UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31,June 30, 2019

or

For the transition period from ___________ to ____________

Commission file number: 001-36763

MEDOVEX CORP.H-CYTE, INC

(Exact Name of Registrant as Specified in Its Charter)

(844) 633-6839

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically 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

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

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 May 8,August 12, 2019, 94,732,24698,886,413 shares of the registrant’s common stock were outstanding.

MEDOVEX CORP.H-CYTE, INC AND SUBSIDIARIES

TABLE OF CONTENTS

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 our 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:

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 believe that we have 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 us and our projections of the future, about which we 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, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our 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 us, or any other person, that we will achieve our objectives and plans in any specified time frame, or at all. We do 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.

The “Risk Factors” included in the Company’s Annual Report on Form 10-K reflect the “Risk Factors” of H-CYTE (formerly MedoveX) business and do not include information relative to Regenerative Medicine Solutions, LLC, RMS Shareholder, LLC (“Shareholder”), Lung Institute LLC (“LI”), RMS Lung Institute Management LLC (“RMS LI Management”) and Cognitive Health Institute Tampa, LLC (“CHIT”), (collectively “RMS”).

MEDOVEX CORP.H-CYTE, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

See accompanying notes to the unaudited condensed consolidated financial statements

MEDOVEX CORP.H-CYTE, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See accompanying notes to the unaudited condensed consolidated financial statements

MEDOVEX CORP.H-CYTE, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the three and six months ended March 31,June 30, 2019

(UNAUDITED)

See accompanying notes to the unaudited condensed consolidated financial statements

MEDOVEX CORP.H-CYTE, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See accompanying notes to the unaudited condensed consolidated financial statements

MEDOVEX CORP.H-CYTE, INC

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Description of the Company

MedoveX Corp. (the “Company” or “MedoveX”) was incorporated in Nevada onOn July 30, 2013 as SpineZ11, 2019, Medovex Corp. (“SpineZ”MedoveX”) and changed its namenamed to MedoveX Corp. on March 20, 2014. MedoveX is“H-CYTE, Inc.” (H-CYTE or the parent companyCompany) by filing a Certificate of Debride Inc. (“Debride”Amendment (the “Amendment”), which was incorporated under to the lawsCompany’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) with the Secretary of the State of FloridaNevada. The name change and the Company’s new symbol, HCYT, became effective with FINRA 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 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”) in the United States. The Company is presently reevaluating its approaches to revenue generation including the continuing use of distribution channels.15, 2019.

On October 18, 2018, MedoveXH-CYTE (formerly named MedoveX) entered into an Asset Purchase Agreement with Regenerative Medicine Solutions, LLC, RMS Shareholder, LLC (“Shareholder”), Lung Institute LLC (“LI”), RMS Lung Institute Management LLC (“RMS LI Management”) and Cognitive Health Institute Tampa, LLC (“CHIT”), (collectively “RMS”). On January 8, 2019, the Asset Purchase Agreement was amended and the Company acquired certain assets and assumed certain liabilities of RMS as reported in the 8-K/A filed in March of 2019. Based on the terms of the Asset Purchase Agreement and its amendment, the former RMS members had voting control of the combined company as of the closing of the RMS acquisition. For accounting purposes, the acquisition transaction has been treated as a reverse acquisition whereby the Company is deemed to have been acquired by RMS and the historical financial statements prior to the acquisition date of January 8, 2019 now reflect the historical financial statements of RMS.

Prior to the merger of H-CYTE and RMS was incorporatedon January 8, 2019, the consolidated results for H-CYTE included the financial activities of Regenerative Medicine Solutions, LLC, LI, RMS Nashville, LLC (“Nashville”), RMS Pittsburgh, LLC (“Pittsburgh”), RMS Scottsdale, LLC (“Scottsdale”), RMS Dallas, LLC (“Dallas”), State, LLC (“State”), CHIT, RMS LI Management, and Shareholder, H-CYTE included Lung Institute Dallas, PLLC (“LI Dallas”), Lung Institute Nashville, PLLC (“LI Nashville”), Lung Institute Pittsburgh, PLLC (“LI Pittsburgh”), and Lung Institute Scottsdale, LLC (“LI Scottsdale”), as VIEs.

As of the merger, the consolidated results for H-CYTE include the following wholly-owned subsidiaries: Debride Inc., Blue Zone Health Management, LLC (“BZHM”, changed in Delaware on December 26, 2012.July to H-CYTE Management, LLC), Cognitive Health Institute, LLC, and Lung Institute Tampa, LLC (formerly Blue Zone Lung Tampa, LLC). Additionally, H-CYTE has consolidated LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale, as VIEs.

The Company’s RMS division is a healthcare medical biosciences company that develops and implements advanceadvanced innovative treatment options in regenerative medicine to treat an array of debilitating medical conditions. In addition, the company is the operator and manager of the various Lung Health Institute clinics. Committed to an individualized patient-centric approach, RMS consistently provides oversight and management of the highest quality care while producing positive outcomes. RMS offices are located in Tampa, Florida. The Lung Health Institute located in Tampa, Florida is a wholly owned subsidiary of RMS. RMS also provides oversight and management to the Lung Health Institutes located in Nashville, TN, Scottsdale AZ, Pittsburgh, PA, and Dallas, TX.

On May 10, 2019, the Company’s board of directors authorized a change in the Company’s name to H-Cyte, Inc. The Company is also in the processbusiness of takingdesigning and marketing proprietary medical devices for commercial use in the necessary stepsUnited 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 other countries that accept CE marking. The Company’s first sale of the DenerveX System occurred in July 2017. The Company plans to effectuate this name change.seek approval for the DenerveX System from the Food & Drug Administration (“FDA”) in the United States. The Company is presently reevaluating its approaches to revenue generation including the continuing use of its distribution channels and source of manufacturing.

Note 2 – Basis of presentation and Summary of Significant Accounting Policies

Based on the terms of the Asset Purchase Agreement and its amendment, the former RMS members had voting control of the combined company as of the closing of the RMS acquisition. RMS is deemed to be the acquiring company for accounting purposes and the transaction is accounted for as a reverse acquisition under the acquisition method of accounting for business combinations in accordance with accounting principles generally accepted in the United States.States (“U.S. GAAP”). The assets acquired and the liabilities assumed of RMS included as part of the purchase transaction are recorded at historical cost. Accordingly, the assets and liabilities of MedoveXH-CYTE are recorded as of the merger closing date at their estimated fair values. See(See Note 3.)

Further, the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Consolidated Statements of Stockholders’ Equity (Deficit), and the Condensed Consolidated Statements of Cash FlowFlows do not reflect the historical financial information related to MedoveXH-CYTE prior to the merger. The Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Consolidated Statements of Stockholders’ Equity (Deficit), and the Condensed Consolidated Statements of Cash FlowFlows only reflect the historical financial information related to RMS prior to the merger. For the Consolidated StatementStatements of Stockholders’ Equity (Deficit), the common stock, preferred stock, and additional paid in capital reflect the accounting for the stock received by the RMS members as of the merger as if it was received as of the beginning of the periods presented. For theThe Consolidated StatementStatements of Stockholders’ Equity (Deficit), the schedule in the Financial Statements reflects the activity from March 31, 2019 to June 30, 2019 and December 31, 2018 to March 31,June 30, 2019. For the comparable period from December 31, 2017 to March 31,June 30, 2018, the only activity in the Consolidated Statement of Stockholders’ Equity (Deficit) waswere the losslosses of $897,200approximately $362,722 and $1,259,922 for the three and six months ended March 31, 2018.June 30, 2018, respectively.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”)GAAP and with the rules and regulations of the Securities and Exchange Commission (“SEC”) 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 statements and, in the opinion of management, reflect all adjustments which included only normal recurring adjustments, necessary to present fairly the Company’s financial position as of March 31,June 30, 2019 and December 31, 2018 and the results of operations and cash flows for the three and six months ended March 31,June 30, 2019 and 2018.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, and notes thereto for the fiscal year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K. The December 31, 2018 financial information included in the Company’s Annual Report on Form 10-K reflect the historical financial information of H-CYTE business and do not include the RMS financial information. With the reverse merger, historical financial information for periods prior to the merger on January 8, 2019, presented in the comparative financial information included in the 2019 Form 10-Q, will only reflect the historical financial information related to RMS prior to the merger. (See Note 3.)

The results for the three and six months ended March 31,June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other interim period or for any future year.

principlesPrinciples of consolidationConsolidation

Accounting principles generally accepted in the United States of America (U.S. GAAP) requireU.S. GAAP requires that a related entity be consolidated with a company when certain conditions exist. An entity is considered to be a variable interest entity (VIE) when it has equity investors who lack the characteristics of having a controlling financial interest, or its capital is insufficient to permit it to finance its activities without additional subordinated financial support. Consolidation of a VIE by the parentParent would be required if it is determined that the Parent will absorb a majority of the VIE’s expected losses or residual returns if they occur, retain the power to direct or control the VIE’s activities, or both.

Prior to the merger of MedoveXH-CYTE and RMS on January 8, 2019, the consolidated results for MedoveXH-CYTE include the financial activities of Regenerative Medicine Solutions, LLC, LI, RMS Nashville, LLC (“Nashville”), RMS Pittsburgh, LLC (“Pittsburgh”), RMS Scottsdale, LLC (“Scottsdale”), RMS Dallas, LLC (“Dallas”), State, LLC (“State”), CHIT, RMS Lung InstituteLI Management, LLC (“RMS LI MGMT”), and RMS Shareholder, LLC.Shareholder. Additionally, MedoveXH-CYTE has consolidated Lung InstituteLI Dallas, PLLC (“LI Dallas”), Lung Institute Nashville, PLLC (“LI Nashville”), Lung Institute Pittsburgh, PLLC (“and LI Pittsburgh”), and Lung Institute Scottsdale, LLC (“LI Scottsdale”), as VIEs.

As of the merger, the consolidated results for MedoveX includesH-CYTE include the following wholly-owned subsidiaries: Debride Inc., Blue Zone Health Management, LLC (“BZHM”), changed in July to H-CYTE Management, LLC), Cognitive Health Institute, LLC, and Lung Institute Tampa, LLC (formerly Blue Zone Lung Tampa, LLC.LLC). Additionally, MedoveXH-CYTE has consolidated LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale, as VIEs.

The accompanying condensed consolidated financial statements include the accounts of the parent, its wholly-owned subsidiaries, and its variable interest entities.VIEs.

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. Trade accounts receivable are stated net of an estimate made for doubtful accounts, if any. Management evaluates the adequacy of the allowance for doubtful accounts regularly to determine if any account balances will potentially be uncollectible. Customer account balances are considered past due or delinquent based on the contractual agreement with each customer. Accounts are written off when, in management’s judgment, they are considered uncollectible. At June 30, 2019 and December 31, 2018, management believes no allowance is necessary. For the three month period ended June 30, 2019, the Company recorded bad debt expense of approximately $60,000.

Goodwill And Intangibles

Goodwill is recorded at fair value and not amortized but is reviewed for impairment at least annually or more frequently if impairment indicators arise. Goodwill is evaluated for impairment by first performing a qualitative assessment to determine whether a quantitative goodwill test is necessary. If it is determined, based on qualitative factors, that the fair value is “more likely than not” less than the carrying amount or if significant changes related to the business have occurred that could materially impact fair value, a quantitative goodwill impairment test would be required. The Company can elect to forgoforego the qualitative assessment and perform the quantitative test.

If the carrying amount exceeds its fair value, “Step 1” is performed to determine if goodwill is impaired and to measure the amount of impairment loss to recognize, if any. This step compares the implied fair value of goodwill with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recognized in an amount equal to that excess.

The implied fair value of goodwill is determined by assigning the fair value to all the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The Company has elected to perform the annual impairment assessment for goodwill in the fourth quarter.

Intangibles acquired in a business combination are recorded at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over the estimated useful lives and are reviewed for impairment at least annuallywhenever events or more frequently if indicators of impairment arise.changes in circumstances indicate that the carrying value may be greater than fair value. The Company’s intangible assets are patents and related proprietary technology for the DenerveX System.

Leases

In February 2016, the Financial Accounting Standard Board (“FASB”) established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balanceon the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2019-01, Codification Improvements; ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations.

The Company has not entered into significant lease agreements in which it is the lessor; however, the Company does have lease agreements in which it is the lessee. Under ASCTopic 842, lessees are required to recognize a lease liability and right-of-use (“ROU”) asset for all leases (with the exception of short-term leases) at the lease commencement date. Effective January 1, 2019, the Company adopted this guidance, applied the modified retrospective transition method and elected the transition option to use the effective date as the date of initial application. The Company recognized the cumulative effect of the transition adjustment on the condensed consolidated balance sheet as of the effective date and did not provide any new lease disclosures for periods before the effective date. With respect to the practical expedients, the Company elected the package of transitional-related practical expedients and the practical expedient not to separate lease and non-lease components. At January 1, 2019, additional current lease liabilities of $475,000 and long-term lease liabilities of $713,000 with corresponding ROU assets of $1,167,000 were recognized based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

Other Receivables

Other receivables totaling approximately $82,000$66,000 at March 31,June 30, 2019 include receivables from the non-acquired Lung Institute, LLC to Lung Institute Tampa, LLC (formerly Blue Zone Lung Tampa, LLCTampa) for approximately $75,000$53,000 and approximately $7,000$9,000 reimbursement receivable.receivable for reimbursement of expenses from a joint study. The $75,000$53,000 receivable was a result of Lung Institute, LLC being a transitory entity for Blue Zone Lung Institute Tampa, LLC while general liability insurance wasand the merchant services accounts were being underwritten for Blue Zone Lung Tampa, LLC. The $75,000transferred. A portion of the $53,000 receivable totaling $20,000 was paid to Blue Zone Lung Institute Tampa, LLC in MayJuly 2019. Blue Zone Health Management other receivables totaling $7,000 are to be reimbursed on behalf of a study being completed by Cognitive Health Institute Tampa.

Revenue Recognition

The companyCompany recognizes revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board’s (“FASB”)FASB Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which requires that five basic criteriasteps be met beforecompleted to determine when revenue can be recognized: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation. We recordThe Company records revenue under ASC 606 at a single point in time, when control is transferred to the customer, which is consistent with past practice. The adoption of this standard did not have a material impact on the consolidated financial statements.

DenerveX System

The Company sells the DenerveX System through a combination of direct sales and independent distributors in international markets. The Company recognizes revenue when title to the goods and risk of loss transfers to customers, provided there are no material remaining performance obligations required of the Company or any matters of customer acceptance. The Company only records revenue when collectability is reasonably assured. Utilizing the five stepfive-step method outlined in Topic 606 to determine when revenue should be recognized, the Company’s policy is to recognize revenue when product is shipped to the customer, whether that customer is a distributor or an end user, as is the case in Germany.

Biomedical servicesServices

The biomedical services company (RMS) managesRMS wholly owns the Tampa, Florida Lung Health Institute (LHI). location and manages the other Lung Health Institute locations. The Lung Health Institute uses a standard pricing model for the types of cellular therapy treatments that is offered to its patients. The transaction price accounts for medical, surgical, facility, and office services rendered by LHI for consented procedures and is recorded as revenue. The company recognizes revenue when the terms of a contract with a patient are satisfied.

LHI offers two types of cellular therapy treatments to their patients. The first type of treatment includes medical services rendered typically over typically a two-day period in which the patient receives cellular therapy. For this treatment type, revenue is recognized in full at time of service. LHI also offers a four-day treatment in which medical services are rendered typically over typically a two-day period and then again, approximately three months later, medical services are rendered for an additional two-days of treatment. Payment is collected in full for both service periods at the time the first treatment is rendered. LHI recognizes 62.5% of the transaction price during the first-round visit and 37.5% of transaction price during the second round visit. Transaction priceRevenue is allocated pro-ratarecognized when services are performed based on the related professional, facility, and diagnostic services for each session of treatment. The Company has deferred recognition of revenue amounting to approximately $396,000$838,000 and $326,000 at MarchJune 30, 2019 and December 31, 2019.2018, respectively.

Advertising

The Company expenses all advertising costs as incurred. For the three and six months ended March 31,June 30, 2019, and 2018, the Company had approximately $1,118,000$1,585,000 and $737,000,$2,720,000, respectively, in advertising costs.costs, as compared to $419,000 and $1,157,000, respectively, for the three and six months ended June 30, 2018.

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. The Company’s significant estimates include deferred revenue, 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.

Foreign Currency Transactions

The Company transacts some of its operating activities in foreign currencies, most notably the Euro. The Company also has certain assets and liabilities denominated in foreign currencies that are translated to USU.S. Dollars for reporting purposes as of and for the three and six months ended March 31,June 30, 2019. These amounts are immaterial and are included in other income or expense(expense) for the three and six months ended March 31,June 30, 2019. Because of the immaterial effect noted above, the Company did not present a separate statement of other comprehensive income.

Stock-Based Compensation

The Company maintains a stock option incentive plan and accounts for stock-based compensation in accordance with ASC 718,Compensation - Stock Compensation. The Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award to employees and directors. As required by fair value provisions of share-based compensation, employee and non-employee share-based compensation expense recognized is calculated over the requisite service period of the awards and reduced for estimated forfeitures.

Recently Issued Accounting PronouncementsIncomeTaxes

From inception to June 30, 2019, the Company has incurred net losses and, therefore, has no current income tax liability. The net deferred tax asset generated by these losses is fully reserved as of June 30, 2019 and December 31, 2018, respectively, since it is currently likely that the benefit will not be realized in future periods.

As a result of the acquisition, the Company is required to file federal income tax returns and state income tax returns in the states of Arizona, Florida, Georgia, Minnesota, Pennsylvania, Tennessee, and Texas. There are no uncertain tax positions at June 30, 2019 or December 31, 2018. The Company considershas not undergone any tax examinations since inception.

Net Loss Per Share

Basic loss per share is computed on the applicabilitybasis 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 method. Any potentially dilutive securities are antidilutive due to the Company’s net losses.

For the periods presented, there is no difference between the basic and impact of all ASUs issued, both effectivediluted net loss per share: 30,108,743 warrants and 517,509 common stock options outstanding were considered anti-dilutive and excluded for the period ended June 30, 2019. For the six-month period ended June 30, 2018, there were no dilutive securities as the accounting acquirer did not yet effective.historically have stock compensation programs.

Note 3 – Business Acquisition

On January 8, 2019, MedoveX CorporationH-CYTE completed its business combination with RMS under which MedoveXH-CYTE purchased certain assets and assumed certain liabilities of RMS. Pursuant to the terms of the Asset Purchase Agreement, MedoveXH-CYTE issued to the shareholders of RMS 33,661 shares plus 6,111 additional exchange shares (based on closing the sale of $2 million of new securities) for a total of 39,772 shares of Series C Preferred Stock where each share of Series C Preferred stock will, at the date of closing, automatically convert into 1,000 shares of Common Stock and represent approximately fifty-five percent (55%) of the outstanding voting shares of the Company.

Under the terms of the Asset Purchase Agreement, subsequent to the closing, the Company issued additional “Exchange Shares” to the shareholders of RMS to maintain the 55% ownership and not be diluted by the sale of convertible securities (“New Shares Sold”) until MedoveXH-CYTE raised an additional $5.65 million via the issuance of new securities. On the date of closing the companyCompany issued 6,111 additional Exchange Shares to RMS Shareholders as a result of the issuance of additional securities, which are included in the 39,772 shares above. Subsequent to the closing of the purchase transaction, allan incremental 11,153 additional Exchange Shares representing contingent considerationwere issued, for a total of 17,264 additional Exchange Shares. All additional Exchange Shares have been issued to the shareholders of RMS for a total of 17,264 additionaland these Series C Preferred Stock which automaticallyshares converted to 1,00017,263,889 shares of Common Stock.

Because RMS shareholders own approximately 55% of the voting stock of MedoveXH-CYTE after the transaction, RMS is deemed to be the acquiring company for accounting purposes (the “Acquirer”) and the transaction is accounted for as a reverse acquisition under the acquisition method of accounting for business combinations in accordance with accounting principles generally accepted in the United States.U.S. GAAP. The assets acquired and the liabilities assumed of RMS included as part of the purchase transaction are recorded at historical cost. Accordingly, the assets and liabilities of MedoveXH-CYTE (the “Acquiree”) are recorded as of the merger closing date at their estimated fair values.

Under the terms of the business combination with RMS, MedoveXH-CYTE purchased certain assets and assumed certain liabilities of RMS. The assets of RMS reported on the MedoveXH-CYTE consolidated balance sheet as of December 31, 2018 that were excluded in the January 8, 2019 transaction were cash of approximately $70,000. The liabilities of RMS reflected on the MedoveXH-CYTE consolidated balance sheet as of December 31, 2018 but not assumed in the transaction included the following: convertible debt to a related party of approximately $4.3 million, interest payable of approximately $158,000, accounts payable of approximately $224,000 and other current liabilities of approximately $285,000. Additionally, there were certain on-going litigation matters that were not assumed as part of the January 9,8, 2019 RMS reverse merger transaction.acquisition.

Preliminary Purchase Price Allocation

The purchase price for the acquisition of the Acquiree has been allocated to the assets acquired and liabilities assumed based on their estimated relative fair values. The purchase price allocation herein is preliminary. The final purchase price allocation will be determined after completion of a thorough analysis to determine the fair value of all assets acquired and liabilities assumed but in no event later than one year following completion of the acquisition. Accordingly, the final acquisition accounting adjustments could differ materially from the allocation reflected as of March 31,June 30, 2019 presented herein. Any increase or decrease in the fair value of the assets acquired and liabilities assumed, as compared to the information shown herein, could also materially change the portion of purchase price allocated to goodwill and could materially impact the operating results of the Company following the acquisition due to differences in purchase price allocation, depreciation and amortization related to some of these assets and liabilities.

During the three months ended June 30, 2019 the Company revised its purchase price allocation for the acquisition. As a result, the Company recorded a measurement period adjustment of $6,215,000 as an increase to goodwill adjusting the amount recorded as of March 31, 2019. The adjustment resulted in corresponding increase of $6,215,000 to additional paid in capital.

The acquisition-date fair value of the consideration transferred is as follows:

Just prior to the transaction, MedoveXH-CYTE had 24.5 million shares of common stock outstanding at a market capitalization of $9.8 million. The estimated fair value of the net assets of MedoveXH-CYTE was $8.4 million as of January 8, 2019. Measuring the fair value of the net assets to be received by RMS was readily determinable based upon the underlying nature of the net assets. The fair value of the MedoveXH-CYTE common stock is above the fair value of its net assets. The MedoveXH-CYTE net asset value is primarily comprised of definite-lived Intangibles (preliminarily estimated at $3.7 million)intangibles as of the closing and the RMS interest in the merger is significantly related to obtaining access to the public market. Therefore, the fair value of the MedoveXH-CYTE stock price and market capitalization as of the closing date is considered to be the best indicator of the fair value and, therefore, the estimated purchase price consideration.

Contingent consideration was recorded as a reduction to consideration paid, in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). The Company calculated the fair value of the contingent consideration assets by assessing the likelihood of issuing stock to the accounting acquirer based upon a contingent capital raise clause. For contingent consideration to be settled in common stock, the Company uses public market data to determine the fair value of the shares as of the acquisition date and on an ongoing basis. During the three months ended March 31, 2019 the Company issued 17.3 million shares of common stock representing total consideration of $6.2 million, net of a 10% marketability discount as the shares were not readily available to trade.

The calculation of contingent consideration transferred during the period is as follows:

The Acquisition was accounted for as a reverse merger under the acquisition method of accounting in accordance with ASC 805. Accordingly, the tangible assets and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the date of acquisition, with the remaining purchase price recorded as goodwill.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition on January 8, 2019:

The purchase price allocation has been prepared on a preliminary basis and is subject to change as additional information becomes available concerning the fair value and allocation of consideration to the identifiable intangible assets acquired.

This preliminary purchase price allocation has been reflected in the March 31, 2019 balance sheet and statement of operations for the three months ended March 31, 2019. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of property, plant and equipment, (2) changes in allocations to intangible assets such as trade names, technology and customer relationships as well as goodwill and (3) other changes to assets and liabilities. Intangible assets will beare recorded as definite-lived assets and amortized over the estimated period of economic benefit. Goodwill is calculated as the difference between the acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. Goodwill is not expected to be deductible for income tax purposes. Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an annual basis or when indications of impairment exist.

Total interest bearing and other liabilities assumed are as follows:

Notes payable relate to promissory notes assumed by Aquiree in a 2015 acquisition, which acquisition was later divested in 2016, with the assumed promissory notes being retained by Aquiree. Payments on both of the notes are due in aggregate monthly installments of approximately $5,700 and carry an interest rate of 5%. Both of the notes have a maturity date of August 1, 2019. The Company is in the process of finalizing an eighteen month extension on the notes. The promissory notes had outstanding balances of approximately $99,000 plus accrued interest of approximately $3,000 at January 8, 2019. (See Note 11.)

Convertible notes payable representswere issued pursuant to a securities purchase agreement with select accredited investors, whereby the Acquiree offered up to $1,000,0001,000,000 in units at a purchase price of $50,000 per unit. Each Unit consistsconsisted of (i) a 12% senior secured convertible note, initially convertible into shares of the Company’s common stock, par value $0.001 per share, at a conversion price equal to the lesser of $0.40 or ninety percent (90%) of the per share purchase price of any shares of common stock or common stock equivalents issued in future private placements of equity and/or debt securities completed by the Company following this offering, and (ii) a three-year warrant to purchase such number of shares of the Company’s common stock equal to one hundred percent (100%) of the number of shares of common stock issuable upon conversion of the notes at $0.40. The Warrants are exercisable at a price equal to the lesser of $0.75 or ninety percent (90%) of the per share purchase price of any shares of common stock or common stock equivalents issued in future private placements of the debt and/or equity securities completed by the Company following the issuance of warrants. As a result of the price adjustment feature, the conversion price of the convertible notes was adjusted to $0.36 per share. The convertible notes have maturity dates between August and September 2019. The Company is in the process of negotiating a 30-day extension of the maturity dates. The notes are secured by all of the assets of the Company. (See Note 11.)

ASU 2017-11, Earnings Per Share (Topic 260), provided that when determining whether certain financial instruments should be classified as liability or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. If a down round feature on the conversion option embedded in the note is triggered, the Company will evaluate whether a beneficial conversion feature exists, and if one is determined to exist the Company will record the amount as a debt discount and will amortize it over the remaining term of the debt.

The down round feature embedded in the conversion option was triggered on January 8, 2019, as such, the Company recognized the down round as a deemed dividend of approximately $437,000 which reduced the income available to common stockholders.

In the offering, the Acquiree sold an aggregate of 15 units and issued to investors an aggregate of $750,000 in principal amount of convertible notes and 1,875,000 warrants to purchase common stock, resulting in total gross proceeds of $750,000 to the Company. If converted at $0.40 the convertible notes sold in the offering are convertible into an aggregate of 1,875,000 shares of common stock. The Acquiree recorded the proceeds from the notes and the accompanying warrants, which accrete over the period the notes are outstanding, on a relative fair value basis of approximately $505,000 and $245,000, respectively. At acquisition date, the value of the notes was approximately $598,000.

Note 4 – Accounts ReceivableThe following schedule represents the amounts of revenue and net loss attributable to the MedoveX acquisition which have been included in the consolidated statements of operations for the periods subsequent to the acquisition date:

The following unaudited pro forma financial information represents the consolidated financial information as if the acquisition had been included in the consolidated results beginning on the first day of the fiscal year prior to its acquisition date. The pro forma results have been calculated after adjusting the results of the acquired entity to remove any intercompany transactions and transaction costs incurred and to reflect any additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied on the first day of the fiscal year prior to its acquisition date, together with the consequential tax effects. The pro forma results do not reflect any cost savings, operating synergies or revenue enhancements that the combined entities may achieve as a result of the acquisition; the costs to combine the companies’ operations; or the costs necessary to achieve these cost savings, operating synergies or revenue enhancements. The pro forma results do not necessarily reflect the actual results of operations of the combined companies’ under the current ownership and operation.

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. Trade accounts receivable are stated net of an estimate made for doubtful accounts, if any. Management evaluates the adequacy of the allowance for doubtful accounts regularly to determine if any account balances will potentially be uncollectible. Customer account balances are considered past due or delinquent based on the contractual agreement with each customer. Accounts are written off when, in management’s judgment, they are considered uncollectible. At March 31, 2019, management believes no allowance is necessary.

Note 54 - Inventory

Inventory consists only of finished goods and areis valued at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method. Inventories were acquired in the merger transaction from the MedoveXH-CYTE business and therefore there were no inventories prior to January 8, 2019.

Inventory consisted of the following items as of March 31, 2019, and December 31, 2018:following:

Note 65 – Right-of-use Asset And Lease Liability

In February 2016, the Financial Accounting Standard Board (“FASB”)FASB established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02, which requires lessees to recognize leases on-balanceon the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The Company implemented the new standard effective January 1, 2019.

On adoption, additional current liabilities of approximately $475,000 and long-term liabilities of approximately $713,000 with corresponding right-of-useROU assets of approximately $1,167,000 were recognized, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

The consolidated balance sheet at March 31,June 30, 2019 reflects current lease liabilities of approximately $484,000$483,000 and long-term liabilities of $630,000,$512,000, with corresponding ROU assets of $1,092,000.$973,000.

The Company leases corporate office space in Tampa, FL and Atlanta, GA. The Company also leases medical clinic space in Tampa, FL, Nashville, TN, Scottsdale, AZ, Pittsburgh, PA, and Dallas, TX. The leasing arrangements contain various renewal options that are adjusted for increases in the consumer price index or agreed upon rates.

As of March 31,June 30, 2019, maturities of lease liabilities are as follows:

Note 76 - Property andAnd Equipment

Property and equipment, net, consists of the following:

Depreciation expense amounted to approximately $27,000$25,000 and $24,000,$52,000, respectively, for the three and six months ended March 31, 2019June 30, 2019. Depreciation expense amounted to approximately $25,000 and 2018.$49,000 respectively, for the three and six months ended June 30, 2018.

Note 87 - Goodwill And Intangible Assets

Goodwill

The Company performs a goodwill impairment analysis at least annually (in the fourth quarter of each year) unless indicators of impairment exist in interim periods. The assumptions used in the analysis are based on the Company’s internal budget. The Company projected revenue, operating margins and cash flows for a period of five years, and applied a perpetual long-term growth rate thereafter. These assumptions are reviewed annually as part of management’s budgeting and strategic planning cycles. These estimates may differ from actual results. The values assigned to each of the key assumptions reflect management’s past experience as their assessment of future trends, and are consistent with external/internal sources of information. As of March 31, 2019, no indicators of impairment existed.

Intangible Assets

The following table presents the changes in intangible assets during the period:

The following is a schedule of expected future amortization of intangible assets as of March 31,June 30, 2019:

Note 8 – Related Party Transactions

Consulting Expense

As described in Note 10, the Company entered into an oral consulting agreement with Mr. Raymond Monteleone, Board Member and Chairman of the Audit Committee, in which Mr. Monteleone receives $10,000 per month for advisory services and $5,000 per quarter as Audit Committee Chair. This arrangement has no specified termination date. For the three and six months ended June 30, 2019, the Company has expensed $35,000 and $70,000 in compensation to Mr. Monteleone, respectively.

Board Member Expenses

For the three and six months ended June 30, 2019, the Company paid $5,000 each for Board of Director fees to Michael Yurkowsky and to Raymond Monteleone for a total of $10,000 and $10,000 respectively.

Debt and Other Obligations

The Company had various related party transactions in 2018. For the period of January 1, 2018 to March 13, 2018, the Company received $528,175 from one of its shareholders (RMS members) and $228,175 from its CEO (RMS CEO) as part of a line of credit that was established in 2017. The entire line of credit between the Member and the CEO in the amount of $1,856,350, including contributions from 2017, was transferred to the BioCell Capital, LLC debt instrument on March 13, 2018.

The BioCell Capital Line of Credit also consisted of related parties which contributed approximately $4,306,000, inclusive of the aforementioned $1,856,300, to the Company in 2018. The BioCell Capital Line of Credit was converted to equity as part of the APA on January 8, 2019.

The Company also received a short-term advance from one of its shareholders (RMS members), who was also the CEO of H-CYTE, in the amount of $180,000 in December 2018 for working capital needs. Approximately $114,000 of the advance was repaid in January 2019 and approximately $66,000 was converted to equity as part of the APA on January 8, 2019.

Note 9 - Equity Transactions

For the Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit) as of December 31, 2018, the common stock, preferred stock and additional paid in capital reflect the accounting for the stock received by the RMS members as of the merger as if it was received as of the beginning of the periods presented and the historical accumulated deficit of RMS. As of the acquisition closing, before the contingent additional exchange shares impact from the sale of new securities),securities, the stock received by RMS was 33,661 shares of Series C Preferred Stock, converted immediately into approximately 33,661,000 shares of common stock, with common stock par value of approximately $33,700 and additional paid-in capital of approximately $3,566,000. The historical accumulated deficit of RMS as of the closing was approximately $9,293,000.$9,296,000.

Common Stock Issuance

On January 8, 2019, the Company entered into a securities purchase agreement (the “SPA”) with four purchasers (the “Purchasers”) pursuant to which the four Purchasers invested in the Company an aggregate amount of $2,000,000, with $1,800,000 in cash and $200,000 by cancellation of debt as explained below, in exchange for forty (40) units (the “Units”), each consisting of a convertible note (the “Convertible Note”) with the principal amount of $50,000 and a warrant (the “Warrant”) to purchase common stock (the “Common Stock”) of the Company. Pursuant to this SPA, the Company initially offered a minimum of $1,000,000 and a maximum of $6,000,000, and subsequently increased to a maximum of $8,000,000 (the “Maximum Amount”) of Units at a price of $50,000 per Unit until the earlier of i) the closing of the subscription of the Maximum Amount and ii) March 31, 2019 (the “Termination Date”), subject to the Company’s earlier termination at its discretion. The SPA includes the customary representations and warranties from the Company and purchasers. Steve Gorlin, the Company’s former Chairman of the Board, converted a $200,000 promissory note owed to him by the Company in exchange for four (4) Units on the same terms as all other Purchasers. The promissory note was converted into an aggregate of 500,000 shares of common stock, eliminating the Company’s debt obligation.

Each Convertible Note offered by the Company as part of the Unit bears an interest rate of 12% per annum, hashad a principal amount of $50,000, shall mature in one year from the original issue date on January 8, 2019, and will be convertible into shares of Common Stock at a price of $0.40 subject to adjustment stated in the Convertible Note. Pursuant to the terms of the Convertible Note, each holder of the Convertible Notes shall not own more than 4.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of Common Stock issuable upon exercise of such Convertible Note. Upon default,If defaulted, the penalty interest rate of the Convertible Note shall rise to 18% per annum. In addition, pursuant to the SPA, the Company offers, as part of the Unit, Warrants to purchase the Common Stock at a price of $0.75 per share (the “Exercise Price”), subject to adjustments stated therein. The holder of each Warrant may purchase the number of shares of Common Stock equal to the number of shares of Common Stock issuable upon conversion of each Convertible Note while the Warrant is exercisable. The Warrants have a term of three years and shall be exercised in cash or on a cashless basis as described in the Warrant. All of such notes have been converted into an aggregate of 18,000,000 shares of common stock.

As reported on Form 8-K filings on January 25, 2019, February 8, 2019, March 15, 2019 and April 5, 2019, the Company entered into other SPA’s with additional purchasers, which brought the aggregate amount of capital raised in all these offerings to $7,200,000, as of that latest date.

On February 28, 2019, the Company’s board authorized the increase limit to the offering to $8 million dollars and with the same terms extended the termination date of the offering to April 30, 2019.

As a result of the sales of new securities of at least $5.65 million, total additional Exchange shares of approximately 17,264 Series C Preferred Stock were issued and automatically converted to 17,263,889 shares of Common Stock.

All the Convertible Notes from the SPA as well as the shares of Series C Preferred Stock issued to RMS members were automatically converted into shares of Common Stock.

The foregoing description of the SPA, Convertible Note, and Warrant is qualified in its entirety by reference to the respective agreements.

In February 2019, 250,000 shares of common stock were issued pursuant to conversion of short-term debt and accrued interest.

In March 2019, the Company issued an aggregate of 130,085 shares of common stock at $0.40 per share shares for consulting fees in an amount equivalent to $52,034.

On April 25, 2019, the Company issued 4,225,634 shares of common stock valued at $.40 per share to Mr. William Horne, the Company’s CEO, in a restricted stock award which was 100% vested when issued. This restricted stock award was issued pursuant to his employment agreement with the Company, which stated that this restricted stock award (as well as the incentive stock options issued in the quarter ended March 31, 2019) would be fully vested if not issued within fifteen days of the RMS merger transaction. Neither award was issued within that time frame and both awards became fully vested when issued. The aggregate number of shares of common stock from these two awards is 4,475,634 and was calculated based on 7% of the Company’s issued and outstanding common stock as of the closing of the RMS merger.

The Company recognized approximately $1,690,000 of compensation expense in the quarter ended June 30, 2019 related to the restricted stock award. This expense should have been recognized in the quarter ended March 31, 2019. Though the quantitative impact is material, the Company believes the qualitative aspects of this misstatement should be the primary driver in determining whether or not this misstatement is material. The Company believes this misstatement to be immaterial to the quarter ended March 31, 2019 and June 30, 2019 financial statements from a qualitative impact evaluation.

During the six months ended June 30, 2019, 636,480 shares were issued pursuant to convertible Preferred Series B Stock and accrued dividends conversion.

Series B Preferred Stock Preferences

Voting Rights

Preferred Series B Stock holdersStockholders have the right to receive notice of any meeting of holders of Common Stock or Series B Preferred Stock and to vote upon any matter submitted to a vote of the holders of Common Stock or Series B Preferred Stock. Each holder of Series B Preferred Stock shall vote on each matter submitted to them with the holders of Common Stock.

Liquidation

Upon the liquidation, dissolution or winding up of the business of the Company, whether voluntary or involuntary, each holder of Series B Preferred Stock shall be entitled to receive, for each share thereof, out of assets of the Company legally available therefor, a preferential amount in cash equal to the stated value plus all accrued and unpaid dividends. All preferential amounts to be paid to the holders of Series B Preferred Stock in connection with such liquidation, dissolution or winding up shall be paid before the payment or setting apart for payment of any amount for, or the distribution of any assets of the Company’s to the holders of the Company’s Common Stock. The Company accrues these dividends as they are earned each period.

On January 8, 2019, the Company completed the issuance of convertible debt in the SPA transaction with a conversion price of $0.40$0.40. As a result, accordingly the exercise price on all of the warrants issued with the Series B Shares were adjusted downward to 90% of that conversion price or $0.36. In conjunction with the downward adjustment, the Company recorded a deemed dividend of approximately $117,000 representing the difference in the fair value of the warrants immediately before and after the adjustment to the exercise price.

The Company recognized a beneficial conversion feature related to the Series B Shares of approximately $33,000, which was credited to additional paid-in capital, and reduced the income available to common shareholders. Because the Series B Shares can immediately be converted by the holder, the beneficial conversion feature was immediately accreted and recognized as a deemed dividend to the preferred shareholders.

Series B preferred Stock Conversions

During the threesix months ended March 31,June 30, 2019, 9,250 Series B Preferred Stock with a par value of $.001 were assumed with the merger transaction and an aggregate of 2,0502,250 shares of Series B Preferred Stock, and accrued dividends, were subsequently converted into an aggregate of 512,500562,500 shares of authorized common stock, par value $0.001 per share.

Debt Conversion

Convertible Notes

The $750,000 convertible notes payable assumed in the acquisition transaction, had a fair value of approximately $598,000 on the acquisition date. Subsequently, on February 6, 2019, $100,000 of the outstanding convertible notes was converted into an aggregate of 250,000 shares of common stock, eliminating $100,000 of the Company’s debt obligation. The debt was converted into shares at $0.40 per share, which was the conversion price per the SPA.

In connection with the Asset Purchase Agreement (“APA”) and APA Amendment, on January 8, 2019, Steve Gorlin, the Company’s former Chairman of the Board, converted a $200,000 promissory note owed to him by the Company pursuant to the same terms of the SPA entered into by other investors to consummate the acquisition inon January 8, 2019. The promissory note was converted into an aggregate of 500,000 shares of common stock, eliminating the Company’s debt obligation.

Stock-Based Compensation Plan

2013Stock Option Incentive Plan

We utilizeThe Company utilizes the Black-Scholes valuation method to recognize stock-based compensation expense over the vesting period. The expected life represents the period that ourthe stock-based compensation awards are expected to be outstanding.

For the three and six months ended March 31,June 30, 2019, the Company recognized approximately $89,000$3,000 and $92,000 as compensation expense with respect to vested stock options. No compensation expense was recorded prior to the RMS reverse merger transaction. Since these stock options were assumed on January 8, 2019 as part of the RMS reverse merger transaction, there were no historical costs related to this prior to January 8, 2019. The expense for the six months ended June 30, 2019 is related to an option for 250,000 shares that were awarded to the Company’s CEO that were 100% vested and were issued pursuant to his employment agreement. This option was granted pursuant to his employment agreement with the Company, which stated that this option grant would be fully vested if not issued within fifteen days of the RMS reverse merger transaction. The option was not granted within that time frame and was fully vested when issued.

Including the expense of approximately $1,690,000 related to the restricted stock award to the Company’s CEO, total stock-based compensation expense for the three and six months ended June 30, 2019 were approximately $1,693,000 and $1,782,000, respectively. The three and six months ended June 30 include $1,690,254 related to the Company’s CEO restricted stock award which was 100% vested when issued. This restricted stock award was issued pursuant to his employment agreement with the Company, which stated that this option grant would be fully vested if not issued within fifteen days of the RMS reverse merger transaction. The restricted stock award was not issued within that time frame and was fully vested when issued. 

Stock Option Activity

As of March 31,June 30, 2019, there were 31,1399,502 shares of unvested stock options. Unrecognized compensation cost amountsamounted to approximately $17,800$3,900 as of March 31,June 30, 2019 and will be recognized as an expense on a straight-line basis over a remaining weighted average service period of 0.87 years.1 year.

The following is a summary of stock option activity for the threesix months ending March 31,June 30, 2019:

Note 10 – Commitments & Contingencies

Biotechnology Agreement

The Company, on June 21, 2019, entered into a 10-year exclusive and extendable product supply agreement with Rion LLC (“Rion”) that will enhance its existing cytotherapy product line, developing a disruptive technology for chronic obstructive pulmonary disease (“COPD”), the fourth leading cause of death in the U.S. Rion has established a unique exosome technology to harness the healing power of the body. Rion’s novel exosome technology, based on science developed at Mayo Clinic, provides an off-the-shelf platform to enhance healing in soft tissue, musculoskeletal, cardiovascular and neurological organ systems. With this agreement, Rion will serve as the product supplier and will co-develop a proprietary cellular platform with H-CYTE for the treatment of COPD. H-CYTE will control the commercial development and facilitate clinical trial investigation. After conducting joint research and development of these biologics, H-CYTE intends to pursue submission of an investigational new drug (IND) application for review by the U.S. Food and Drug Administration (“FDA”) for treatment of COPD.

Sublease Agreement

The Company entered into a sub-lease agreement for the lease in Alpharetta, Georgia. The period of the lease is from July 1, 2019 to December 31, 2020 and sublessee shall pay to sublessor a minimum rent, of two thousand dollars ($2,000) per month.

Consulting Agreements

The Company has an agreement with Jesse Crowne, a former Director and Co-Chairman of the Board of the Company, to provide business development consulting services for a fee of $13,333 per month, which expired March 31, 2019.month. The Company is in the process of negotiating a new contract with Mr. Crowne. The Company incurred expense of $0 and $39,999, for the three and six months ended March 31,June 30, 2019 related to this consulting agreement. Since this agreement was assumed January 8, 2019 as part of the RMS reverse merger transaction, there were no historical costs related to this prior to January 8, 2019.

The Company entered into a consulting agreement with LilyCon Investments, LLC effective February 1, 2019 for services related to evaluation and shall continuenegotiation of future acquisitions, joint ventures, and site evaluations/lease considerations. The contract duration is for a period of twelve (12) months in the amount of $12,500 per month with a $15,000 signing bonus which was paid in full during the quarter ending March 31, 2019. The agreement also provides LilyCon Investments with $35,000 in stock (calculated using an annual Variable Weighted Average Price from February 2019 through January 2020) to be granted upon completionon the one year anniversary of this agreement, if the consulting services first year.agreement has not been terminated prior to that date. Either party may terminate this agreement with or without cause upon (30)30 days written notice. Through March 31,For the three and six months ended June 30, 2019, the Company has expensed a total of $40,000$37,500 and $77,500 in compensation to LilyCon Investments.Investments, respectively.

The Company entered into an oral consulting agreement with Mr. Raymond Monteleone, Board Member and Chairman of the Audit Committee, in which Mr. Monteleone received $10,000 per month for advisory services and $5,000 per quarter as Audit Committee Chair. This arrangement has no specified termination date. Through March 31,For the three and six months ended June 30, 2019, the Company has expensed $35,000 and $70,000 in compensation to Mr. Monteleone.Monteleone, respectively.

The Company entered into an oral consulting arrangement with St. Louis Family Office, LLC, (Jimmycontrolled by Jimmy St. Louis, former CEO of RMS)RMS, in January 2019 in the amount of $10,000 per month plus benefits reimbursement for advisory services. This arrangement has no specified termination date. Through March 31,The Company terminated this agreement effective June 30, 2019. For the three and six months ended June 30, 2019, the Company has expensed $27,000$44,000 and $71,000 in consulting fees to St. Louis Family Office.Office, respectively.

The Company entered into a consulting agreement with Strategos Public Affairs, LLC (Strategos) on February 15, 2019 for a period of twelve (12) months, unless otherwise terminated by giving thirty (30) days prior written notice. Strategos will provide information to key policymakers in the legislature and executive branches of government on the benefits of the cellular therapies offered by the Lung Health Institute, advocate for legislation that supports policies beneficial to patient access and oppose any legislation that negatively impacts the Company’s ability to expand treatment opportunities, and position the Company and its related entities as the expert for information and testimony. For the three and six months ended June 30, 2019, the Company has expensed $26,000 and $26,000 to Strategos Group for consulting services.

Distribution center and logistic services agreement

The Company has a non-exclusive distribution center agreement with a logistics service provider in Berlin, Germany pursuant to which they 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 €6,900€4,500 (approximately $7,900)$5,040) for all accounting, customs declarations and office support, and a variable monthly fee ranging from €1,900 to €6,900 (approximately $2,300 to $8,300), based off volume of shipments, for logistics, warehousing and customer support services.

Total expenses paidincurred for the distribution center and logistics agreement waswere approximately $22,500 and $45,000, respectively, for the three and six months ended March 31,June 30, 2019. Since this agreement was assumed January 8, 2019 as part of the RMS reverse merger transaction, there were no historical costs related to this prior to January 8, 2019.

Patent Assignment and Contribution Agreements

The terms of a Contribution and Royalty Agreement dated January 31, 2013 with Dr. Scott Haufe, M.D was assumed in the merger transaction as of January 8, 2019. This agreement provides for the Company to pay Dr. Haufe royalties equal to 1% of revenues earned from sales of any and all products derived from the use of the DenerveX technology. Royalties are payable to Dr. Haufe within 30 days after the close of each calendar quarter based on actual cash collected from sales of applicable products. The royalty period expires on September 6, 2030.

The Company incurred approximately $0 and $1,100, respectively, in royalty expense under the Contribution and Royalty agreement for the three months and six months ended March 31,June 30, 2019, all of which was included in accounts payable at March 31,June 30, 2019. Since this agreement was assumed January 8, 2019 as part of the RMS reverse merger transaction, there were no historical costs related to this prior to January 8, 2019.