 and $562,000, respectively, as compensation expense with respect to stock options.
Stock Option Activity
On April 1, 2021, the Board of Directors of the Company approved and granted certain directors and officers of the Company an aggregate of stock options of which were immediately vested on the date of grant. Each option granted has an exercise price of $ per share and an expiration date of ten years from the date of grant. These options are not included in the Company’s current stock option plan as they were granted outside of the plan.
On June 10, 2022, the Company amended its Articles of Incorporation to effectuate a one-for-one thousand reverse stock split of its common stock. The Reverse Split was approved by FINRA on June 10, 2022 and effectuated on June 13, 2022.
As of September 30, 2017, thereMarch 31, 2023, options were 374,319 sharesoutstanding and were vested. As of time-based,March 31, 2022, options were outstanding and were vested. For the three months ended March 31, 2023 and 2022, the Company recognized an expense related to stock options of approximately $ and $, respectively, which is included in share based compensation. As of March 31, 2023, the Company has approximately $ of unrecognized compensation costs related to non-vested stock options, outstanding. As of September 30, 2017, there was approximately $298,000 of total unrecognized stock-based compensation related to these non-vested stock options. That expensewhich is expected to be recognized on a straight-line basis over a weighted average period of 1.84approximately years.
SCHEDULE OF ASSUMPTIONS USED TO CALCULATE FAIR VALUE OF STOCK OPTIONS
| 2021 Grants | ||||||||||
| Option value | $ | to | $ | |||||||
| Risk Free Rate | % | to | % | |||||||
| Expected Dividend- yield | to | |||||||||
| Expected Volatility | % | to | % | |||||||
| Expected term (years) | to | |||||||||
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SUMMARY OF STOCK OPTION ACTIVITY
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Term (Years) | ||||||||||
| Outstanding at 12/31/2016 | 1,124,900 | $ | 2.15 | 9.0 | ||||||||
| Granted | 189,159 | $ | 1.15 | 9.37 | ||||||||
| Outstanding at 9/30/2017 | 1,314,059 | $ | 2.01 | 8.45 | ||||||||
| Exercisable at 9/30/2017 | 939,740 | $ | 2.09 | 8.37 | ||||||||
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Term (Years) | ||||||||||
| Outstanding at December 31, 2021 | 29,635 | $ | 86.48 | |||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | |||||||||||
| Outstanding at March 31, 2022 | 29,635 | $ | 86.48 | |||||||||
| Exercisable at March 31, 2022 | 8.93 | |||||||||||
| Outstanding at December 31, 2022 | 29,385 | $ | 83.81 | |||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | |||||||||||
| Outstanding at March 31, 2023 | 29,385 | $ | 83.81 | |||||||||
| Exercisable at March 31, 2023 | 22,552 | 87.99 | 7.97 | |||||||||
On February 9, 2017, the Company entered intoThe following is a Unit Purchase Agreement with selected accredited investors whereby the Company had the right to sell in a private placement a minimum of $3,000,000 and up to a maximum of $5,000,000 of units. Each Unit had a purchase price of $100,000 and consisted of (i) 96,154 sharessummary of the Company’s common stock, par value $0.001non-vested shares for the three months ended March 31, 2023:
SUMMARY OF STOCK OPTION ACTIVITY NON-VESTED
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Non-vested at December 31, 2022 | 7,979 | $ | 55.70 | |||||
| Vested | (1,146 | ) | 55.36 | |||||
| Non-vested at March 31, 2023 | 6,833 | $ | 55.75 | |||||
Net Loss Per Share
Basic loss per share is computed on the basis of the weighted average number of shares outstanding for the reporting period. Diluted loss per share is computed on the basis of the weighted average number of common shares plus dilutive potential common shares outstanding using the treasury stock and if-converted methods, as applicable. Any potentially dilutive securities are antidilutive due to the Company’s net losses.
SCHEDULE OF ANTI-DILUTIVE SECURITIES OF BASIC AND DILUTED NET LOSS PER SHARE
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Warrants to purchase common stock (in the money) | - | 384,694 | ||||||
| Series A Preferred Stock convertible to common stock | 438,776 | 498,230 | ||||||
| Total | 438,776 | 882,924 | ||||||
Excluded from the above table are warrants stock options for the three months ended March 31, 2023 and warrants and stock options for the three months ended March 31, 2022 as they are out of the money (exercise price greater than the stock price). Inclusion of such would be anti-dilutive. As a result of the Reverse Stock Split, the Series A Preferred Stock is convertible at a purchase price of $1.04 per share, and (ii) a warrant to purchase 48,077 shares of common stock. Each warrant has an initial exercise price of $1.50 per share and is exercisable for a period of five (5) years from the date of issuance. Investors had the option to request shares of the Company’s Series A Convertible Preferred Stock (the “Series A Preferred Stock”) in lieu of common stock, on a basisratio of one share of preferred stock for every one hundred shares of common stock.
The offering resulted in gross proceeds of $3,022,000 and resulted in the issuance of an aggregate of 1,631,730 shares of common stock, 12,740thousand shares of Series A Preferred Stock and warrants to purchase 2,005,761 sharesinto one share of common stock. The placement agent collected an aggregate of approximately $350,000 in total fees related to Accordingly, the offering and warrants to purchase an aggregate of 405,577 shares of common stock at a price of $1.50 per share.
Each share of Series A Preferred Stock may be converted into shares of fully paid and non-assessable shares of common stock at a rate of one hundred shares of the Company’s common stock for every share of Series A Preferred Stock.
On July 14, 2017, the Company entered into a Securities Purchase Agreement with selected accredited investors whereby the Company sold an aggregate of 2,956,043 shares of common stock and 1,478,022 warrants to purchase common stock. The Offering resulted in $2,469,000 in net proceeds to the Company. The common stock shares were sold at $0.91 per share which was the closing price of the Company’s common stock on July 13, 2017, the day prior to the agreement. Each warrant has an exercise price of $1.15 and is exercisable for a period of five years commencing six months from the date of issuance.
Debt Conversion
On February 9, 2017, the Company’s $1,150,000 short-term note payable was converted into an aggregate of 165,865 shares of common stock and 9,399 outstanding shares of Series A Preferred Stock eliminating the Company’s debt obligation. The debt was convertedare convertible into shares at $1.04 per share, which was the offering pricean aggregate of the Company’s stock in the February private placement. Each share of Series A Preferred Stock may be converted into shares of fully paid and non-assessable shares of common stock at a rate of one hundred shares of the Company’s common stock for every share of Series A Preferred Stock.
As consideration for converting the debt, the noteholders’ agreed to receive common stock in lieu of the 200,000 warrants to purchase common stock that were issued in conjunction with the short-term loan. See Note 10.
As a result, the 200,000 warrants were cancelled, and the Company issued to the noteholders’ an aggregate of 200,000 shares of common stock. The closing price of the Company’s stock on February 9, 2017, the day the shares were issued, was $1.04 per share. The fair value of the common stock issued was approximately $208,000.
preferred Stock Conversion
On March 31, 2017, 4,147 shares of Series A Preferred Stock were converted into an aggregate of 414,663 restricted shares of authorized common stock, par value $0.001 per share.2023
On April 21, 2017, 5,252 shares of Series A Preferred Stock were converted into an aggregate of 525,240 restricted shares of authorized common stock, par value $0.001 per share.
Note 8 - Commitments
Operating Leases
Office Space
The Company pays TAG Aviation, a company owned by its Chief Executive Officer, Jarrett Gorlin (“Mr. Gorlin”) for office space that is currently being used as the Company’s principal business location plus utilities cost (see “Related Party Transactions”) on a monthly basis. Base annual rent is $2,147 per month. Rent expense and utilities cost paid to TAG Aviation amounted to approximately $9,500 and $25,000 for the three and nine months ended September 30, 2017, respectively. Rent expense and utilities cost paid to TAG Aviation amounted to approximately $7,000 and $21,000 for the three and nine months ended September 30, 2016, respectively.
On July 8, 2015, the Company entered into a 3-year lease agreement for a commercial building which commenced on August 1, 2015. Base rent for the three and nine months ended September 30, 2017 was $2,849 per month. Total lease expense for the three and nine months ended September 30, 2017 was approximately $8,600 and $26,000, respectively, related to this lease. Total lease expense for the three and nine months ended September 30, 2016 was approximately $8,300 and $25,000, respectively, related to this lease.
| 14 |
Future minimum lease paymentsNote 7 – Commitments & Contingencies
COMMITMENTS & CONTINGENCIES
CEO Compensation Agreement
On December 23, 2021, the Company entered into an employment agreement (the “Employment Agreement”) with Michael Yurkowsky, the Company’s Chief Executive Officer, to continue to serve as the Chief Executive Officer of the Company. Under the Employment Agreement, which commenced on December 1, 2021 (the “Effective Date”) and has a term of one year from the Effective Date (the “Employment Period”), Mr. Yurkowsky will receive a base salary of $180,000 per year. Upon the expiration of the Employment Period, Mr. Yurkowsky’s employment with the Company will be on an at-will basis.
In addition to his base salary, Mr. Yurkowsky may receive an one-time cash bonus in gross amount equal to $100,000 if (i) the Company’s stock is listed and quoted on the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, or the New York Stock Exchange; or (ii) the Company secures and receives financing of at least $10,000,000.
These market conditions were reflected in the grant date fair value of the award as required under this rental agreementASC 718 Compensation-Stock Compensation.
The Equity Award was measured at fair value on its grant date using a Monte Carlo simulation model. The Monte Carlo simulation model includes assumptions for the expected term, volatility, and dividend yield, each of which are determined in reference to the Company’s historical results. The Company will recognize aggregate share-based compensation expense of approximately as follows:$ related to the Equity Award on a straight-line basis over the derived service period determined by the Monte Carlo simulation model, which was 0.71 years. During the three month period ending March 31, 2022, the Company recognized approximately $114,000 in compensation expense related to the Equity Award. If the market capitalization targets are met sooner than the derived service period, the Company will adjust its stock-based compensation to reflect the cumulative expense associated with the vested Equity Award. The Company will recognize expense if the requisite service is provided, regardless of whether the market conditions are achieved.
For the year ending:
| December 31, 2017 | $ | 8,900 | ||
| December 31, 2018 | 21,000 | |||
| $ | 29,900 |
Equipment
Consulting Agreements
The Company entered into a non-cancelable 36-month operating leaseconsulting agreement with Tanya Rhodes of Rhodes & Associates, Inc, effective June 15, 2020, to serve as the Chief Science Officer of the Company. The agreement has a minimum term of six months with an average fee of $21,000 per month plus expenses which increases 5% per month on January 1 of each calendar year unless an alternative retainer amount is negotiated and agreed upon by both parties. The Company extended the contract on January 1, 2021, resulting in monthly expenses of $22,500 plus expenses for equipmentservices rendered. Due to lack of financial resources, the Company has been unable to pay Ms. Rhodes for her services totaling $138,625, which has been accrued as part of accrued liabilities for the three months ended March 31, 2023.
The Company entered into a consulting agreement with Alpha IR Group on April 22, 2015.March 1, 2022, to provide investor relations to the Company. The agreement is renewable atfor twelve months with an average service fee of $9,750 per month which has been accrued in Accounts Payable. The Company paused this service during the end of the term and requiresthree months ending March 31, 2023.
Litigation
From time to time, the Company may be involved in routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. The ultimate amount of liability, if any, for any claims of any type (either alone or in the aggregate) may materially and adversely affect the Company’s financial condition, results of operations, and liquidity. In addition, the ultimate outcome of any litigation is uncertain. Any outcome, whether favorable or unfavorable, may materially and adversely affect the Company due to maintain comprehensive liability insurance. Total lease expenselegal costs and expenses, diversion of management attention, and other factors. The Company expenses legal costs in the period incurred. The Company cannot assure that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against the Company in the future, and these matters could relate to prior, current or future transactions or events.
The Company is involved in a lawsuit with Sinclair Broadcast Group, Inc. (“Sinclair”) which was approximately $900 and $2,900, respectively,filed on September 8, 2020, in the Circuit Court for the threeThirteenth Judicial Circuit in and nine months ended September 30, 2017. Total lease expense wasfor Hillsborough County, Florida. Sinclair has obtained a legal judgment for breach of contract for advertising services in the amount of approximately $900$75,000 plus interest and $2,500, respectively, for the three and nine months ended September 30, 2016.
Future minimum lease payments under this operating lease agreement are approximately as follows:
For the year ending:
| December 31, 2017 | $ | 700 | ||
| December 31, 2018 | 800 | |||
| $ | 1,500 |
Consulting Agreements
In January 2017, the consulting agreement with one of the Company’s founding stockholders to provide business development consulting services was modified from $5,000 per month to $10,000 per month and extended through January 2018. The Company paid $30,000 and $85,000, respectively, for the three and nine months ended September 30, 2017 under this new arrangement. The Company paid $15,000 and $40,000, respectively, for the three and nine months ended September 30, 2016 under the previous arrangement.
On August 23, 2017, the Company retained a consulting firm to provide advisory services specific on matters with respect to potential mergers and acquisitions over a nine-month period at a fee of $75,000. The fee is payable in quarterly installments of $25,000 beginning at the start of the advisory period and every three months thereafter. The engagement terminates on May 10, 2018. No amounts were due or paid at September 30, 2017 per the terms of the agreement.
In July 2017, the Company modified the consulting agreement with the sales, marketing, and distribution consultant in Latin America. The agreement to provide consulting services was modified from $5,000 per month to $7,000 per month and extended through December 31, 2017. The Company paid $21,000 and $45,000, respectively, for the three and nine months ended September 30, 2017.
costs. The Company has consulting agreements with three sales, marketing, and distribution consultantsretained legal counsel for guidance in Europe who provide consulting services for aggregate compensation amounting to approximately €27,500 per month.this matter. The consulting agreements, while subject to modifications, commenced at separate dates and will also terminate at separate dates through April 30, 2019. amount is recorded in accounts payable as of March 31, 2023.
The Company paid approximately $58,000 and $131,000, respectively,is involved in a lawsuit with ITN Networks, LLC (“ITN”) which was filed on July 22, 2021, in the Circuit Court for the threeThirteenth Judicial Circuit in and nine months ended September 30, 2017. The Company paidfor Hillsborough County, Florida. ITN has obtained a legal judgment for breach of contract for advertising services in the amount of approximately $25,000$45,000 plus interest and $46,000, respectively, for the three and nine months ended September 30, 2016.
Employment Agreements
costs. The Company has Employment Agreements with eachretained legal counsel for guidance in this matter. The amount is recorded in accounts payable as of its six executive officers for aggregate compensation amounting to approximately $1,064,000 per annum, plus customary benefits. These employment agreements, having commenced at separate dates, are for terms of three years which began in October 2013 and end in January 2018.March 31, 2023.
Generator development agreement
The Company is obligated to reimburse Bovie up to $295,000 for the development of the Pro-40 electrocautery generator. The Company paid approximately $3,000 and $33,000, respectively, for the three and nine months ended September 30, 2017 under this agreement. The Company paid approximately $1,000 and $24,000, respectively, for the three and nine months ended September 30, 2016 under this agreement. Through September 30, 2017, we have paid approximately $422,000 to Bovie related to this agreement.
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Note 8 – Debt
DEBT
Notes Payable
Distribution center and logistic services agreement
The Company has a non-exclusive distribution center agreement with a logistics service providerNotes payable were assumed in Berlin, Germany pursuant to which they shall manage and coordinate the DenerveX System products which the Company exportsMerger (for further discussion, see Note 1 - “Overview” to the EU through June 2019. The Company pays a fixed monthly fee of €2,900 for all accounting, customs declarations and office support, and a variable monthly fee ranging from €1,900 to €6,900, based off volume of shipments, for logistics, warehousing and customer support services. Total expenses paid for the distribution center and logistics agreement was approximately $37,900 and $37,900, respectively, for the three and nine months ended September 30, 2017.
Note 9 – Short Term Liabilities
Finance Agreement
The Company entered into a commercial insurance premium finance and security agreementconsolidated financial statements in December 2016. The agreement finances the Company’s annual D&O insurance premium. Payments are due in quarterly installments of approximately $23,0002020 Annual Report on Form 10-K) and carry an annual percentage interest rate of 4.9%.
The Company had paid the yearly premium in full and had no outstanding balance at September 30, 2017 related to the agreement.
Promissory Notes
In conjunction with the consummation of the Streamline acquisition on March 25, 2015, the Company assumed two promissory notes for approximately $135,000 and $125,000 to the Bank of North Dakota New Venture Capital Program and North Dakota Development Fund, both outside non-related parties. Payments on both notes are due in aggregate monthly installments of approximately $5,700$5,800 and carry an interest rate of 5%5%. Both notes haveEach note originally had a maturity date of August 1, 2019.2019. The Company finalized an eighteen-month extension to March 1, 2021. The promissory notes including interest, hadhave an aggregate outstanding balancesbalance of approximately $130,000 and $181,000$69,000 at September 30, 2017March 31, 2023 and December 31, 2016, respectively.2022. The Company has not made payments on these notes since February 10, 2020, due to the Company’s lack of working capital. On April 19, 2022, the Company entered into a promissory note modification agreement with the Lender extending the maturity date of the notes to April 1, 2024. The modification agreement also reduces the interest rate from 5% to 3% and requires a monthly payment of $1,000 per month with a balloon payment at the end of the modified term.
Expected future paymentsOn June 9, 2022, the Company entered into a securities purchase agreement for a total of $272,500 with two accredited investors. The notes issued are convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The notes bear interest at 10% and are due one year from issuance. For the first six months, the Company had the right to prepay the notes at a premium of between 25% and 35% depending on when it is repaid.
The Company also issued a promissory note for $100,000, on June 9, 2022, to another accredited investor. This note bears interest at 15% (no matter when repaid) and converts at a discount of 25% of the price of a public offering or a 25% discount to the Volume Average Weighted Price (“VWAP”) of the five (5) days prior to conversion.
On August 8, 2022, the Company entered into a securities purchase agreement for a total of $65,000 with an accredited investor. The note issued is convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The note bears interest at 10% and is due one year from issuance. For the first six (6) months, the Company had the right to prepay the notes at a premium of between 25% and 40% depending on when it is repaid.
On February 28, 2023, the Company entered into a securities purchase agreement for a total of $150,000 with an accredited investor. The note issued is convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The note bears interest at 10% and is due one year from issuance. For the first six months, the Company has the right to prepay the note at a premium of between 25% and 40% depending on when it is repaid.
The embedded features in the June 2022, August 2022, and February 2023 convertible notes were analyzed under ASC 815 to determine if they required bifurcation as derivative instruments. To be a derivative, one of the criteria is that the embedded component must be net-settleable. While the Company’s Common Stock was traded on an exchange at the time of the transaction, the underlying shares are not readily convertible into cash since there is insufficient daily trading volume for the holders to convert the convertible notes into Common Stock without significantly affecting the share price. Accordingly, the embedded derivatives, including the embedded conversion feature, did not meet the definition of a derivative, and therefore, did not require bifurcation from the host instrument. Certain default put provisions, including a default put and default interest, were not considered to be clearly and closely related to the promissory noteshost instrument but the Company concluded that the value of these provisions was de minimus at inception. The Company will reconsider the value of these provisions each reporting period to determine if the value becomes material to the financial statements.
Note 9 – Acquisitions
ACQUISITIONS
The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs which would meet the definition of a business. Significant judgment is required in the application of the screen test to determine whether an acquisition is a business combination or an acquisition of assets.
If an acquisition is determined to be a business combination as indicated in ASC 805, Business Combinations, the assets acquired, and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. The Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.
If an acquisition is determined to be an asset acquisition, the Company accounts for the transaction under ASC 805-50, which requires the cost of the asset acquisition, including transaction costs, to be allocated to identifiable assets acquired and liabilities assumed based on a relative fair value basis. Assets acquired as part of an asset acquisition that are considered to be in-process research and development (IPR&D) are immediately expensed unless there is an alternative future use in other research and development projects. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values (excluding non-qualifying assets). If the cost of the asset acquisition is less than the fair value of the net assets acquired, no gain is recognized in earnings.
Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the consideration is paid or becomes payable (unless the contingent consideration meets the definition of a derivative, in which case the amount becomes part of the basis in the asset acquired). Upon recognition of the contingent consideration payment, the amount is included in the cost of the acquired asset or group of assets.
On September 30, 2017, are7, 2022, the Company acquired all of the membership interests, with Common Stock, of Jantibody LLC (“Jantibody”), a Nevada limited liability company. Jantibody is focused on the development of novel proprietary immunotherapies targeted towards ovarian cancer, pancreatic cancer, and mesothelioma. Prior to the acquisition, Michael Yurkowsky, CEO, had approximately 17.5% ownership interest in Jantibody.
Pursuant to the Jantibody Agreement, the Company issued the equity holders of Jantibody an aggregate of shares of the Company’s common stock which represented 15% of the Company’s common stock on a fully diluted basis at the time of the transaction. In addition, for every share of the Company’s common stock issued as follows:a result of the future conversion of the Company’s dilutive instruments, including Series A preferred stock, warrants, stock options, and convertible notes, the Jantibody members will receive 15% of the aggregate number of shares issued (the “Anti-Dilution” shares). The Anti-Dilution shares will be issued before the end of each fiscal quarter.
For the year ending:
| December 31, 2017 | $ | 17,000 | ||
| December 31, 2018 | 68,000 | |||
| December 31, 2019 | 45,000 | |||
| $ | 130,000 |
The Company has agreed to issue the Jantibody holders an additional 2.0% of the Company’s common stock then outstanding upon the enrollment of the first patient in a Phase I FDA trial and additional 3.0% of the Company’s then outstanding common stock on a fully diluted basis upon the enrollment of the first patient in a Phase [III] FDA trial. The Company determined the contingent consideration was not subject to derivative accounting and will be recognized when the contingency is resolved, and the consideration is paid interest expense relatedor becomes payable as outlined in ASC 450, Contingencies.
The Company determined this transaction represented an asset acquisition as defined by ASC 805, Business Combinations, as substantially all of the value was in a single in-process research and development (“IPR&D”) group, which included the small molecule drug CXCR4 inhibitor, AMD3100, and/or checkpoint inhibitors (CPI) for anti-cancer immune modulation. As a result, the consideration transferred was allocated to the promissory notes for the threeidentifiable tangible and nine months ended September 30, 2017intangible assets acquired and liabilities assumed based on their relative fair values resulting in the amount of approximately $1,700 and $5,500, respectively. The Company paid interest expense related$1,240,000 being assigned to the promissory notes for the threeIPR&D asset and nine months ended September 30, 2016 in the amount of approximately $800$1,000,000 to assumed liabilities. The liabilities assumed were current accounts payable and $6,100, respectively. The Company had unpaid accrued interest in the amount of approximately $69,000 at September 30, 2017 and December 31, 2016 related to the promissory notes.as such were recorded a book value.
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The purchase price of approximately $247,000 represented shares of the Company’s common stock, Anti-Dilution shares, and direct transaction costs of $21,600. The purchase price was allocated, on a relative fair value basis, to the acquired intellectual property, and the acquired net assets as follows:
SCHEDULE OF NET IDENTIFIABLE ASSETS ACQUIRED
| Consideration: | ||||
| Common stock | $ | 29,557 | ||
| Common stock (anti-dilution shares, to be issued – included in other current liabilities) | 195,532 | |||
| Direct transaction costs | 21,600 | |||
| Total costs of the asset acquisition | $ | 246,689 | ||
| Assets acquired | ||||
| Cash | $ | 469 | ||
| Liabilities assumed – legal and administrative costs | (999,728 | ) | ||
| Intangible assets: IPR&D | 1,245,948 | |||
| Net identifiable assets acquired | $ | 246,689 | ||
The IPR&D had not yet reached technological feasibility and had no alternative future use; thus, the purchased IPR&D asset and related costs were expensed immediately subsequent to the acquisition within the consolidated statements of operations.
On December 22, 2022, the Company acquired a 100% interest, with Common Stock, in Scion Solutions, LLC (“Scion”). Scion is a life sciences company that has developed a new technology in regenerative medicine specifically for limb salvage. Their proprietary product SkinDisc (patent pending) is a combination of stem cells and several other molecular components that stimulate tissue regeneration. Prior to the acquisition, Tanya Rhodes, CSO, had approximately 33.3% ownership interest in Scion.
Pursuant to the terms of the Scion Agreement, the Company issued the equity holders of Scion an aggregate of shares of the Company’s common stock. In addition, for every share of the Company’s common stock issued within 18-months of the Effective Date of the transaction, as a result of the future conversion of the Company’s dilutive instruments, including Series A preferred stock, warrants, stock options, and convertible notes, the Scion members will receive 20% of the aggregate number of shares issued (the “Anti-Dilution” shares). The Anti-Dilution shares will be issued before the end of each fiscal quarter.
In addition, the former shareholders of Scion are eligible to receive Performance Payments consisting of the following:
SCHEDULE OF PERFORMANCE PAYMENTS
| Performance Milestone | Performance Payment | |||
| Qualified Funding/Uplifting of H-Cyte | $ | 45,000 | ||
| 1-Year Anniversary of Uplifting of H-Cyte | $ | 75,000 | ||
| 2-Year Anniversary of Uplifting of H-Cyte | $ | 120,000 | ||
| Initiation of SkinDisc Study | $ | 50,000 | ||
| Receipt of De Novo or any other approval/clearance that would allow SkinDisc to go to market | $ | 100,000 | ||
| Submission for specific and individual reimbursement codes relating to SkinDisc | $ | 25,000 | ||
| Receipt of specific and individual reimbursement codes relating to SkinDisc | $ | 50,000 | ||
| Completion of SkinDisc Study | $ | 50,000 | ||
| Launch of any additional SkinDisc product line extension (e.g., SkinDisc Lite)* | $ | 100,000 | ||
| Annual net sales from SkinDisc (including SkinDisc extensions) (2023 and each subsequent calendar year)* | Greater of (i) 4% of net revenues from SkinDisc (including SkinDisc line extensions) during such calendar year and (ii) $50,000 | |||
| Cumulative net sales from SkinDisc (including SkinDisc extensions) of $600,000 | $ | 200,000 | ||
| Cumulative net sales from SkinDisc (including SkinDisc extension) of $2,000,000 | $ | 150,000 | ||
| Cumulative net sales from SkinDisc (including SkinDisc extension) of $4,000,000 | $ | 300,000 | ||
| Net sales from SkinDisc (including SkinDisc extensions) of $6,000,000 during any single calendar year* | $ | 300,000 | ||
Substantially all of the value acquired was concentrated in a single in-process research and development (“IPRD”) asset, which included license rights, clinical trial data, clinical trial development plans, research and development materials, formulations and intellectual property related to SkinDisc. There was no workforce, and no outputs were present. Accordingly, the acquired set of assets and activities did not meet the definition of a business as defined by ASC 805, Business Combinations and was considered an asset acquisition. In an asset acquisition, the consideration transferred is allocated to identifiable tangible and intangible assets acquired and liabilities assumed based on their relative fair values. In the Scion acquisition, the only asset or liability acquired was IPR&D. As a result, the consideration transferred was recorded fully to the IPR&D asset.
In an asset acquisition, cash-settled contingent consideration is measured when probable and estimable, unless the contingent consideration falls under the guidance of ASC 815. The Company determined the contingent consideration was not subject to ASC 815 and thus, the performance payments which were estimable and probable (i.e., more than 50% likely to occur) were recorded on the acquisition date. The fair value was estimated based on a probability weighting of the present value of cash flows over the expected time period until payment, using a credit-risk adjusted interest rate. Each reporting period, the Company will determine if the performance payments are estimable and probable and will record them as a liability at that time.
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The purchase price was allocated, as follows:
SCHEDULE OF NET IDENTIFIABLE ASSETS ACQUIRED AND LIABILITIES ASSUMED
| Consideration: | ||||
| Common stock | $ | 54,070 | ||
| Anti-Dilution share liability | 305,998 | |||
| Contingent Performance payment liability | 417,850 | |||
| Direct transaction costs | 14,338 | |||
| Total costs of the asset acquisition | $ | 792,256 |
The common stock value was recorded as equity. The remaining consideration was recorded as IPR&D, since the SkinDisc technology was still in the research and development stage and had no alternative future use. The purchased IPR&D asset of $792,256 was expensed immediately subsequent to the acquisition within our consolidated statements of operations.
Note 10 –10- Common Stock Warrants
COMMON STOCK WARRANTS
Fair value measurement valuation techniques, to the extent possible, should maximize the use of observable inputs and minimize the use of unobservable inputs. The Company’s fair value measurements of all warrants are designated as Level 2 since all the significant inputs are observable and quoted prices were available for the four comparative companies in an active market.
A summary of the Company’s warrant issuance activity and related information for the ninethree months ended September 30, 2017March 31, 2023 and 2022 is as follows:
SUMMARY OF ISSUANCE OF WARRANTS
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | ||||||||||
| Outstanding at 12/31/2016 | 3,504,847 | $ | 2.14 | 3.24 | ||||||||
| Issued | 3,889,368 | $ | 1.37 | 4.48 | ||||||||
| Cancelled | (200,000 | ) | $ | 1.625 | — | |||||||
| Outstanding and exercisable at 9/30/2017 | $ | 7,194,215 | $ | 1.74 | 3.61 | |||||||
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | ||||||||||
| Outstanding at December 31, 2021 | 406,301 | $ | 35.00 | |||||||||
| Expired | (20,411 | ) | 33.00 | - | ||||||||
| Exercised | (83,579 | ) | 10.00 | - | ||||||||
| Granted | 84,579 | 10.00 | ||||||||||
| Outstanding and exercisable at March 31, 2022 | 386,890 | $ | 20.00 | |||||||||
| Outstanding at December 31, 2022 | 447,967 | $ | 10.90 | |||||||||
| Expired | (787 | ) | (489.80 | ) | - | |||||||
| Granted | 42,500 | 2.00 | ||||||||||
| Outstanding and exercisable at March 31, 2023 | 489,680 | $ | 9.35 | 6.21 | ||||||||
As described in Note 7, 200,000 warrants were cancelled and 200,000 shares of common stock were issued to the Noteholders’ as consideration for converting the Company’s short-term debt.
The fair value of all warrants issued are determined by using the Black-Scholes-MertonBlack-Scholes valuation technique and were assigned based on the relative fair value of both the common stock and the warrants issued.
technique. The inputs used in the Black-Scholes-MertonBlack-Scholes valuation technique to value each of the warrants issued at September 30, 2017 as of their respective issue dates are as follows:
SCHEDULE OF ISSUANCE OF WARRANTS VALUATION TECHNIQUE
| Event Description | Date | MDVX Stock Price | Exercise Price of Warrant | Grant Date Fair Value | Life of Warrant | Risk Free Rate of Return (%) | Annualized Volatility Rate (%) | |||||||||||||||||||||
| Private Placement | 2/8/17 | $ | 1.04 | $ | 1.50 | $ | 0.75 | 5 years | 1.81 | 104.49 | ||||||||||||||||||
| Private Placement | 7/14/17 | $ | 0.91 | $ | 1.15 | $ | 0.36 | 5 years | 1.87 | 51.79 | ||||||||||||||||||
| Event Description | Date | Number of Warrants | H-CYTE Stock Price | Exercise Price of Warrant | Grant Date Fair Value | Life of Warrant | Risk Free Rate of Return (%) | Annualized Volatility Rate (%) | ||||||||||||||||||||
| Granted for inducement agreement | 1/19/2022 | 3,732 | $ | 63.25 | $ | 14.00 | $ | 62.00 | 5 years | 1.62 | 187.79 | |||||||||||||||||
| Granted for inducement agreement | 1/20/2022 | 372 | $ | 64.50 | $ | 14.00 | $ | 64.00 | 5 years | 1.62 | 187.85 | |||||||||||||||||
| Granted for inducement agreement | 1/20/2022 | 187 | $ | 64.50 | $ | 14.00 | $ | 64.00 | 5 years | 1.62 | 187.85 | |||||||||||||||||
| Granted for inducement agreement | 1/24/2022 | 374 | $ | 48.00 | $ | 14.00 | $ | 47.00 | 5 years | 1.53 | 188.01 | |||||||||||||||||
| Granted for inducement agreement | 1/25/2022 | 3,744 | $ | 49.10 | $ | 14.00 | $ | 48.00 | 5 years | 1.56 | 188.00 | |||||||||||||||||
| Granted for inducement agreement | 2/02/2022 | 3,741 | $ | 44.55 | $ | 14.00 | $ | 44.00 | 5 years | 1.60 | 188.25 | |||||||||||||||||
| Granted for inducement agreement | 2/04/2022 | 6,935 | $ | 44.38 | $ | 14.00 | $ | 43.00 | 5 years | 1.78 | 188.33 | |||||||||||||||||
| Granted for inducement agreement | 2/04/2022 | 13,870 | $ | 44.38 | $ | 14.00 | $ | 43.00 | 5 years | 1.78 | 188.33 | |||||||||||||||||
| Granted for services provided | 2/09/2022 | 1,000 | $ | 32.00 | $ | 14.00 | $ | 31.00 | 5 years | 1.82 | 188.69 | |||||||||||||||||
| Granted for inducement agreement | 2/22/2022 | 41,609 | $ | 32.88 | $ | 14.00 | $ | 32.00 | 5 years | 1.85 | 188.59 | |||||||||||||||||
| Granted for inducement agreement | 2/22/2022 | 693 | $ | 32.88 | $ | 14.00 | $ | 32.00 | 5 years | 1.85 | 188.59 | |||||||||||||||||
| Granted for inducement agreement | 3/21/2022 | 8,322 | $ | 28.00 | $ | 14.00 | $ | 27.00 | 5 years | 2.33 | 194.01 | |||||||||||||||||
| Granted for securities purchase agreement | 9/27/2022 | 56,250 | $ | 6.00 | $ | 2.50 | $ | 5.94 | 5 years | 4.21 | 213.54 | |||||||||||||||||
| Granted for securities purchase agreement | 11/14/2022 | 7,500 | $ | 5.75 | $ | 2.50 | $ | 5.69 | 5 years | 4.00 | 213.28 | |||||||||||||||||
| Granted for convertible note agreement | 2/21/2023 | 30,000 | $ | 1.60 | $ | 2.00 | $ | 1.57 | 5 years | 4.16 | 211.43 | |||||||||||||||||
| Granted for convertible note agreement | 3/27/2023 | 10,000 | $ | 1.70 | $ | 2.00 | $ | 1.68 | 5 years | 3.59 | 218.15 | |||||||||||||||||
| Granted for convertible note agreement | 3/28/2023 | 2,500 | $ | $ | 2.00 | $ | 1.58 | 5 years | 3.63 | 218.17 | ||||||||||||||||||
The fair value of warrants issued during the three months ended March 31, 2023, totaled approximately $68,000. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
NoteNote 11 – Revenue- Subsequent Events
SUBSEQUENT EVENTS
The Company’s first saleOn April 12, 2023, the Company and an additional investor entered into the SPA, whereby the Company sold and issued thirty five thousand dollars ($35,000) of the DenerveX System occurred in July 2017. TheCompany’s Notes. In connection with the aforementioned Notes, the Company recorded revenue for the three and nine months ended September 30, 2017 of $117,277.
The Company sells the DenerveX System through a combination of direct sales and independent distributors in international markets. The Company recognizes revenue when titlealso issued to the goods and riskinvestors a warrant to purchase (the “Purchase Warrant”) a certain number of loss transfersshares of Common Stock, which are equal to customers, provided there are no material remaining performance obligations required% of the Company or any mattersshares of customer acceptance. We only record revenue when collectability is reasonably assured.
Revenue recognition occursCommon Stock issuable upon conversion of the Note, based on a price of $2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. The note has a maturity date 60 days from issuance. Interest on the Note shall accrue on the unpaid principal balance of this Note at the time product is shippedrate of eight percent (8%) per annum, and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s Common Stock at a conversion price equal to customers from the third-party distribution warehouse located in Berlin, Germany. Our stocking distributors, who sell the products to their customers or sub-distributors, contractually take titlea % discount to the products and assume all risks of ownership at the time of shipment. Our stocking distributors are obligated to pay us the contractually agreed upon invoice price within specified terms regardless of when, if ever, they sell the products. Our direct customers do not have any contractual rights of return or exchange other than for defective product or shipping error.offering price.
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Note 12 – Discontinued operations
Effective December 7, 2016, the Company sold all Streamline related assets after the Board authorized management to seek buyers for Streamline in May 2016. The Company sought additional funds to complete the development and launch of the Company’s primary product, the DenerveX System, and the decision to sell the Streamline assets helped raise part of the necessary funds required for continuing operations of the Company in a non-dilutive manner to existing shareholders.
The results of the discontinued operations, which represents Streamline’s IV Suspension System (“ISS”), for the three and nine months ended September 30, 2017 and 2016 are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues | $ | — | $ | — | $ | — | $ | — | ||||||||
| Operating Expenses | ||||||||||||||||
| General and administrative | — | 54,606 | 1,163 | 199,237 | ||||||||||||
| Research and development | — | — | — | 59,418 | ||||||||||||
| Depreciation and amortization | — | — | — | 189,652 | ||||||||||||
| Impairment loss | — | — | — | 1,584,048 | ||||||||||||
| Total Operating Expenses | — | 54,606 | 1,163 | 2,032,355 | ||||||||||||
| Operating Loss | — | (54,606 | ) | (1,163 | ) | (2,032,355 | ) | |||||||||
| Other Expenses | ||||||||||||||||
| Interest expense | — | 2,417 | — | 7,776 | ||||||||||||
| Total Other Expenses | — | 2,417 | — | 7,776 | ||||||||||||
| Net Loss | $ | — | $ | (57,023 | ) | $ | (1,163 | ) | $ | (2,040,131 | ) | |||||
Cash flows from discontinued operations are as follows:
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash Flows used in Operating Activities | $ | (1,163 | ) | $ | (425,011 | ) | ||
| Cash Flows used in Investing Activities | — | — | ||||||
| Cash Flows used in Financing Activities | — | (39,630 | ) | |||||
| Net Cash Used in Discontinued Operations | $ | (1,163 | ) | $ | (464,641 | ) | ||
No amortization expense was recognized related to the discontinued intangible assets for the three and nine months ended September 30, 2017. Amortization expense related to the discontinued intangible assets for the three and nine months ended September 30, 2016 was approximately $0 and $190,000, respectively.
No depreciation expense was recognized for the three and nine months ended September 30, 2017. Depreciation expense amounted to $21 and $129, respectively, for the three and nine months ended September 30, 2016.
Note 13 - Income Taxes
For the period from February 1, 2013 (inception) to September 30, 2017, the Company has incurred net losses and, therefore, has no current income tax liability. The net deferred tax asset generated by these losses, which principally consist of start-up costs deferred for income tax purposes, is fully reserved as of September 30, 2017 and December 31, 2016, since it is currently more likely than not that the benefit will not be realized in future periods.
The Company is required to file federal income tax returns and state income tax returns in the states of Florida, Georgia and Minnesota. There are no uncertain tax positions at September 30, 2017 or December 31, 2016. The Company has not undergone any tax examinations since inception.
Note 14 - Related-Party Transactions
Royalty Agreement
The Company has a Contribution and Royalty Agreement with Dr. Haufe. The agreement provides for the Company to pay Dr. Haufe royalties equal to 1% of revenues received by the Company from sales of all products derived from the use of the DenerveX technology. No royalties have been paid as of September 30, 2017. Approximately $225 is payable to Dr. Haufe as of September 30, 2017.
Co-Development Agreement
The Company entered into a Co-Development Agreement with Dr. Andrews in September 2013. The agreement provides for the Company to pay Dr. Andrews a royalty of 2% of the Company’s net sales earned from applicable product sales for at least 5 years from the effective date of the agreement. No royalties have been paid as of September 30, 2017. Approximately $446 is payable to Dr. Andrews as of September 30, 2017.
Aviation Expense
Periodically the Company may charter general aviation aircraft from TAG Aviation LLC (“TAG”), a company owned by Mr. Jarrett Gorlin. The Company believes that such aircraft charter is on terms no less favorable then it would receive from a third party. No general aviation expenses were paid to TAG for the three and nine months ended September 30, 2017. General aviation expenses paid to TAG for the three and nine months ended September 30, 2016, were approximately $9,500 and $18,500, respectively
Operating Lease
As described in Note 8, the Company pays TAG Aviation LLC, (“TAG”), a company owned by Mr. Gorlin, for month to month rental of office space at Dekalb-Peachtree Airport in Atlanta Georgia plus cost of utilities. Rent payments under this arrangement were $1,800 per month through August 31, 2016. Effective September 1, 2016, rent payments under this arrangement increased to $2,147 per month.
Rent expense and utilities cost paid to TAG Aviation amounted to approximately $9,500 and $25,000 for the three and nine months ended September 30, 2017, respectively. Rent expense and utilities cost paid to TAG Aviation amounted to approximately $7,300 and $22,000 for the three and nine months ended September 30, 2016, respectively.
Consulting Expense
As described in Note 8, the Company paid $30,000 and $85,000, respectively, for the three and nine months ended September 30, 2017 to a founding stockholder for business advisory services. The Company paid $15,000 and $40,000, respectively, for the three and nine months ended September 30, 2016.
Note 15 - Research and Development
Devicix Prototype Manufacturing Agreement
In November 2013, the Company accepted a proposal from Devicix, a Minneapolis, Minnesota based FDA registered contract designer and developer, to develop a commercially viable prototype of its product that could be used to receive regulatory approval from the FDA and other international agencies for use on humans to relieve pain associated with Facet Joint Syndrome. Through September 30, 2017, we have paid approximately $1,820,000 to Devicix, of which approximately $12,000 was included in accounts payable as of September 30, 2017.
The development work commenced in December 2013. The total estimated cost of this work at contract signing was $960,000; however, the terms of the proposal allow either the Company or the designer and developer to cancel the development work with 10-days’ notice.
The Company incurred expenses of approximately $34,000 and $273,000, respectively, for the three and nine months ended September 30, 2017. The Company incurred expenses of approximately $103,000 and $340,000, respectively, for the three and nine months ended September 30, 2016.
Denervex Generator Manufacturing Agreement
The DenerveX device requires a custom electrocautery generator for power. As described in Note 8, in November 2014, the Company contracted with Bovie to customize one of their existing electrocautery generators for use with DenerveX Device, and then manufacture that unit on a commercial basis once regulatory approval for the DenerveX is obtained. The Bovie agreement requires a base $295,000 development fee to customize the unit, plus additional amounts if further customization is necessary beyond predetermined estimates.
The Company paid approximately $3,000 and $33,000, respectively, for the three and nine months ended September 30, 2017 to Bovie. The Company paid approximately $1,000 and $24,000, respectively, for the three and nine months ended September 30, 2016 to Bovie.
Through September 30, 2017, we have paid approximately $422,000 to Bovie related to this agreement.
Nortech Manufacturing Agreement
In November 2014, the Company selected Nortech Systems Inc. (“Nortech”), a Minneapolis, Minnesota based FDA registered contract manufacturer, to produce 315 DenerveX devices from the prototype supplied by Devicix for use in final development and clinical trials. The agreement with Nortech includes agreed upon per unit prices for delivery of the devices.
Actual work on development of the final units began in November 2014. The Company paid approximately $7,400 and $147,000, respectively, to Nortech for the three and nine months ended September 30, 2017. The Company paid approximately $250,000 and $362,000, respectively, to Nortech for the three and nine months ended September 30, 2016.
Through September 30, 2017, we have incurred expenses of approximately $891,000 to Nortech, of which approximately $41,000 was included in accounts payable as of September 30, 2017.
Note 16– Liquidity, Going Concern and Management’s Plans
The Company incurred a net loss of approximately $4,842,000 and $13,185,000 for the nine months ended September 30, 2017 and 2016, respectively. The Company will continue to incur losses until it can sell a sufficient enough volume of the DenerveX System with margins sufficient to offset expenses.
To date, the Company’s primary source of funds has been from the issuance of debt and equity.
As discussed in Note 7, in February and July 2017, the Company obtained approximately $2,618,000 and $2,469,000, respectively, net of fees, in private equity financings. The Company will require additional cash in 2017 and is exploring other fundraising options for 2017. No assurances can be provided regarding the success of such efforts. Furthermore, if the Company is unable to raise sufficient financing in 2017, it could be required to undertake initiatives to conserve its capital resources, including delaying or suspending the launch of its product outside the United States and seeking FDA approval to sell its product in the United States. Delaying or suspending these initiatives would raise substantial doubt about the Company’s ability to continue as a going concern.
The financial statements do not include any adjustments to the carrying amounts of its assets or liabilities that might be necessary should the Company be unable to continue as a going concern.
Note 17 - Subsequent Events
As discussed in Note 7, the Board authorized the issuance of shares of common stock to all Board members, both current and former, in an amount equivalent to $135,000, representing their accrued but unpaid directors’ fees as of September 30, 2017. In October 2017, the Company issued an aggregate of 115,389 shares at $1.17 per share, which was the average closing price of the Company’s stock this year through September 30, 2017, to fulfill this obligation. The closing price of the Company’s stock on October 30, 2017, the day the shares were issued, was $1.09 per share.
In August 2017, the Board authorized the issuance of an aggregate of 300,000 shares of common stock to be issued to a certain member of the board of directors and a certain consultant in recognition of services performed for the Company. The common stock is to be issued as follows: 25% on the date of grant, 25% in 1 year, and the remaining 50% to be issued 2 years from the date of grant. The common stock issuance was subject to shareholder approval to increase the amount of common stock shares in the Company’s 2013 Stock Option Incentive Plan. The Company held its annual meeting of shareholders on October 18, 2017 whereby the authorization to increase the number of shares of common stock in the Plan was approved. In October 2017, the Company issued an aggregate of 75,000 shares at $1.08 per share. The closing price of the Company’s stock on October 30, 2017, the day the shares were issued, was $1.09 per share. The fair value of the common stock issued was approximately $81,750.
In August 2016, the Company received a letter from Nasdaq Markets for non-compliance with their listing rule 5550(b), which requires a minimum $2,500,000 stockholders’ equity for continued listing on the Nasdaq Capital Market (the “Minimum”). In February 2017, the Company completed a private offering which resulted in stockholders’ equity in excess of the Minimum; however, in its March 31, 2017 Form 10-Q, the Company again reported less than $2,500,000 in stockholders’ equity. In May 2017, the Company received another letter from Nasdaq notifying the Company of non-compliance and its intent to delist MedoveX stock from trading on its exchange. The Company appealed this decision. The Nasdaq Appeals Panel gave the Company until November 13, 2017, to report a shareholders’ equity number of sufficient amount to not only meet the Minimum, but large enough to ensure the Company would not go below the threshold again in the coming year based on projected expenses.
At September 30, 2017, the Company’s stockholder equity was less than the Minimum. The Company was unable to secure investment at reasonable terms and at an amount sufficient to satisfy the conditions set by the Nasdaq Appeals Panel by their deadline of November 13, 2017. On November 14, 2017, the Company received notice from Nasdaq that the Company stock would no longer trade on its exchange after November 15, 2017. The Company applied to OTC Markets to trade on its OTCQB exchange, and the Company’s stock began trading on that exchange on November 16, 2017.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes thereto appearing in Part I, Item 1 of this Quarterly Report. Historical results and trends that might appear in this Quarterly Report should not be interpreted as being indicative of future operations.
Overview
MedoveX was incorporated in Nevada
H-CYTE, Inc (“the Company”) has evolved from focusing on July 30, 2013 as Spinez Corp. MedoveX istreating chronic lung conditions after the parent companyclosure of Debride, which was incorporated under the laws of Florida on October 1, 2012. The Company is in the business of designing and marketing proprietary medical devices for commercial use in the United States and Europe. The Company received CE marking in June 2017 for the DenerveX System and it is now commercially available throughout the European Union and several countries that accept CE marking. The Company’s first sale of the DenerveX System occurred in July 2017.its lung treatment clinics due to COVID-19. The Company is currently seeking approval for the DenerveX System from the FDAfocusing on acquiring and developing early-stage companies or their technologies in the US.areas of therapeutics, medical devices, and diagnostics. The goal is to develop these companies and incubate their technologies to meaningful clinical inflection points.
DenerveX
On June 3, 2022, the Company closed its clinic in Scottsdale, Arizona. The DenerveX® System consistsCompany has now closed all of its clinical operations in the autologous infusion therapy business which delivered treatments for patients with chronic respiratory and pulmonary disorders. The Company will continue to pursue Food and Drug Administration (“FDA”) approval of the DenerveX Kit and the DenerveX Power Pro-40 generator. We believedevice that the DenerveX System can be developedwas utilized in the future to encompass a number of medical applications in addition totreatment provided at the current application for facet joint syndrome, including pain relief.
clinics. The Company acquired the DenerveX patent on January 31, 2013 from Scott Haufe, M.D. (“Dr. Haufe”),also has a director of the Company, in exchange for 750,108 shares of common stockcontinued interest in the Company and a 1% royalty on all sales of any product sold based on the patent.
In September 2013, we entered into a Co-Development Agreement with James Andrews, M.D. (“Dr. Andrews”), a director of the Company, whereby Dr. Andrews committed to further evaluate the DenerveX System and to seek to make modifications and improvements to such technology. In exchange for such services, the Company agreed to pay Dr. Andrews a royalty equal to two (2%) percent of the DenerveX net sales during the five (5) year term of the Co-Development Agreement. Upon the termination of the term of the Co-Development Agreement, which has a minimum term of five (5) years, the royalty payable to Dr. Andrews shall be reduced to one (1%) percent of DenerveX net sales after such termination of products covered by any U.S. patent on which Dr. Andrews is listed as a co-inventor; if any such patents are obtained. Such one (1%) percent royalty shall continue during the effectiveness of such patent. Pursuant to the Co-Development Agreement, Dr. Andrews agreed to assign any modifications or improvements to the DenerveX to the Company subject to the royalty rights described above.
We are marketing the product as a disposable, single-use kit which includes all componentscommercialization of the DenerveX device product. In addition to the DenerveX device itself, we have developedthrough a dedicated Electro Surgical Generator, the DenerveX Pro-40, to power the DenerveX device.
The generator is provided to customers agreeing to purchase the DenerveX device, and cannot be used for any other purpose.
We accepted a proposal from Devicix, a Minneapolis, Minnesota third party design and development firm, in November 2013, to develop a prototype device. This proposal included a 5-phase development plan, culminating in the production ready prototype that could be used for validation purposes. We have recently completed the final stages of the build and test phase of the device, culminating in receiving CE marking to market the product in Europe. The DenerveX Kit and Pro-40 generator is now in commercial production. We anticipate very minimal, if any, additional build and test related expenses, which consists of product design verification activities, in the future as we launch the DenerveX System in Europe. Through September 30, 2017, we have paid approximately $1,820,000 to Devicix.
In November 2014, we selected Nortech Systems Inc. (“Nortech”), a Minneapolis, Minnesota based FDA registered contract manufacturer, to produce test DenerveX devices from the prototype supplied by Devicix for use in final development and non-clinical testing. The agreement with Nortech includes agreed upon per unit prices for delivery of the devices. Actual work on development of the final units began in November 2014. Through September 30, 2017, we have paid approximately $891,000 to Nortech. We are now in commercial production.
Also in November 2014, we engaged Bovie Medical Corporation (“Bovie”), a Delaware Corporation, to develop the Electro Surgical Generator and provide post production support services. Per our agreement with Bovie, we are invoiced based on deliverables produced by Bovie, which was originally supposed to amount to $295,000 upon completion of all the deliverables. Through September 30, 2017, we have paid approximately $422,000 to Bovie for production services. The original $295,000 agreement was a base number along the pathway of development. Additional requirements were incurred as the research and development process progressed and as a result certain prices increased and additional costs were incurred to further customize the DenerveX System. We are also in production manufacturing on the generator.
joint venture. The Company has completedimplemented the final stagestransition into a biologics and therapeutic device incubator company to bring new technologies to market.
The consolidated results for H-CYTE include the following wholly-owned subsidiaries: H-CYTE Management, LLC, Medovex Corp, Cognitive Health Institute, LLC, and Lung Institute Tampa, LLC and the results include Lung Institute Dallas, LLC (“LI Dallas”), Lung Institute Nashville, LLC (“LI Nashville”), Lung Institute Pittsburgh, LLC (“LI Pittsburgh”), and Lung Institute Scottsdale, LLC (“LI Scottsdale”), as Variable Interest Entities (“VIEs”). Additionally, H-CYTE Management, LLC was the operator and manager of the developmentvarious Lung Health Institute (LHI) clinics: LI Dallas, LI Nashville, LI Pittsburgh, and verificationLI Scottsdale. The LI Dallas and LI Pittsburgh clinics did not reopen in 2020 after the temporary closure of all LI clinics due to COVID-19. During the first quarter of 2022, the Company decided to close the LI Tampa and LI Nashville clinics. During the second quarter of 2022, the Company closed the LI Scottsdale clinic. All LHI clinics are closed as of March 31, 2023.
As of March 31, 2023, the Company has closed all of the DenerveX DeviceLHI clinics and has moved away from the DenerveX Pro-40 power generatorInfusion Division as a system.
Additionally, the company has tested the DenerveX System in an extensive living tissue model under very strict Good Laboratory Practice Standards to measure, verify, and establishpart of its effectiveness for performance as a system. Other testing will include device sterilization, shelf life verification and shipping and performance testing to very specific standards.
The DenerveX System (the DenerveX Device and the DenerveX Pro-40 generator) was successfully tested as a system by SGS, a world leader in safety performance testing, and received certification of compliance in January 2017. SGS, a highly respected testing and verification firm, tested the DenerveX System using an extensive set of testing standards.
Regulatory Approval
future plans. The Company received CE marking in June 2017has transformed into a medical biosciences incubator focusing on bringing new biologics and therapeutic device technologies to market for the DenerveX System. It can now be sold throughout the European Union and countries that accept CE Mark. In the future, the Company will seek marketing clearance from the FDA for commercialization of the DenerveX System in the US.various health conditions.
Aside from the European Union, we may seek regulatory approval for commercialization of the DenerveX System from Columbia, Peru, Argentina, Mexico, Turkey, Israel, New Zealand, Australia and other countries. The documentation required to accompany the CE Mark to obtain regulatory approval in the aforementioned countries may include copies of the ISO 13485 certification, the SGS certificate of approval and a statement of Good Manufacturing Practices (“GMP”).
First Sales of the DenerveX System
Following receipt of the CE mark certificate in June 2017, we subsequently received the first commercial orders of the DenerveX System from multiple distributors in Europe and performed the DenerveX procedure on patients clinically.
Critical Accounting Policies and Estimates
OurThe Company’s discussion and analysis of ourits financial condition and results of operations are based on our condensedits consolidated financial statements, which we have been prepared in accordance with United States generally accepted accounting principles. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below.
We baseThe Company bases our estimates on historical experience and on various other factors that we believeit believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in more detail in the notes to our consolidated financial statements for the fiscal year ended December 31, 2016, included in the Company’s Annual Report on Form 10K.
Factors Which May Influence Future Results of Operations - Three months Ended March 31, 2023 and 2022
The following is a description of factors that may influence our future results of operations, and that we believe are important to an understanding of our business and results of operations.
Revenue;Revenue, Cost of RevenueSales and Gross Profit
The Company’s first sale of the DenerveX System occurred in July 2017. WeCompany recorded revenue of approximately $0 and $380,000 for the three and nine months ended September 30, 2017 of $117,277.March 31, 2023 and 2022, respectively.
For the three months ended March 31, 2023 and 2022, the Company generated a gross profit totaling approximately $0 and $293,000, respectively. The Company sellshas closed all of the DenerveX System through a combinationLHI Clinics, which was the Company’s only source of direct sales and independent distributors in international markets.revenue. The Company recognizes revenue at the time product is shippedhas transformed itself into a biologics and therapeutic device incubator company to customers from the third-party distribution warehouse in Berlin, Germany. We believe this action satisfies the performance obligation as outlined inbring new revenue recognition standards.technologies to market.
The DenerveX Device is manufactured by Nortech in Minneapolis, MN and subsequently shipped to the third-party warehouse in packages of five units per one package. Our independent distributors then order the DenerveX Devices as single units at specified prices as outlined in their distribution agreements. The international distribution agreements also specify the pricing for which the independent distributor is to sell the DenerveX Device to their end-user customers.
The Pro-40 Generator is manufactured in Bulgaria and shipped to the third-party warehouse as single units. The generators are typically provided for use to customers at no cost, however, demo units can be purchased by customers for which the Company records in revenue.
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Our independent distribution customers place initial purchase orders for minimum stocking quantities of both the DenerveX Devices and Pro-40 Generators as agreed upon per their signed international distribution agreements. Subsequent stocking orders are required to be placed initially at specified dates and quantities based upon projected end-user sales volumes. Stocking orders thereafter are required to be placed quarterly based off actual end-user sales volumes.
Cost of sales as a percentage of revenue was approximately 82% resulting in a gross profit margin of approximately 18%.
Operating Expenses
We classify our operating expenses into four categories: researchSalaries and development, sales and marketing, general and administrative, and depreciation and amortization.Related Costs
Research and Development Expenses
Research and development costs and expenses consist primarily of fees paid to external service providers, laboratory supplies, costs for facilities and equipment, and other costs for regulatory, patent, and research and development activities. For the three and nine months ended September 30, 2017,March 31, 2023 and 2022, the Company incurred approximately $70,000$165,000 and $462,000, respectively,$347,000 in researchsalaries and development expenses. For the threerelated costs, respectively. The decrease in salaries and nine months ended September 30, 2016, the Company incurred approximately $396,000 and $772,000, respectively, in research and development expenses.
Research and development expenses are recorded in operating expenses in the period in which they are incurred. Estimates have been used in determining the liability of certainrelated costs where services have been performed but not yet invoiced.
We monitor levels of performance under each significant contract for external service providers, including the extent of patient enrollment and other activities through communications with the service providers to reflect the actual amount expended.
General and Administrative Expenses
For the three and nine months ended September 30, 2017, the Company incurred approximately $477,000 and $1,394,000, respectively, in personnel costs. For the three and nine months ended September 30, 2016, the Company incurred approximately $392,000 and $1,189,000, respectively, in personnel costs. The increase in personnel costs is the result of having hired a Senior Vice President of Regulatory and Clinical affairs in November 2016 and also a Manager of Quality in December 2016.
Professional fees were approximately $381,000 and $1,182,000, respectively, for the three and nine months ended September 30, 2017. Professional fees were approximately $309,000 and $1,102,000, respectively, for the three and nine months ended September 30, 2016.
Professional fees consist primarily of accounting, legal, patent and public company compliance costs as well as regulatory costs incurred to obtain CE Mark in Europe.
Travel expenses were approximately $86,000 and $188,000, respectively, for the three and nine months ended September 30, 2017. Travel expenses were approximately $50,000 and $130,000, respectively, for the three and nine months ended September 30, 2016.
We anticipate that our general and administrative expenses will continue at a comparable rate in the future to support clinical trials, commercialization of our product candidate and continued costs of operating as a public company.
Sales and Marketing Expenses
For the three and nine months ended September 30, 2017, the Company incurred approximately $217,000 and $450,000, respectively, in sales and marketing expenses. For the three and nine months ended September 30, 2016, the Company incurred approximately $107,000 and $166,000, respectively, in sales and marketing expenses. Sales and marketing expense consists primarily of fees paid to vendors for tradeshows and consultants in correlation with the launch and commercialization of the DenerveX System in Europe. We expect these expenses will continue to increase as we launch the product in new markets and expand penetration in existing markets.
Depreciation and Amortization
Depreciation and amortization expense are recorded in the period in which they are incurred. The Company recognized approximately $7,000 and $20,000, respectively, in depreciation expense for the three and nine months ended September 30, 2017. The Company recognized approximately $2,000 and $6,000, respectively, in depreciation expense for the three and nine months ended September 30, 2016. The purchase of a trade show booth for sales and marketing conventions in Europe at the end of 2016 is largely attributable to the increase as depreciation expense in 2017.
For the three and nine months ended September 30, 2016, the Company recognized approximately $0 and $190,000, respectively, in amortization expense. Amortization expense is a result of amortizing the intangible assets acquired in the Streamline acquisition in March 2015. Amortization expense is included in the total loss from discontinued operations for the three and nine months ended September 30, 2016.
Results of Continued Operations
Three and Nine Months Ended September 30, 2017 Compared to the Three and Nine Months Ended September 30, 2016
Total operating expenses decreased approximately $350,000, or 20%, to approximately $1,386,000 for the three months ended September 30, 2017,March 31, 2023, as compared to the prior year, is due to the adjustments to the Company’s corporate structure by reducing expenses as part of the transition into a biologics and therapeutic incubator company to bring new technologies to market. As of March 31, 2023, due to lack of financial resources, the Company has incurred $340,000 in unpaid salaries and wages.
Other General and Administrative
For the three months ended March 31, 2023 and 2022, the Company incurred approximately, $1,736,000$214,000 and $510,000, in other general and administrative costs, respectively. The Company adjusted its corporate structure by reducing expenses as part of the transition into a biologics and therapeutic incubator company to bring new technologies to market.
Other Income/Expense
For the three months ended March 31, 2023 and 2022, the Company incurred approximately $1,522,000 and $0 in day one loss expense related to the convertible notes payable carried at fair value.
For the three months ended March 31, 2023 and 2022, interest expense was approximately $150,000 and $72,000 respectively.
For the three months ended March 31, 2023 and 2022, the Company incurred approximately $0 and $3,025,000 in inducement expense related to the warrant inducement.
Funding Requirements
The Company has historically incurred losses from operations and expects to continue to generate negative cash flows as the Company implements its business plan to focus on acquiring and developing early-stage companies or their technologies in the areas of therapeutics, medical devices, and diagnostics. The Company will need to raise cash from debt and equity offerings to continue its operations. There can be no assurance that the Company will be successful in doing so.
Liquidity, Going Concern, and Sources of Liquidity
The Company incurred net losses of approximately $2,090,000 and $3,892,000 for the three months ended September 30, 2016.March 31, 2023 and 2022, respectively. The Company has historically incurred losses from operations and expects to continue to generate negative cash flows as it implements the transition into a biologics and therapeutic incubator company to bring new technologies to market. The consolidated financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) as applicable to a going concern.
Total operating expenses decreased approximately $6,318,000, or 59%, to approximately $4,466,000 for the nine months ended September 30, 2017, as compared to approximately $10,784,000 for the nine months ended September 30, 2016. The significant decrease is the result of the goodwill impairment lossCompany had cash on hand of approximately $6,456,000 that was recognized in June 2016 with the write-down$116,000 as of the Streamline related intangible assets. Impairment charges aside, total operating expenses would have approximated $4,329,000 for the nine months ended September 30, 2016, resulting in an increaseMarch 31, 2023 and approximately $4,000 as of approximately $138,000, or 3%, for the nine months ended September 30, 2017.
Without the impairment charges, total operating expenses for the nine-month period ending September 30, 2017 were more comparable to the prior year for the same period.May 19, 2023. The hiring of two employees at the beginning of 2017 is attributable to the increase as salaries and wages expense increased. Research and development expenses decreased significantly as we completed the final stages of the development and verification of the DenerveX System and applied for CE Mark certification. However, the reduction in research and development costs were similarly offset with an increase in Sales & Marketing expenses as we entered commercial production of the DenerveX System. We continued to incur similar costs associated with being a public entity.
Results of Discontinued Operations
Our discontinued operations generated net losses of approximately $1,000 and $2,040,000, respectively, for the nine months ended September 30, 2017 and 2016.
Funding Requirements
We anticipate our cash expenditures will remain consistent as we continue to operate as a publicly traded entity and as we move forward with the recent commercialization of the DenerveX System onto clinical trial studies. We expect future cash flow expenditures to increase if the FDA requires a de novo regulatory path, instead of a 510(k) approval.
To the extent our availableCompany’s cash is insufficient to satisfy our long-term operating requirements, we will needfund its operations over the next year and the Company is currently working to seekobtain additional sources of funds from the sale ofdebt or equity or debt securities or through a credit facility, or we will needfinancing to modify our current business plan. help support short-term working capital needs.
There can be no assurancesassurance that wethe Company will be able to obtainraise additional financing on commercially reasonablefunds or that the terms if at all.
The saleand conditions of additional equity or convertible debt securities would likely result in dilution to our current stockholders.
Going Concern
Our independent registered public accounting firm has included an explanatory paragraph with respect to our ability to continue as a going concern in its report on our consolidated financial statements for the years ended December 31, 2016 and 2015. The presence of the going concern explanatory paragraph suggests that we may not have sufficient liquidity or minimum cash levels to operate the business. Since our inception, we have incurred losses and anticipate that we will continue to incur losses until our products can generate enough revenue to offset our operating expenses. We received approximately $2,618,000 of net proceeds in a private placement of common stock in February 2017. We also received approximately $2,469,000 of net proceeds from another private placement of common stock in July 2017. We believe these fundsany future financings will be sufficientworkable or acceptable to maintain uninterrupted operations while we pursue our near term operational plans and pursue other fund-raising initiatives that will be required in 2017. No assurances can be provided regarding the success of such efforts. Furthermore, ifCompany or its shareholders. If the Company is unable to raise sufficient financing in 2017, it couldfund its operations from existing cash on hand, operating cash flows, additional borrowings, or raising equity capital, the Company may be requiredforced to undertake initiativesdiscontinue operations. The consolidated financial statements do not include any adjustments relating to conserve its capital resources. If we are required to conserve resourcesthe recoverability and classification of recorded asset amounts or curtail production, there couldthe amounts and classification of liabilities that might be substantial doubt aboutnecessary should the Company’s abilityCompany be unable to continue as a going concern.
Liquidity
On February 24, 2023, the Company and Capital Resources
Since our inception, we have incurred lossescertain investors entered into Securities Purchase Agreements (the “SPA”), whereby the Company sold and anticipate that we will continueissued to incur losses in the foreseeable future.
While we expect our research and development costs for the DenerveX System to dissipate, we also anticipate increased expenditures for clinical trials to obtain FDA approvalcertain investors an aggregate of three hundred thousand dollars ($300,000) of the DenerveX System as well as expenses relatedCompany’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $0.001 par value (“Common Stock”). In connection with the aforementioned Notes, the Company also issued to the commercial launchinvestors a warrant to purchase (the “Purchase Warrant”) a certain number of shares of Common Stock, which are equal to 20% of the DenerveX system. We will need additional cashshares of Common Stock issuable upon conversion of the Note, based on a price of $2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to fully fund these activities.terminate earlier, the offering and the sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company has the option to extend this offering to June 30, 2023.
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The Notes have a maturity date of the earlier of (i) one year from issuance; or (ii) upon the closing of a qualified offering. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s Common Stock at a conversion price equal to a 20% discount to the offering price.
Sources
Further, in connection with the February 2023 SPA, the Company also issued Common Stock Purchase Warrants to certain investors, which are exercisable on or prior to the close of Liquiditybusiness on the five (5) year anniversary of the initial issue date, to purchase up to a certain amount of shares of Common Stock, with 20% of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company, dated February 24, 2023. The Company issued Warrants to purchase an aggregate of 30,000 shares of Common Stock. The exercise price per share of the Common Stock under this Warrant is $2.00.
Equity
On February 9, 2017,28, 2023, the Company entered into a Unitsecurities purchase agreement for a total of $150,000 with an accredited investor. The note issued is convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The note bears interest at 10% and is due one year from issuance. For the first six months, the Company has the right to prepay the note at a premium of between 25% and 40% depending on when it is repaid.
On March 27, 2023, the Company and three related party investors entered into Securities Purchase Agreement with selected accredited investorsAgreements (the “SPA”), whereby, the Company hadsold and issued to the rightcertain investors, an aggregate of one hundred twenty five thousand dollars ($125,000) of the Company’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $0.001 par value (“Common Stock”). On April 12, 2023, the Company and an additional investor entered into the SPA, whereby, the Company sold and issued an aggregate of thirty five thousand dollars ($35,000) of the Company’s Notes. In connection with the aforementioned Notes, the Company also issued to sell inthe investors warrants to purchase (the “Purchase Warrant”) a private placementcertain number of shares of Common Stock, which are equal to 20% of the shares of Common Stock issuable upon conversion of the Note, based on a minimum of $3,000,000 and up to a maximum of $5,000,000 of units. Each Unit had a purchase price of $100,000$2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to terminate earlier, the offering and consistedthe sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company has the option to extend this offering to June 30, 2023.
The March 27, 2023 Notes have a maturity date of the earlier of (i) 96,154one year from issuance; or (ii) upon the closing of a qualified offering. The April 12, 2023 Note has a maturity date 60 days from issuance. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum, and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s common stock, par value $0.001 per shareCommon Stock at a purchaseconversion price of $1.04 per share, and (ii)equal to a warrant to purchase 48,077 shares of common stock. Each warrant has an initial exercise price of $1.50 per share and is exercisable for a period of five (5) years from the date of issuance.
The offering resulted in gross proceeds of $3,022,000 and resulted in the issuance of an aggregate of 1,631,730 shares of common stock, 12,740 shares of Series A Preferred Stock and warrants to purchase 2,005,761 shares of common stock. The placement agent collected an aggregate of approximately $350,000 in total fees related20% discount to the offering price.
Further, in connection with the March 2023 and warrantsApril 2023 SPA, the Company also issued Common Stock Purchase Warrants to certain investors, which are exercisable on or prior to the close of business on the five (5) year anniversary of the initial issue date, to purchase up to a certain amount of shares of Common Stock, with 20% of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company. The Company issued Warrants to purchase an aggregate of 405,57712,500 shares of common stock at aCommon Stock. The exercise price of $1.50 per share.
Each share of Series A Preferredthe Common Stock may be converted into shares of fully paid and non-assessable shares of common stock at a rate of one hundred shares of the Company’s common stock for every share of Series A Preferred Stock.under this Warrant is $2.00.
On July 14, 2017, the Company entered into a Securities Purchase Agreement with selected accredited investors whereby the Company sold an aggregate of 2,956,043 shares of common stock and 1,478,022 warrants to purchase common stock. The Offering resulted in $2,469,000 in net proceeds to the Company. The common stock shares were sold at $0.91 per share which was the closing price of the Company’s common stock on July 13, 2017, the day prior to the agreement. Each warrant has an exercise price of $1.15 and is exercisable for a period of five years commencing six months from the date of issuance.
Debt
On February 9, 2017, the Company’s $1,150,000 short-term note payable was converted into an aggregate of 165,865 shares of common stock and 9,399 shares of Series A Preferred Stock, eliminating the Company’s debt obligation. The debt was converted into shares at $1.04 per share, which was the offering price of the Company’s stock in the February private placement. The Series A Preferred Stock is convertible into shares of common stock at $1.04 per share.
Each share of Series A Preferred Stock may be converted into shares of fully paid and non-assessable shares of common stock at a rate of one hundred shares of the Company’s common stock for every share of Series A Preferred Stock.
As consideration for converting the debt, the noteholders’ agreed to receive common stock in lieu of the 200,000 warrants to purchase common stock that were issued in conjunction with the short-term loan, see Note 7 of the condensed consolidated financial statements.
As a result, the 200,000 warrants were cancelled, and the Company issued to the noteholders’ an aggregate of 200,000 shares of common stock. The closing price of the Company’s stock on February 9, 2017, the day the shares were issued, was $1.04 per share. The fair value of the common stock issued was approximately $208,000.
| Working Capital Surplus (Deficit) | September 30, 2017 | December 31, 2016 | ||||||
| Current Assets | $ | 2,504,000 | $ | 1,258,000 | ||||
| Current Liabilities | 536,000 | 1,851,000 | ||||||
| Working Capital Surplus (Deficit) | $ | 1,968,000 | $ | (593,000) | ||||
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Cash Flows
Cash activity for the ninethree months ended September 30, 2017March 31, 2023 and 2016December 31, 2022 is summarized as follows:
| Nine Months Ended September 30, | ||||||||
| 2017 | 2016 | |||||||
| Cash used in operating activities | $ | (3,922,000 | ) | $ | (4,010,000 | ) | ||
| Cash used in investing activities | (15,000 | ) | (6,000 | ) | ||||
| Cash provided by financing activities | 4,975,000 | 3,360,000 | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | 1,038,000 | $ | (656,000 | ) | |||
Working Capital Deficit
| As Of | ||||||||
| March 31, 2023 | December 31, 2022 | |||||||
| Current Assets | $ | 303,297 | $ | 83,845 | ||||
| Current Liabilities | 9,659,963 | 7,476,893 | ||||||
| Working Capital Deficit | $ | (9,356,666 | ) | $ | (7,393,048 | ) | ||
Cash Flows
Cash activity for the three months ended March 31, 2023 and 2022 is summarized as follows:
| Three months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash used in operating activities | $ | (361,993 | ) | $ | (884,259 | ) | ||
| Cash provided by financing activities | 478,004 | 1,130,371 | ||||||
| Net increase (decrease) in cash | $ | 116,011 | $ | 246,112 | ||||
As of September 30, 2017,March 31, 2023, the Company had approximately $1,931,000$116,000 of cash on hand.
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Off-Balance Sheet Arrangements
We doThe Company does not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4) during the periods presented, investments in special-purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.
Contractual Obligations and Commercial Commitments
The Company has long term contractual obligations for the two promissory notes issued to the Bank of North Dakota New Venture Capital Program and North Dakota Development Fund. Both Notes from the Bank of North Dakota New Venture Capital Program and North Dakota Development were assumed in conjunction with the consummation of the Streamline acquisition on March 25, 2015, and require combined monthly principal and interest payments of $5,661 into the third quarter of 2019.
The Company rents commercial office space in Alpharetta, GA. Base annual rent is currently set at $2,849 per month and the lease term ends July 31, 2018.
The Company also currently reimburses its CEO, Jarrett Gorlin, for the lease of executive office space at a cost of $2,147 per month, which it believes is at fair market value.
The Company has a consulting agreement with Lifeline Industries Inc., a related party, at a monthly fee of $10,000 through February 9, 2018.
The Company has consulting agreements with three sales, marketing, and distribution consultants in Europe who provide consulting services for aggregate compensation amounting to approximately €27,500 per month. The consulting agreements, while subject to modifications, commenced at separate dates and will also terminate at separate dates through April 2019.
The Company also has employment agreements with the executive officers that commit the Company to a six month severance and benefits package if those employees separate under certain conditions, including a change in control of the Company.
The Company has a distribution center agreement with a logistics service provider in Berlin, Germany pursuant to which they shall manage and coordinate the DenerveX System products which the Company exports to the EU through June 2019. The Company pays a fixed monthly fee of €2,900 for all accounting, customs declarations and office support, and a variable monthly fee ranging from €1,900 to €6,900, based off volume of shipments, for logistics, warehousing and customer support services.
Nasdaq Delisting
In August 2016, the Company received a letter from Nasdaq Markets for non-compliance with their listing rule 5550(b), which requires a minimum $2,500,000 stockholders’ equity for continued listing on the Nasdaq Capital Market (the “Minimum”). In February 2017, the Company completed a private offering which resulted in stockholders’ equity in excess of the Minimum; however, in its March 31, 2017 Form 10-Q, the Company again reported less than $2,500,000 in stockholders’ equity. In May 2017, the Company received another letter from Nasdaq notifying the Company of non-compliance and its intent to delist MedoveX stock from trading on its exchange. The Company appealed this decision. The Nasdaq Appeals Panel gave the Company until November 13, 2017, to report a shareholders’ equity number of sufficient amount to not only meet the Minimum, but large enough to ensure the Company would not go below the threshold again in the coming year based on projected expenses.
At September 30, 2017, the Company’s stockholder equity was less than the Minimum. The Company was unable to secure investment at reasonable terms and at an amount sufficient to satisfy the conditions set by the Nasdaq Appeals Panel by their deadline of November 13, 2017. On November 14, 2017, the Company received notice from Nasdaq that the Company stock would no longer trade on its exchange after November 15, 2017. The Company applied to OTC Markets to trade on its OTCQB exchange, and the Company’s stock began trading on that exchange on November 16, 2017.
Changes in Board of Directors
On August 16, 2017 the Company received a resignation letter from Mr. Steve Gorlin from his position as a director and Co-Chairmen of the Board of Directors of the Company. There were no disagreements between Mr. Gorlin and the Company.
On August 16, 2017, the Company appointed Mr. Jesse Crowne to fill Mr. Gorlin’s vacancy and to serve as a director and Co-Chairman of the Company’s Board of Directors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
OurWe maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, assessedincluding our principal executive officer and principal accounting officer, as appropriate to allow timely decisions regarding disclosure.
The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of March 31, 2023. In designing and evaluating the Company’s disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives, and the Company necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2023, due to the lack of working capital, the Company’s disclosure controls and procedures were not as effective as desired because of the material weakness in our internal control over financial reporting as discussed below, and as a result, the Company engaged consultants, implemented a number of September 30, 2017. In makingnew entity and process level controls and installed a new accounting software system to help mitigate this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) inInternal Control-Integrated Framework. Based on our assessment, management concluded that amaterial weakness.
A material weakness existedis a deficiency, or combination of deficiencies, in internal control over financial reporting, andsuch that there is a reasonable possibility that a material misstatement of our disclosure controls. To achieve proper segregationannual or interim financial statements will not be prevented or detected on a timely basis. In our assessment of accounting related duties, the Company hired additional staff subsequent to September 30, 2017, to whom duties have been allocated so this material weakness can be corrected.
Changes in Internal Control Over Financial Reporting
During the quarter ended September 30, 2017, there were no changes in oureffectiveness of internal control over financial reporting as of March 31, 2023, we determined that materially affected, or that are reasonably likelyinternal control deficiencies relating to materially affect, oura lack of segregation of duties and knowledge related to more complex accounting transactions still exist. Management believes these deficiencies mainly relate to the Company employing a limited number of accounting and finance personnel. The aggregation of these deficiencies is considered to be a material weakness in internal control over financial reporting.
In light of the conclusion that our disclosure controls and procedures were ineffective as of March 31, 2023, we have applied additional procedures and processes as necessary to ensure the reliability of our financial reporting in regard to this quarterly report. Accordingly, the Company believes, based on its knowledge, that: (i) this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading with respect to the period covered by this report; and (ii) the financial statements, and other financial information included in this quarterly report, fairly present in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in this quarterly report.
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PART II – OTHER INFORMATION
We are not a party to any pending legal proceeding, norThe Company is our property the subject of a pending legal proceeding. None of our directors, officers or affiliates are involved in a proceeding adverse to our business orlawsuit with Sinclair Broadcast Group, Inc. (“Sinclair”) which was filed on September 8, 2020, in the Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough County, Florida. Sinclair has obtained a materiallegal judgment for breach of contract for advertising services in the amount of approximately $75,000 plus interest adverse to our business.and costs. The Company has retained legal counsel for guidance in this matter. The amount is recorded in accounts payable as of March 31, 2023.
The Company is involved in a lawsuit with ITN Networks, LLC (“ITN”) which was filed on July 22, 2021, in the Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough County, Florida. ITN has obtained a legal judgment for breach of contract for advertising services in the amount of approximately $45,000 plus interest and costs. The Company has retained legal counsel for guidance in this matter. The amount is recorded in accounts payable as of March 31, 2023.
We are a smaller reporting company as defined by 17 CFR 229.10(f)(1). Thus, we are not required to provide information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In conjunction with the Company’s offering in July 2017, the Company issued an aggregate of 1,478,022 warrants pursuant to the exemption set forth in Regulation D.None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
Not applicable.
The exhibits listed in the accompanying Exhibit Index are filed, furnished or incorporated by reference as part of this Quarterly Report on Form 10-Q.
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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.
Date: November 20, 2017May 22, 2023
| By: | /s/ | |
Chief Executive Officer (Principal Executive Officer) | ||
| By: | /s/ | |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||
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EXHIBIT INDEX
| 31.1 | Section 302 Certification of Principal Executive Officer* | |
| 31.2 | Section 302 Certification of Principal Financial Officer* | |
| 32.1 | Section 906 Certification of Principal Executive Officer and Principal Financial Officer*** | |
| 101.INS | Inline XBRL Instance Document ** | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document ** | |
| 101.CAL | Inline XBRL Taxonomy Calculation Linkbase Document ** | |
| 101.LAB | Inline XBRL Taxonomy Labels Linkbase Document ** | |
| 101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document ** | |
| 101.DEF | Inline XBRL Definition Linkbase Document ** | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
| * | Filed herewith. |
| ** | Pursuant to Rule 406T of Regulation S-T adopted by the SEC, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise are not subject to liability under these sections. |
| *** | This certification is being furnished solely to accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, and it is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing. |
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