As filed with the Securities and Exchange Commission on Registration No. June 17, 2016333-[●]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Pre-Effective Amendment No. 1
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
H-CYTE, INC | ||
(Exact name of registrant as specified in its charter) |
Nevada | 46-3312262 | |
(State or other jurisdiction of | ( Identification No.) |
3841
Primary Standard Industrial Classification Code Number
201 E Kennedy BlvdSuite 700
Tampa, FL 33602
(844) 633-6839
(Address, including zip code, and telephone number, including area code, of registrant'sregistrant’s principal executive offices)
Michael Yurkowsky
Chief FinancialExecutive Officer
201 E Kennedy Blvd., Suite 215-113
Tampa, FL33602
(844) 633-6839
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Arthur Marcus, Esq.
Sichenzia Ross Ference LLP
1185 Avenue of the Americas, 31st Floor
New York, New York 10036
Phone: (212) 930-9700
Approximate date of commencement of proposed sale of the securities to the public:
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
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”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | |||
Smaller reporting company | |||
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TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED | AMOUNT TO BE REGISTERED(1) | PROPOSED MAXIMUM OFFERING PRICE PER SHARE | PROPOSED MAXIMUM AGGREGATE OFFERING PRICE(1) | AMOUNT OF REGISTRATION FEE | ||||||||||||
Shares Underlying Existing Series A Warrants, Common Stock, $0.001 par value(3) | 1,391,305 | 3.00 | 4,173,915 | $ | 420.31 | |||||||||||
Shares Underlying Existing Warrants, Common Stock, $0.001 par value | 500,000 | $1.66 | $830,000 | $83.58 | ||||||||||||
Existing Stockholders Shares of common stock, $0. 001 par value | 1,211,760 | $1.66 | $2,011,521.60 | $202.56 | ||||||||||||
Shares of common stock, $0. 001 par value, underlying warrants | 787,863 | $1.66 | $1,307,852,58 | $131.70 | ||||||||||||
Total | 3,890,928 | $8,323,289.18 | $838.15 |
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 7(a)(2)(B) of the Securities Act. ☐
The registrant hereby amends this registration statementRegistration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statementRegistration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statementthis Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. WeThese securities may not sell these securitiesbe sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED |
363,146,765 Shares of Common stock
This prospectus relates to the offering and resale by the selling stockholders identified herein of up to 363,146,765 shares, underlying existing, previously registered Series A Warrants to purchaseincluding 350,996,043 shares of common stock issuable upon the exercise of outstanding unregistered warrants previously issued by us on April 14, 2020 at an exercise price of $0.014 per share, and 12,150,722 shares of common stock. Please see “Private Placement of Shares of Common Stock, Warrants” beginning on page 49 of this prospectus.
We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. Upon the cash exercise of the Company at $3.00 per share.
The selling stockholders may sell all or a portion of the shares of common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents. Please see the section entitled “Plan of Distribution” on page 52 of this prospectus for more information. For information on the selling stockholders, see the section entitled “Selling Stockholders” on page 49 of this prospectus. We will bear all fees and expenses incident to our obligation to register the shares of common stock.
Our common stock is quoted on the NASDAQ Capital MarketOTCQB under the symbol of “MDVX.“HCYT.” Our Series A Warrants are traded onOn January 27, 2022, the NASDAQ Capital Market under the symbol of “MDVXW.” The last reported sale price per share of our common stock on June 16, 2016, was $1.89 per share.
We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.
Investing in our common stock involves a high degree of risk. See “Risk Factors” withinbeginning on page 3 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is February 10, 2022
TABLE OF CONTENTS
Page | |
2 | |
Risk Factors | 3 |
Special Note Regarding Forward-Looking Statements | |
52 | |
Legal Matters | 53 |
Experts | 53 |
Where You Can Find More Information | |
F-1 |
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ABOUT THIS PROSPECTUS
You shouldmay only rely only on the information contained in this prospectus.prospectus or that we have referred you to. We have not and the underwriters have not, authorized any other personanyone to provide you with different information. If anyone provides you with different or inconsistent information, you shouldThis prospectus does not rely on it. We are not, and the underwriters are not, makingconstitute an offer to sell theseor a solicitation of an offer to buy any securities other than the common stock offered by this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any common stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this prospectus nor any sale made in connection with this prospectus shall, under any circumstances, create any implication that there has been no change in our affairs since the date of this prospectus. For investors outside the United States: Neither we nor the selling stockholders have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the offerUnited States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.
Unless the context otherwise requires, references to “we,” “our,” “us,” or sale is not permitted. You should assume that the information appearing“Company” in this prospectus is accurate only as of the date on the front cover of this prospectus or other date stated in this prospectus. Our business, financial condition, liquidity, results of operations, cash flows and prospects may have changed since that date.mean H-Cyte, Inc., a Nevada corporation.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in other parts of this prospectus. Because it is only a summary, itprospectus and does not contain all of the information that you should consider beforein making your investment decision. Before investing in our securitiescommon stock, you should carefully read this entire prospectus, including our financial statements and it is qualifiedthe related notes and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in its entirety by, and should be read in conjunction with, the more detailed information appearingeach case included elsewhere in this prospectus. You should read
Overview
H-CYTE, Inc (“the entire prospectus carefully, especiallyCompany”) is a hybrid-biopharmaceutical company dedicated to developing and delivering new treatments for patients with chronic respiratory and pulmonary disorders. During the section entitled “Risk Factors”last two years, the Company has evolved into two separate divisions with its entrance into the biologics development space (“Biologics Division”). This new division is complementary to the Company’s current Lung Health Institute (LHI) autologous infusion therapy business (“Infusion Division”) and our consolidated financial statements and related notes, before deciding to buy our securities. Unless otherwise stated, all references to “us,” “our,” “we,” “MedoveX,”is focused on underserved disease states. On September 8, 2021, the “Company” and similar designations refer to MedoveX Corporation, and depending on the context,Company announced that its subsidiaries.
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, PLLC (“LI Dallas”), Lung Institute Nashville, PLLC (“LI Nashville”), Lung Institute Pittsburgh, PLLC (“LI Pittsburgh”), and Lung Institute Scottsdale, LLC (“LI Scottsdale”), as Variable Interest Entities (“VIEs”). Additionally, H-CYTE Management, LLC is the operator and manager of its stockthe 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 March, 2014.
On September 11, 2020, with the closing of the Rights Offering, FWHC, LLC, FWHC Bridge, LLC, and FWHC Bridge Friends, LLC (collectively known as “FWHC”) gained control of the Company isby subsequently owning approximately 61% of the fully diluted shares of the Company (for further discussion, see Notes 8 and 9-”Equity Transactions” to obtain,the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K).
Autologous Infusion Therapy (“Infusion Division”)
The Infusion Division develops and implements innovative treatment options in autologous cellular therapy (PRP-PBMC) to treat chronic lung disorders. Committed to an individualized patient-centric approach, this division provides oversight and management of the highest quality to the LHI clinics, while producing positive medical outcomes following the strictest Centers for Disease Control and Prevention (the “CDC”) guidelines.
Biotech Development (“Biologics Division”)
On June 21, 2019, H-CYTE entered into an exclusive product supply agreement with Rion, LLC (“Rion”) to develop and commercialize various intellectual property rights (patents, patent applications, knowhow, etc.distribute (post U.S. Food & Drug Administration, the “FDA”, approval) a biologic combining its PRP-PBMC technology with Rion’s exosomes (“EV”) technology for the treatment of chronic obstructive pulmonary disease (“COPD”), the fourth leading cause of death in the medicalU.S. Rion has established a novel EV technology area,to harness the healing power of the body. Rion’s innovative 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. This agreement provides for a 10-year exclusive and extendable supply agreement with particular focus onRion to enable H-CYTE to develop combined proprietary biologics. The Company is evaluating alternate EV technologies to determine the developmentmost favorable path forward.
On October 9, 2019, the Company entered into a services agreement with Rion which provides the Company the benefit of medical devices. We intend to leverageRion’s resources and expertise for the extensive experiencelimited purpose of our board of directors(i) consulting with and management teamassisting H-CYTE in the medical industryfurther research and development for the generation of a new biologic and (ii) subsequently assisting H-CYTE in seeking and obtaining FDA Phase 1 IND clearance for this biologic as necessary. Rion has completed the research and development work which is under review by the Company. The Company is assessing if the Rion combined proprietary biologic is a more viable solution than potentially progressing with a single entity biologic from an alternative commercial source.
On April 2, 2021, the Company entered into a series of agreements with Medovex, LLC to seek out product candidates for licensing, acquisition or development. On March 25, 2015, we acquired Streamline, Inc. for approximately $1,325,000 in cashpursue a joint venture regarding the continued development and 1,875,000 sharescommercialization of our common stock.
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THE OFFERING
Issuer | H-Cyte, Inc | ||
Securities Offered by the Selling Stockholders | 12,150,722 shares of common stock and 350,996,043 shares of common stock issuable upon the exercise of warrants. | ||
Trading Market | The common stock offered | ||
167,857,522 shares | |||
Common Stock Outstanding After this Offering | 531,004,2871 shares | ||
Use of Proceeds | We will not receive any of the |
Plan of Distribution | The selling stockholders may sell all or a portion of the shares of common stock beneficially owned by them and | |
Risk Factors | Please read “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in the securities offered in this prospectus. |
The number of shares of common stock shown above to be outstanding after |
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RISK FACTORS
An investment in this Prospectus and should be read in conjunction with our Financial Statements, including the notes thereto.
Fiscal Year Ended December 31, 2015 (audited) | Fiscal Year Ended December 31, 2014 (audited) | Three Months Ended March 31, 2016 (unaudited) | Three Months Ended March 31, 2015 (unaudited) | |||||||||||||
BALANCE SHEET: | ||||||||||||||||
Total Assets | $ | 11,531,734 | $ | 6,865,756 | $ | 10,244,572 | $ | 15,680,568 | ||||||||
Total Liabilities | $ | 1,509,009 | $ | 360,107 | $ | 688,909 | $ | 1,060,348 | ||||||||
Stockholders’ Equity | $ | 10,022,725 | $ | 6,505,649 | $ | 9,555,663 | $ | 14,620,220 | ||||||||
STATEMENT OF OPERATIONS: | ||||||||||||||||
Revenues | $ | 33,045 | - | - | - | |||||||||||
Net Loss | $ | 6,523,077 | $ | 2,937,032 | $ | 1,832,286 | $ | 1,454,442 |
Risks Related to Our Financial PositionCondition
We will be required to raise additional funds to finance our operations and Capital Requirements
Our operations to date have consumed substantial amounts of cash and we have sustained negative cash flows from our operations for the last several years. We will require future additional capital infusions including public or private financing, strategic partnerships or other arrangements with organizations that have capabilities and/or products that are a development stage company and face uncertainties associated with being an early stage venture.
We have a history of losses, will incur additional losses, and may never achieve profitability.
Historically, we have been a clinical development company with a limited line of medical services and products in the markets. We offer two types of cellular therapy treatments to our patients and collect payments for commercialization.
To date, we have had immaterial sales related to the Streamline ISS Poles. The Denervex device we are developing has had only limitednot been profitable and our accumulated deficit was approximately $47,911,000 and $43,859,000 at September 30, 2021 and December 31, 2020, respectively. Our losses have resulted principally from costs incurred in research and testing indevelopment, the fieldsoperations of usethe Lung Health Clinics, and from general and administrative costs associated with our operations and being a public company. In order to commercialize our assets, we are presently intendingwill need to exploreconduct substantial additional research, development and to commercialize.clinical trials. We will have to continue to go through extensive research and testing to develop the initial product and any additional products and to determine or demonstrate the safety and effectiveness of their proposed use. Our products and our proposed testing of those products will require various regulatory approvals and clearances. Accordingly, the products we intend to pursue are not presently marketable in the fields of use for which we hope to develop them, and it is possible that some or all of them may never become legally and commercially marketable. The development and testing of medical devices and related treatments and therapies is difficult, time-consuming and expensive, and the successful development of any products based on innovative technologies is subject to inherent uncertainties and risks of failure. These risks include the possibilities that any or all of the proposed products or procedures may be found to be ineffective, or may otherwise failalso need to receive necessary regulatory clearances; thatclearances in the proposed productsUnited States and obtain meaningful patent protection for and establish freedom to commercialize each of our product candidates. We must also complete further clinical trials and seek regulatory approvals for any new product candidates we discover, in-license, or procedures mayacquire. We cannot be uneconomical to producesure whether and when we will obtain required regulatory approvals, or successfully research, develop, commercialize, manufacture and market or may never achieve broad market acceptance;any other product candidates. We expect that third parties may hold proprietary rights that preclude the Company from marketing its intended products or procedures; or that third parties may developthese activities, together with future general and market superior or equivalent products and procedures. We are unable to predict whether our research and development or acquisitionadministrative activities, will result in any commercially viable products or procedures. Furthermore, due to the extended testing and regulatory review process required before marketing clearances can be obtained, the time frames for commercialization of any products or procedures are long and uncertain.
Our research and development and commercialization efforts may depend on entering into agreements with corporate collaborators.
Because we have limited resources, we have sought to enter into collaboration agreements with other companies that will assist us in developing, testing, obtaining governmental approval for and commercializing products. We may be unable to achieve commercialization of any of our product candidates until we obtain a large partner to assist us in such commercialization efforts.
Moving forward, we intend to seek out additional collaborations in order to commercialize our products. We will continue to seek research collaborations, co-development and marketing agreements, and licensing deals for our products in development, however, there is no guarantee that we will be successful in our efforts.
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Any collaborator with whom we may enter into such collaboration agreements may not support fully our research and commercial interests since our program may compete for time, attention and resources with such collaborator’s internal programs. Therefore, these future collaborators may not commit sufficient resources to our program to move it forward effectively, or that the program will advance as rapidly as it might if we had retained complete control of all research, development, regulatory and commercialization decisions.
Our independent registered public accounting firm has included an explanatory paragraphdisclosure controls and procedures and internal control over financial reporting may not be effective in future periods as a result of existing or newly identified material weaknesses in internal controls.
Effective internal controls are necessary for us to provide reasonable assurance with respect to our abilityfinancial reports and to continue as a going concern in its report on our consolidated financial statements for the period ended December 31, 2015.
At September 30, 2021, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of a variety of factors, many of which are outsidethe design and operation of our control, which could cause fluctuationsdisclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the priceSecurities Exchange Act of our securities.
We believe we have taken appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies, however we cannot be certain that our remediation efforts will ensure that our management designs, implements and maintains adequate controls over our financial processes and reporting in the future or that the changes made will be sufficient to address and eliminate the material weaknesses previously identified. The audit committee has requested a plan be prepared with the steps necessary to remedy such deficiencies and is waiting the preparation of such plan. Our inability to remedy any additional deficiencies or material weaknesses that may negatively affect our operating results:
Risks Related to Our Business
We have reorganized our business model to transform us from a medical device manufacturer to an investigational drug research and development biotechnology company. There is no guarantee that this business transformation will be successful.
During the last two years, the Company has evolved into two separate divisions with its entrance into the biologics development space (“Biologics Division”). This new division is complementary to the foregoing factors, our quarterlyCompany’s current Lung Health Institute (LHI) autologous infusion therapy business (“Infusion Division”) and is focused on underserved disease states. During the year ended 2021, the company completed a review of the R&D status regarding the exclusive product supply and services agreements with Rion, LLC (“Rion”) to develop and distribute (post U.S. Food & Drug Administration, the “FDA”, approval) a biologic combining its PRP-PBMC (“PRP”) technology with Rion’s exosomes (“EV”) technology for the treatment of chronic obstructive pulmonary disease (“COPD”). The Company has decided to progress alternate technologies and has determined a single entity biologic from an alternative commercial source will be a more viable solution. To that end the company is progressing alternate biologics and therapeutic devices to meet the needs of the business. There are a number of risks associated with a biologics development business model, and there is no guarantee that the new model will deliver the expected revenues and operating results are difficult to forecast.profits going forward as expected or at all.
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We may not be unableable to manage growth effectively.
As we seek to advance our product candidates through clinical trials, we will need to expand our development, regulatory, manufacturing, marketing and sales capabilities, orand may need to further contract with third parties to provide these capabilitiescapabilities. As our operations expand, we likely will need to manage additional relationships with such third parties, as well as additional collaborators, distributors, marketers, and suppliers.
Maintaining third party relationships for us.these purposes will impose significant added responsibilities on members of our management and other personnel. We anticipate thatmust be able to: manage our development efforts effectively; recruit and train sales and marketing personnel; manage our participation in the clinical trials in which our product candidates are involved effectively; and improve our managerial, development, operational and finance systems, all of which may impose a period of significant expansion will be required to address potential growth and to handle licensing and research activities. This expansion will place a significant strain on our management, operational and financial resources. To manage the expected growth of our operations and personnel, we must establish appropriate and scalable operational and financial systems, procedures and controls and must establish a qualified finance, administrative and operations staff. As a public company, we will have to implement internal controls to comply with government mandated regulations. Our management may be unable to hire, train, retain, motivate and manage the necessary personnel or to identify, manage and exploit potential strategic relationships and market opportunities. Our failure to manage growth effectively could have a material and adverse effect on our business, results of operations and financial condition.
If we enter into arrangements with third parties to perform sales, marketing, andor distribution services, for our products, the resultingany product revenues that we receive, or the profitability fromof these product revenues to us, are likely to be lower than if we had sold, marketedwere to market and distributed oursell any products ourselves.that we develop without the involvement of these third parties. In addition, we may not be successful in entering into arrangements with third parties to sell market and distributemarket our products or may be unable to doin doing so on terms that are favorable to us. We likely will have limitedlittle control over such third parties, and any of these third partiesthem may fail to devote the necessary resources and attention to sell market and distributemarket our products effectively.
Regulatory actions may affect our ability to operate.
Our Biologics Division operates in a field that is highly regulated by the U.S. Food and Drug Administration (the “FDA”). During the clearance and approval FDA process, the Company will be subject to extensive regulations by the FDA under the Federal Food, Drug, and Cosmetic Act and/or the Public Health Service Act, as well as by other regulatory bodies. Adverse decisions by the FDA or other applicable regulatory bodies could materially and adversely affect our ability to continue and grow the development of future products. Failure to comply with the applicable FDA regulations could result in, among other things, warning letters, civil penalties, delays in approving or refusal to approve a product, product recall, product seizure, interruption of production, operating restrictions, suspension or withdrawal of product approval, injunctions, or criminal prosecution.
We have no history in obtaining regulatory approval for, or commercializing, any new therapy candidate.
With limited operating history, we have never obtained regulatory approval for, or commercialized, any new therapy candidate. It is possible that the FDA may refuse to accept our biologics or therapeutic device applications for substantive review or may conclude after review of our data that our application is insufficient to obtain regulatory approval of the new therapy candidate. If the FDA does not accept or approve our biologics or therapeutic device clinical trials, it may require that we conduct additional preclinical or manufacturing validation studies, which may be costly. Depending on the FDA required studies, approval of any application that we submit may be significantly delayed, possibly for several years, or may require us to expend more resources than we have. Any delay in obtaining, or inability to obtain, regulatory approvals of any of our therapy candidate will prevent us from sublicensing or commercializing such product. It is also possible that additional studies, if performed and completed, may not be considered sufficient by the FDA. If any of these outcomes occurs, we may be forced to abandon our planned clinical trial for such therapy candidate, which will materially adversely affect our business and could potentially cause us to cease operations. We face similar regulatory risks in a foreign jurisdiction.
If the statutes and regulations in our industry change, our business could be adversely affected.
The U.S. healthcare industry has undergone significant changes designed to improve patient safety, improve clinical outcomes, and increase access to medical care. These changes include enactments and repeals of various healthcare related laws and regulation. Our operations and economic viability may be adversely affected by the changes in such regulations, including: (i) federal and state fraud and abuse laws; (ii) federal and state anti-kickback statutes; (iii) federal and state false claims laws; (iv) federal and state self-referral laws; (v) state restrictions on fee splitting; (vi) laws regarding the privacy and confidentiality of patient information; and (vii) other laws and government regulations.
If there are changes in laws, regulations, or administrative or judicial interpretations, we may have to change our business practices, or our existing business practices could be challenged as unlawful, which could have a material adverse effect on our business, financial condition, and results of operations.
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We may be unable to identify, acquire, close or integrate acquisition targets successfully.
We may not consummate some negotiations for acquisitions or other arrangements,be able to successfully grow and expand. Successful implementation of our business plan will require management of growth, including potentially rapid and substantial growth, which could result in significant diversionan increase in the level of responsibility for management personnel and other employee time, as well as substantial out-of-pocket costs. In addition, there are a number of risksstrain on our human and uncertainties relating to our closing transactions. If such transactions are not completed for any reason,capital resources. To manage growth effectively, we will be subjectrequired, among other things, to several risks, including the following: (i) the market pricecontinue to implement and improve our operating and financial systems, procedures and controls and to expand, train and manage our employee base. If we are unable to implement and scale improvements to our existing systems and controls in an efficient and timely manner or if we encounter deficiencies, we will not be able to successfully execute our business plans.
Failure to attract and retain sufficient numbers of qualified personnel could also impede our growth.
If we are unable to manage our growth effectively, it will have a material adverse effect on our business, results of operations and financial condition. The evolving nature of our common shares may reflect a market assumption that such transactions will occur,business and a failure to complete such transactions could result in a negative perception by the market of us generally and a declinerapid changes in the market pricehealthcare industry make it difficult to anticipate the nature and amount of medical reimbursements, third-party private payments, and participation in certain government programs and thus to reliably predict our common shares;future growth and (ii) manyoperating results. Our growth strategy may incur significant costs, relating towhich could adversely affect our financial condition. Our growth by strategic transactions strategy involves significant costs, including financial advisory, legal and accounting fees, and may include additional costs for items such as fairness opinions and severance payments. These costs could put a strain on our cash flows, which in turn could adversely affect our overall financial condition.
Our majority stockholders may take actions that conflict with our public stockholders’ best interests.
On September 11, 2020, with the such transactions may be payable by us whether or not such transactions are completed.
The members of the FWHC Group may own or operate companies that may conflict with those of the Company. We cannot assure you that our large stockholders will not take any actions that impair our ability to conduct our business competitively or conflict with the best interests of our other stockholders.
We are regulated by federal Anti-Kickback Statutes.
The Federal Anti-Kickback Statute is a provision of the Social Security Act of 1972 that prohibits as a felony offense the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, (1) the referral of a patient for items or services for which payment may be made in whole or part under Medicare, Medicaid, or other federal healthcare programs, (2) the furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid, or other federal healthcare programs or (3) the purchase, lease, or order or arranging or recommending the purchasing, leasing or ordering of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The Patient Protection and Affordable Care Act (“ACA”) amended section 1128B of the Social Security Act to make it clear that a person need not have actual knowledge of the statute, or specific intent to violate the statute, as a predicate for a violation. The OIG, which has the authority to impose administrative sanctions for violation of the statute, has adopted as its standard for review a judicial interpretation which concludes that the statute prohibits any arrangement where even one purpose of the remuneration is to induce or reward referrals. A violation of the Anti-Kickback Statute is a felony punishable by imprisonment, criminal fines of up to $25,000, civil fines of up to $50,000 per violation, and three times the amount of the unlawful remuneration. A violation also can result in exclusion from Medicare, Medicaid or other federal healthcare programs. In addition, pursuant to the changes of the ACA, a claim that includes items or services resulting from a violation of the Anti-Kickback Statute is a false claim for purposes of the False Claims Act.
We cannot assure that the applicable regulatory authorities will not determine that some of our arrangements with physicians violate the federal Anti-Kickback Statute or other applicable laws. An adverse determination could subject us to different liabilities, including criminal penalties, civil monetary penalties and exclusion from participation in Medicare, Medicaid or other health care programs, any of which could have a material adverse effect on our business, financial condition or results of operations.
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We are regulated by the Federal Stark Law.
The federal Stark Law, 42 U.S.C. 1395nn, also known as the physician self-referral law, generally prohibits a physician from referring Medicare and Medicaid patients to an entity (including hospitals) providing ‘designated health services,’ if the physician or a member of the physician’s immediate family has a ‘financial relationship’ with the entity, unless a specific exception applies. Designated health services include, among other services, inpatient hospital services, outpatient prescription drug services, clinical laboratory services, certain imaging services (e.g., MRI, CT, ultrasound), and other services that our affiliated physicians may order for their patients. The prohibition applies regardless of the reasons for the financial relationship and the acquired companyreferral; and achieving desired synergies. These feestherefore, unlike the Federal Anti-Kickback Statute, intent to violate the law is not required. Like the Anti-Kickback Statute, the Stark Law contains statutory and costs may be substantial. Non-recurring transaction costs include, but are not limitedregulatory exceptions intended to fees paid to legal, financialprotect certain types of transactions and accounting advisors, filing fees and printing costs. Additional unanticipated costs may be incurredarrangements. Unlike safe harbors under the Anti-Kickback Statute with which compliance is voluntary, an arrangement must comply with every requirement of a Stark Law exception or the arrangement is in the integrationviolation of the businesses ofStark Law.
Because the CompanyStark Law and implementing regulations continue to evolve and are detailed and complex, while we attempt to structure its relationships to meet an exception to the acquired company. ThereStark Law, there can be no assurance that the eliminationarrangements entered into by us with affiliated physicians and facilities will be found to be in compliance with the Stark Law, as it ultimately may be implemented or interpreted. The penalties for violating the Stark Law can include the denial of payment for services ordered in violation of the statute, mandatory refunds of any sums paid for such services, and civil penalties of up to $15,000 for each violation, double damages, and possible exclusion from future participation in the governmental healthcare programs. A person who engages in a scheme to circumvent the Stark Law’s prohibitions may be fined up to $100,000 for each applicable arrangement or scheme.
Some states have enacted statutes and regulations against self-referral arrangements similar to the federal Stark Law, but which may be applicable to the referral of patients regardless of their payer source and which may apply to different types of services. These state laws may contain statutory and regulatory exceptions that are different from those of the federal law and that may vary from state to state. An adverse determination under these state laws and/or the federal Stark Law could subject us to different liabilities, including criminal penalties, civil monetary penalties and exclusion from participation in Medicare, Medicaid or other health care programs, any of which could have a material adverse effect on our business, financial condition or results of operations.
We must comply with Health Information Privacy and Security Standards.
The privacy regulations Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended, contain detailed requirements concerning the use and disclosure of individually identifiable patient health information (“PHI”) by various healthcare providers, such as medical groups. HIPAA covered entities must implement certain administrative, physical, and technical security standards to protect the integrity, confidentiality and availability of certain duplicativeelectronic health information received, maintained, or transmitted. HIPAA also implemented standard transaction code sets and standard identifiers that covered entities must use when submitting or receiving certain electronic healthcare transactions, including billing and claim collection activities. Violations of the HIPAA privacy and security rules may result in civil and criminal penalties, including a tiered system of civil money penalties that range from $100 to $50,000 per violation, with a cap of $1.5 million per year for identical violations. A HIPAA covered entity must also promptly notify affected individuals where a breach affects more than 500 individuals and report breaches affecting fewer than 500 individuals annually. State attorneys general may bring civil actions on behalf of state residents for violations of the HIPAA privacy and security rules, obtain damages on behalf of state residents, and enjoin further violations.
Many states also have laws that protect the privacy and security of confidential, personal information, which may be similar to or even more stringent than HIPAA. Some of these state laws may impose fines and penalties on violators and may afford private rights of action to individuals who believe their personal information has been misused. We expect increased federal and state privacy and security enforcement efforts.
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A cyber security incident could cause a violation of HIPAA, breach of customer and patient privacy, or other negative impacts.
We rely extensively on our information technology (or IT) systems to manage scheduling and financial data, communicate with customers and their patients, vendors, and other third parties, and summarize and analyze operating results. In addition, we have made significant investments in technology, including the engagement of a third-party IT provider. A cyber-attack that bypasses our IT security systems could cause an IT security breach, a loss of protected health information, or other data subject to privacy laws, a loss of proprietary business information, or a material disruption of our IT business systems. This in turn could have a material adverse impact on our business and result of operations. In addition, our future results of operations, as well as our reputation, could be adversely impacted by theft, destruction, loss, or misappropriation of public health information, other confidential data, or proprietary business information.
Computer malware, viruses, and hacking and phishing attacks by third parties have become more prevalent in our industry, have occurred on our systems in the past, and may occur on our systems in the future. Because techniques used to obtain unauthorized access to or sabotage systems change frequently and generally are not recognized until successfully launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. As cyber-security threats develop and grow, it may be necessary to make significant further investments to protect data and infrastructure. If an actual or perceived breach of our security occurs, (i) we could suffer severe reputational damage adversely affecting customer or investor confidence, (ii) the market perception of the effectiveness of our security measures could be harmed, (iii) we could lose potential sales and existing customers, our ability to deliver our services or operate our business may be impaired, (iv) we may be subject to litigation or regulatory investigations or orders, and (v) we may incur significant liabilities. Our insurance coverage may not be adequate to cover the potentially significant losses that may result from security breaches. We are currently reviewing our needs for cybersecurity policy as we continue our research and development on L-CYTE-01 and medical services for COPD patients.
We must comply with Environmental and Occupational Safety and Health Administration Regulations.
We are subject to federal, state and local regulations governing the storage, use and disposal of waste materials and products. Although we believe that our safety procedures for storing, handling and disposing of these materials and products comply with the standards prescribed by law and regulation, we cannot eliminate the risk of accidental contamination or injury from those hazardous materials. In the event of an accident, we could be held liable for any damages that result and any liability could exceed the limits or fall outside the coverage of our insurance coverage, which we may not be able to maintain on acceptable terms, or at all. We could incur significant costs and attention of our management could be diverted to comply with current or future environmental laws and regulations. Federal regulations promulgated by the Occupational Safety and Health Administration impose additional requirements on us, including those protecting employees from exposure to elements such as blood-borne pathogens. We cannot predict the frequency of compliance, monitoring, or enforcement actions to which we may be subject as those regulations are being implemented, which could adversely affect our operations.
Risks associated with the variable interest entity (the “VIE”) structure.
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, PLLC (“LI Dallas”), Lung Institute Nashville, PLLC (“LI Nashville”), Lung Institute Pittsburgh, PLLC (“LI Pittsburgh”), and Lung Institute Scottsdale, LLC (“LI Scottsdale”), as Variable Interest Entities (“VIEs”). Additionally, H-CYTE Management, LLC is the operator and manager of the various Lung Health Institute (LHI) clinics: LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale.
We believe that the VIE contractual arrangements with VIEs and their respective shareholders are in compliance with the U.S. federal and state laws and regulations and are legally enforceable. However, uncertainties in the legal system could limit our ability to enforce the VIE contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of the federal or state laws and regulations, the related regulatory agencies could:
● | revoke the business and operating licenses of any or all of the VIEs; | |
● | discontinue or restrict the operations of any related-party transactions between any of the VIEs and H-CYTE or its affiliates; | |
● | impose fines or other requirements which may adversely affect the operations of the VIEs; or | |
● | require the Company and any or all of its VIEs to restructure the relevant ownership structure or operations. |
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Our ability to conduct our business through the VIE structure may be negatively affected if the federal or state government were to carry out of any of the aforementioned actions. In such event, H-CYTE may not be able to consolidate any or all of the VIEs in its consolidated financial statements as it may lose the ability to exert effective control over any or all of the VIEs and their respective shareholders and it may lose the ability to receive economic benefits from its VIE structure.
We must comply with a range of other Federal and State Healthcare Laws.
We are also subject to other federal and state healthcare laws that could have a material adverse effect on our business, financial condition or results of operations. The Health Care Fraud Statute prohibits any person from knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, which can be either a government or private payer plan. Violation of this statute, even in the absence of actual knowledge of or specific intent to violate the statute, may be charged as a felony offense and may result in fines, imprisonment, or both. The Health Care False Statement Statute prohibits, in any matter involving a federal health care program, anyone from knowingly and willfully falsifying, concealing or covering up, by any trick, scheme or device, a material fact, or making any materially false, fictitious or fraudulent statement or representation, or making or using any materially false writing or document knowing that it contains a materially false or fraudulent statement. A violation of this statute may be charged as a felony offense and may result in fines, imprisonment or both. Under the Civil Monetary Penalties Law of the Social Security Act, a person (including an organization) is prohibited from knowingly presenting or causing to be presented to any United States officer, employee, agent, or department, or any state agency, a claim for payment for medical or other items or services where the person knows or should know (a) the items or services were not provided as described in the coding of the claim, (b) the claim is a false or fraudulent claim, (c) the claim is for a service furnished by an unlicensed physician, (d) the claim is for medical or other items or service furnished by a person or an entity that is in a period of exclusion from the program, or (e) the items or services are medically unnecessary items or services. Violations of the law may result in penalties of up to $10,000 per claim, treble damages, and exclusion from federal healthcare programs.
In addition, the office of inspector general (“OIG”) may impose civil monetary penalties against any physician who knowingly accepts payment from a hospital (as well as against the hospital making the payment) as an inducement to reduce or limit medically necessary services provided to Medicare or Medicaid program beneficiaries. Further, except as permitted under the Civil Monetary Penalties Law, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider of Medicare or Medicaid payable items or services may be liable for civil money penalties of up to $10,000 for each wrongful act.
In addition to the state laws previously described, we may also be subject to other state fraud and abuse statutes and regulations if we expand our operations nationally. Many states have adopted a form of anti-kickback law, self-referral prohibition, and false claims and insurance fraud prohibition. The scope of these laws and the interpretations of them vary from state to state and are enforced by state courts and regulatory authorities, each with broad discretion. Generally, state laws reach to all healthcare services and not just those covered under a governmental healthcare program. A determination of liability under any of these laws could result in fines and penalties and restrictions on our ability to operate in these states. We cannot assure that our arrangements or business practices will not be subject to government scrutiny or be found to violate applicable fraud and abuse laws.
Changes in healthcare laws could create an uncertain environment and materially impact us.
We cannot predict the effect that the ACA (also known as Obamacare) and its implementation, amendment, or repeal and replacement, may have on our business, results of operations or financial condition. Any changes in healthcare laws or regulations that reduce, curtail or eliminate payments, government-subsidized programs, government-sponsored programs, and/or the expansion of Medicare or Medicaid, among other actions, could have a material adverse effect on our business, results of operations and financial condition. For example, the ACA dramatically changed how healthcare services are covered, delivered, and reimbursed. The ACA requires insurers to accept all applicants, regardless of pre-existing conditions, cover an extensive list of conditions and treatments, and charge the same rates, regardless of pre-existing condition or gender.
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The ACA and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Reform Acts”) also mandated changes specific to home health and hospice benefits under Medicare. In 2012, the U.S. Supreme Court upheld the constitutionality of the ACA, including the “individual mandate” provisions of the ACA that generally require all individuals to obtain healthcare insurance or pay a penalty. However, the U.S. Supreme Court also held that the provision of the ACA that authorized the Secretary of the U.S. Department of Health and Human Services to penalize states that choose not to participate in the expansion of the Medicaid program by removing all of its existing Medicaid funding was unconstitutional. In response to the ruling, a number of state governors opposed its state’s participation in the expanded Medicaid program, which resulted in the ACA not providing coverage to some low-income persons in those states. In addition, several bills have been, and are continuing to be, introduced in U.S. Congress to amend all or significant provisions of the ACA, or repeal and replace the ACA with another law. In December 2017, the individual mandate was repealed via the Tax Cuts and Jobs Act of 2017. Afterwards, legal and political challenges as to the constitutionality of the remaining provisions of the ACA resumed.
Our operations are subject to the nation’s healthcare laws, as amended, repealed, or replaced from time to time.
The net effect of the ACA on our business is subject to numerous variables, including the law’s complexity, lack of complete implementing regulations and interpretive guidance, gradual and potentially delayed implementation or possible amendment, as well as the realizationuncertainty as to the extent to which states will choose to participate in the expanded Medicaid program. The continued implementation of provisions of the ACA, the adoption of new regulations thereunder and ongoing challenges thereto, also added uncertainty about the current state of U.S. healthcare laws and could negatively impact our business, results of operations and financial condition. Healthcare providers could be subject to federal and state investigations and payer audits.
Due to our and our affiliates’ participation in government and private healthcare programs, we are from time to time involved in inquiries, reviews, audits, and investigations by governmental agencies and private payers of our business practices, including assessments of our compliance with coding, billing and documentation requirements. Federal and state government agencies have active civil and criminal enforcement efforts against healthcare companies, and their executives and managers. The Deficit Reduction Act, which provides a financial incentive to states to enact their own false claims acts, and similar laws encourage investigations against healthcare companies by different agencies. These investigations could also be initiated by private whistleblowers.
Responding to audit and investigative activities are costly and disruptive to our business operations, even when the allegations are without merit. If we are subject to an audit or investigation, a finding could be made that we or our affiliates erroneously billed or were incorrectly reimbursed, and we may be required to repay such agencies or payer, may be subjected to pre-payment reviews, which can be time-consuming and result in non-payment or delayed payments for the services we or our affiliates provide, and may be subject to financial sanctions or required to modify our operations.
Product pricing may be subject to regulatory control.
The pricing and profitability of the products we sell may be subject to control by third-party payer. As of the date of this prospectus, we do not receive reimbursements from insurance companies for our therapeutic products but we may in the future. In that case, the continuing efforts of governmental and other efficienciesthird-party payer to contain or reduce the cost of healthcare through various means may adversely affect our ability to successfully commercialize our products. We anticipate that there will continue to be federal and state proposals to implement similar governmental control, although it is unclear which proposals will ultimately become law, if any. Direct or indirect changes in prices, including any mandated pricing, could impact our revenues, profitability, and financial performance in the future if and when we receive reimbursements from third party payer.
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Our revenues may depend on our customers’ receipt of adequate reimbursement from private insurers and government sponsored healthcare programs.
Political, economic, and regulatory influences continue to change the healthcare industry in the United States. If and when we start receiving reimbursements from third parties, the ability of hospitals to pay fees for our products will partially depend on the extent to which reimbursement for the costs of such materials and related treatments will continue to be available from private health coverage insurers and other similar organizations. We may have difficulty gaining market acceptance for the products we sell if third-party payer do not provide adequate coverage and reimbursement to hospitals.
Major third-party payer of hospitals, such as private healthcare insurers, periodically revise their payment methodologies based, in part, upon changes in government sponsored healthcare programs. We cannot predict these periodic revisions with certainty, and such revisions may result in stricter standards for reimbursement of hospital charges for certain specified products, potentially adversely impacting our business, results of operations, and financial conditions when we start receiving reimbursement from third party payer.
When we start receiving reimbursement from third party payer, the sales of our therapies will depend in part on the availability of reimbursement by third-party payer, such as government health administration authorities, private health insurers and other organizations. Third-party payer often challenge the price and cost-effectiveness of medical treatments and services. Governmental approval of health care products does not guarantee that these third-party payers will pay for the products. Even if third-party payers do accept our therapeutic treatments, the amounts they pay may not be adequate to enable us to realize a profit. Legislation and regulations affecting the pricing of therapies may change before our products and services are approved for marketing, and any such changes could further limit reimbursement, if any.
Future regulatory action remains uncertain.
We operate in a highly regulated and evolving environment with rigorous regulatory enforcement. Any legal or regulatory action could be time-consuming and costly. If we or the manufacturers or distributors that supply our products fail to comply with all applicable laws, standards, and regulations, action by the FDA or other regulatory agencies could result in significant restrictions, including restrictions on the marketing or use of the products we sell or the withdrawal of the products we sell from the market. Any such restrictions or withdrawals could materially affect our reputation, business and operations.
Our product candidates will remain subject to ongoing regulatory review even after they receive marketing approval, and if we fail to comply with continuing regulations, we could lose these approvals and the sale of any of our approved commercial products could be suspended.
Even as we receive regulatory approval to market a particular product candidate, such as L-CYTE-01 therapy, the manufacturing, labeling, packaging, adverse event reporting, storage, advertising, promotion, and record keeping related to the integrationproduct will remain subject to extensive regulatory requirements. If we fail to comply with the regulatory requirements of the acquired business, will offsetFDA and other applicable domestic and foreign regulatory authorities or discover any previously unknown problems with any approved product, manufacturer, or manufacturing process, we could be subject to administrative or judicially imposed sanctions, including:
● | restrictions on the products, manufacturers, or manufacturing processes; | |
● | warning letters; | |
● | civil or criminal penalties; | |
● | fines; | |
● | injunctions; | |
● | product seizures or detentions; | |
● | pressure to initiate voluntary product recalls; | |
● | suspension or withdrawal of regulatory approvals; and | |
● | refusal to approve pending applications for marketing approval of new products or supplements to approved applications. |
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If physicians and patients do not accept our current and future products or if the incremental transaction-related costs over time. Therefore,market for indications for which any net benefitproduct candidate is approved is smaller than expected, we may be unable to generate significant revenue, if any.
Even when any of our product candidates obtain regulatory approval, they may not gain market acceptance among physicians, patients, and third-party payers. Physicians may decide not to recommend our treatments for a variety of reasons including:
● | timing of market introduction of competitive products; | |
● | demonstration of clinical safety and efficacy compared to other products; | |
● | cost-effectiveness; | |
● | limited or no coverage by third-party payers; | |
● | convenience and ease of administration; | |
● | prevalence and severity of adverse side effects; | |
● | restrictions in the label of the drug; | |
● | other potential advantages of alternative treatment methods; and | |
● | ineffective marketing and distribution support of its products. |
If any of our product candidates are approved, but fail to achieve market acceptance or such market is smaller than anticipated, we may not be achievedable to generate significant revenue and our business would suffer.
Intellectual property litigation and infringement claims could cause us to incur significant expenses or prevent us from selling certain of our products.
The medical device and pharmaceutical industries are characterized by extensive intellectual property litigation and, from time to time, we may become the subject of claims of infringement or misappropriation. Regardless of outcome, such claims are expensive to defend and divert management and operating personnel from other business issues. A successful claim or claims of patent or other intellectual property infringement against us could result in payment of significant monetary damages and/or royalty payments or negatively impact our ability to sell current or future products in the near term,affected category.
We depend extensively on our patents and proprietary technology and the long term patents and proprietary technology we license from others, and we must protect those assets in order to preserve our business.
Although we expect to seek patent protection for any compounds, devices, biologics, systems, and processes we discover and/or for any specific use we discover for new or previously known compounds, devices, biologics, systems, or processes, any or all of which may not be subject to effective patent protection. In addition, our issued patents may be declared invalid or our competitors may find ways to avoid the claims in the patents.
Our success will depend, in part, on our ability to obtain patents, protect our trade secrets and proprietary knowledge and operate without infringing on the proprietary rights of others. We are the exclusive licensee, sole assignee or co-assignee of numerous granted United States patents, pending United States patent applications and international patents. The patent position of pharmaceutical and biotechnology firms like us are generally highly uncertain and involves complex legal and factual questions, resulting in both an apparent inconsistency regarding the breadth of claims allowed in United States patents and general uncertainty as to their legal interpretation and enforceability. Accordingly, patent applications assigned or exclusively licensed to us may not result in patents being issued, any issued patents assigned or exclusively licensed to us may not provide us with competitive protection or may be challenged by others, and the current or future granted patents of others may have an adverse effect on our ability to do business and achieve profitability.
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Moreover, because some of the basic research relating to one or more of our patent applications and/or patents were performed at various universities and/or funded by grants, one or more universities, employees of such universities and/or grantors could assert that they have certain rights in such research and any resulting products. Further, others may independently develop similar products, may duplicate our products, or may design around our patent rights. In addition, as a result of the assertion of rights by a third-party or otherwise, we may be required to obtain licenses to patents or other proprietary rights of others in or outside of the United States. Any licenses required under any such patents or proprietary rights may not be made available on terms acceptable to us, if at all.
We depend on license agreements with respectthird-parties for certain intellectual property rights relating to our products or geographic markets, and exposeproduct candidates. In general, our license agreements require us to additional liabilities associated withmake payments and satisfy performance obligations in order to keep these agreements in effect and retain our rights under them. These payment obligations can include upfront fees, maintenance fees, milestones, royalties, patent prosecution expenses, and other fees. These performance obligations typically include diligence obligations. If we fail to pay, be diligent or otherwise perform as required under our license agreements, we could lose the rights under the patents and other intellectual property rights covered by these agreements. If disputes arise under any of our in-licenses, we could lose our rights under these agreements. Any such dispute may not be resolvable on favorable terms, or at all. Whether or not any disputes of this kind are favorably resolved, our management’s time and attention and our other resources could be consumed by the need to attend to these disputes and our business could be harmed by the emergence of such a dispute.
If we lose our rights under these agreements, we might not be able to develop any related product candidates further, or following regulatory approval, if any, we might be prohibited from marketing or commercializing these product candidates. In particular, patents previously licensed to us might, after termination of an acquired business, product, technology oragreement, be used to stop us from conducting these activities.
Due to legal and factual uncertainties regarding the scope and protection afforded by patents and other asset or arrangement. Any one of these challenges or risks could impairproprietary rights, we may not have meaningful protection from competition.
Our long-term success will substantially depend upon our ability to realize any benefitprotect our proprietary technologies from infringement, misappropriation, discovery and duplication, and avoid infringing the proprietary rights of others. Our patent rights and the patent rights of biotechnology and pharmaceutical companies in general, are highly uncertain and include complex legal and factual issues. Because of this, our acquisition or arrangement after we have expended resources on them.
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Also, because of these products may require significant researchlegal and development, clinical trialsfactual uncertainties, and regulatory approvals. The results of our product development efforts may be affected by a number of factors, including our ability to innovate, develop and manufacture new products, complete clinical trials, obtain regulatory approvals and reimbursementbecause pending patent applications are held in secrecy for varying periods in the United States and abroad,other countries, even after reasonable investigation, we may not know with certainty whether any products that we (or a licensee) may develop will infringe upon any patent or gain and maintain market approval of our products. In addition, patents attained by others can preclude or delay our commercializationother intellectual property right of a product. There can be no assurancethird party. For example, we are aware of certain patents owned by third parties that any products now in development or that we may seeksuch parties could attempt to developuse in the future in efforts to affect our freedom to practice some of the patents that we own or have applied for. Based upon the science and scope of these third-party patents, we believe that the patents that we own or have applied for do not infringe any such third-party patents; however, we cannot know for certain whether we could successfully defend our position, if challenged. We may incur substantial costs if we are required to defend our intellectual property in patent suits brought by third parties. These legal actions could seek damages and seek to enjoin testing, manufacturing and marketing of the accused product or process. In addition to potential liability for significant damages, we could be required to obtain a license to continue to manufacture or market the accused product or process.
We may not be able to compete with treatments now being marketed and developed, or which may be developed and marketed in the future by other companies.
Our products will achieve technological feasibility, obtain regulatory approval or gain market acceptance.
Due in part to our limited financial resources, we may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable indications or therapeutic areas for our product candidates or those that are in-licensed, and/or we may be unable to pursue the clinical trials that we would like to pursue.
We have limited technical, managerial, and financial resources to determine the indications on which we should focus the development efforts related to our product candidates. Due to our limited available financial resources, we may have curtailed clinical development programs and activities thus, the timing and adequacythat might otherwise have led to more rapid progress of our product candidates through the regulatory and development processes.
We may make incorrect determinations with regard to the indications and clinical trials on which to focus the available resources that we do have. Furthermore, we cannot assure you that we will be able to retain adequate staffing levels to run our operations and/or to accomplish all of the objectives that we otherwise would seek to accomplish. Our decisions to allocate our research, management, and such research activities are,financial resources toward particular indications or therapeutic areas for our product candidates may not lead to a certain extent, beyondthe development of viable commercial products and may divert resources from better opportunities. Similarly, our control.
If the third parties on which we may need to rely tofor the conduct anyof our clinical trials and to assist us with pre-clinical development or other key stepsresults do not perform as contractually required or expected,our clinical trial activities in accordance with good clinical practices and related regulatory requirements, we may not be ableunable to obtain regulatory clearance or approval for or commercialize our product.product candidates.
We use independent clinical investigators and other third-party service providers to conduct and/or oversee the clinical trials of our product candidates, and expect to continue to do so for the foreseeable future.
The FDA requires us and our clinical investigators to comply with regulations and standards, commonly referred to as good clinical practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate, and that the trial participants are adequately protected. Our reliance on third parties that we do not control does not relieve us of these responsibilities and requirements. Third parties may not complete activities on schedule or may not conduct our clinical trials in accordance with regulatory requirements or the respective trial plans and protocols. The failure of these third parties to carry out their obligations could delay or prevent the development, approval, and commercialization of our product candidates or result in enforcement action against us.
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Risks Related to Manufacturing & Distribution
We have limited manufacturing capacity and have relied on, and expect to continue to rely on, third-party contract manufacturers to produce our products and clinical development candidates.
We do not have (and do not expect to develop)own or operate manufacturing facilities for the independent ability to independently conduct pre-clinical andproduction of clinical trials foror commercial quantities of our products and to the extent we will need to conduct such trials, we will likely need to rely on third-parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct such trials. We also do not have (and do not expect to develop) the independent ability to manufacture our proposed products, and will therefore need to rely on third parties such as contract manufacturing organizations. If these various third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, or if the quality or accuracy of the data they obtain or the quality of the products they produce for us is compromised due to the failure to adhere to our clinical or manufacturing protocols or regulatory requirements or for any other reasons, we may have difficulty replacing them with other qualified third-party providers of the necessary services or products and in the meantime, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated,candidates, and we may not be ablecurrently lack the resources and the capabilities to obtain regulatory clearance or approval for, or successfully commercialize, a product on a timely basis, if at all. As such,build our business, operating results and prospects may be adversely affected and may even fail entirely. Furthermore, our third-party clinical trial investigators may be delayed in conducting our clinical trials for reasons outside of their (or our) control.
● | reliance on third-parties for manufacturing process development, regulatory compliance and quality assurance; | |
● | limitations on supply availability resulting from capacity and scheduling constraints of third-parties; | |
● | the possible breach of manufacturing agreements by third-parties because of factors beyond our control; and | |
● | the possible termination or non-renewal of the manufacturing agreements by the third-party, at a time that is costly or inconvenient to us. |
If we do not maintain our key manufacturing relationships, we may fail to find replacement manufacturers or develop our own manufacturing capabilities, which could delay or impair our ability to obtain regulatory approval for our products and substantially increases our costs or deplete profit margins, if any. If we do find replacement manufacturers, we may not be able to enter into agreements with them on terms and conditions favorable to us, and there could be a substantial delay before new facilities could be qualified and registered with the third partyFDA and other foreign regulatory authorities.
The FDA and other foreign regulatory authorities require manufacturers to register manufacturing facilities. The FDA and corresponding foreign regulators also inspect these facilities to confirm compliance with current FDA Good Manufacturing Procedures (“cGMP”). Contract manufacturers may face manufacturing or quality control problems, leading to drug substance production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP requirements. Any failure to comply with cGMP requirements or other FDA, EMA, and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our product candidates and market our products following approval.
Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop our product candidates and commercialize any products that receive regulatory compliance and quality assurance, the possibilityapproval on a timely basis.
Interruption of breach of the manufacturing agreement by the third party because of factors beyondoperations could adversely affect our control (includingbusiness.
Our suppliers have manufacturing facilities for certain product lines that may be concentrated in one (1) or more plants. Damage to these facilities or issues in our manufacturing arising from a failure to manufacture our products in accordance with our product specifications)follow specific internal protocols and procedures, compliance concerns relating to quality systems regulations, equipment breakdown or malfunction, among other factors, could adversely affect the possibility of termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or damaging to us. We will be dependent on the ability of these third-party manufacturers to produce adequate supplies of medical products to support our clinical development programs and future commercializationavailability of our products. In addition, the FDA and other regulatory authorities require that ourevent of an interruption in manufacturing of certain products, we may be manufactured accordingunable to current good manufacturing practices and similar foreign standards. Any failure by our third-party manufacturerquickly shift to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of products in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of any of our products. In addition, such failure could be the basis for action by the FDA to withdraw approvals for products previously granted to us and for other regulatory action, including recall or seizure, fines, imposition of operating restrictions, total or partial suspensionalternate means of production to meet customer demand. In the event of a significant interruption, we may experience lengthy delays in resuming production of affected products due to the need for regulatory approvals. We may experience loss of market share, additional expense, or injunctions.
Additionally, we contract with a limited number of suppliers for certain capital equipment andthe raw materials that we use to manufacture ourproduce certain products. Such suppliers mayWhile we have not sell theseexperienced a shortage of raw materials in the past and believe that it is unlikely that there will be one in the future, if there were a shortage of raw materials, it could either increase the cost of production or prevent us from being able to our manufacturer at the times we need them or on commercially reasonable terms. We do not have any control over the process or timing of the acquisition of these materials by our third party manufacturer. If our manufacturer or we are unable to purchase these materials after regulatory approval has been obtained for our products, the commercial launchproduce some of our products, wouldwhich could adversely affect future results of our operations and financial condition.
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We may be delayedadversely affected by product liability claims, unfavorable court decisions or legal settlements.
We are exposed to potential product liability risks inherent in the design, manufacturing, and marketing of pharmaceuticals and medical devices, many of which are administered to or implanted in the human body for long periods of time or indefinitely. These matters are subject to many uncertainties and outcomes are not predictable. In addition, we may incur significant legal expenses regardless of whether we are found to be liable.
While we maintain product liability insurance, there wouldcan be a shortageno assurance that such coverage is sufficient to cover all product liabilities that we may incur. We are not currently subject to any product liability proceedings, and we have no reserves for product liability disbursements. However, we may incur material liabilities relating to product liability claims in supply, which would impair our ability to generate revenues from the salefuture, including product liability claims arising out of the usage and delivery of our products.
Because we may not be able to manufacture our products at a costobtain or in quantities or in a timely mannermaintain the necessary to develop and commercialize them. If we successfully commercialize the DenerveX or any ofregulatory approvals for our products, we may not generate revenues in the amounts we expect, or in the amounts necessary to continue our business. Our existing products as well as our manufacturing facility must meet quality standards and are subject to inspection by a number of domestic regulatory and other governmental and non-governmental agencies.
Our biologics and therapeutic devices will be subject to regulation in the U.S. by the FDA and/or other domestic and international governmental, public health agencies, regulatory bodies or non-governmental organizations. In particular, we are subject to strict governmental controls on the development, manufacturing, labeling, distribution, and marketing of our products. The process of obtaining required approvals or clearances varies according to the nature of, and uses for, a specific product. These processes can involve lengthy and detailed laboratory testing, human or animal clinical trials, sampling activities, and other costly, time-consuming procedures. The submission of an application to a regulatory authority does not guarantee that the authority will grant an approval or clearance for that product. Each authority may impose its own requirements and can delay or refuse to grant approval or clearance, even though a product has been approved in another country.
The time required to establishobtain approval or access large-scale commercial manufacturing capabilities. In addition, asclearance varies depending on the nature of the application and may result in the passage of a significant period of time from the date of submission of the application. Delays in the approval or clearance processes increase the risk that we will not succeed in introducing or selling the subject products, and we may determine to devote our development pipeline increasesresources to different products.
Changes in government regulations could increase our costs and matures,could require us to undergo additional trials or procedures or could make it impractical or impossible for us to market our products for certain uses, in certain markets, or at all.
Changes in government regulations may adversely affect our financial condition and results of operations because we may have a greater need for clinical trialto incur additional expenses if we are required to change or implement new testing, manufacturing, and commercial manufacturing capacity. To meetcontrol procedures. If we are required to devote resources to develop such new procedures, we may not have sufficient resources to devote to research and development, marketing, or other activities that are critical to our projected needs for commercial manufacturing the third party with whom we currently work will need to increase its scale of production or we will need to secure an alternate supplier.
We may not be successful in establishinghave sufficient resources to effectively introduce and maintaining strategic partnerships,market our products, which could adversely affectmaterially harm our operating results.
Introducing and achieving market acceptance for our products will require substantial marketing efforts and will require us and/or our contract partners, sales agents, and/or distributors to make significant expenditures of time and money. In some instances, we will be significantly or totally reliant on the marketing efforts and expenditures of our contract partners, sales agents, and/or distributors. If they do not have or commit the expertise and resources to effectively market the products that we manufacture, our operating results will be materially harmed.
In addition to the market success of our products, the success of our business depends on our ability to develop and commercialize products.
General Risks Related
The recent coronavirus outbreak (“COVID-19”) has adversely affected the Company’s financial condition and results of operations and we cannot provide any certainty when and whether our operations will reach the normal level prior to Our Intellectual Property Rights
The coronavirus outbreak (“COVID-19”) has adversely affected the Company’s financial condition and results of our products.
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency caused by a new strain of the coronavirus and advised of the risks to the international community as the virus spread globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. The spread of COVID-19 coronavirus has caused public health officials to recommend precautions to mitigate the spread of the virus, especially as to travel and congregating in large numbers. In addition, certain states and municipalities have enacted quarantining regulations which severely limit the ability of people to move and travel.
In addition, the Company is uncertain of the full effect the pandemic will have on it for the longer term since the scope and duration of the pandemic is unknown, and evolving factors such as the level and timing of the distribution of efficacious vaccines across the world and the extent of any resurgences of the virus or emergence of new variants of the virus, such as the Delta variant and the Omicron variant, will impact the stability of economic recovery and growth. The Company may experience long-term disruptions to its operations resulting from changes in government policy or guidance; quarantines of employees, customers and suppliers in areas affected by the pandemic; and closures of businesses or manufacturing facilities critical to its business.
General economic conditions may adversely affect demand for our products and services.
Poor or deteriorating economic conditions in the U.S. could adversely affect the demand for healthcare services and consequently, the demand for our products and services. Poor economic conditions also could lead our suppliers to offer less favorable terms of purchase, which would negatively affect our cash flows and profitability. These and other countries. Ifpossible consequences of financial and economic decline could have material adverse effect on our business, results of operations, and financial condition.
We operate our business in regions subject to natural disasters and other catastrophic events, and any disruption to our business resulting from natural disasters would adversely affect our revenue and results of operations.
We operate our business in regions subject to severe weather and natural disasters, including hurricanes, floods, fires, earthquakes, and other catastrophic events. Any natural disaster could adversely affect our ability to conduct business and provide products and services to our customers, and the insurance we domaintain may not adequately protectbe adequate to cover our intellectual property, competitorslosses resulting from any business interruption resulting from a natural disaster or other catastrophic event.
Although we have an ethics and anti-corruption policy in place, and have no knowledge or reason to know of any practices by our employees, agents, or distributors that could be construed as in violation of such policies, our business includes sales of products to countries where there is or may be able to use our technologieswidespread corruption.
We have a policy in place prohibiting employees, distributors and erode or negate any market exclusivity related competitive advantage we may have, which could harm ouragents from engaging in corrupt business and ability to achieve profitability. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws ofpractices, including activities prohibited by the United States Foreign Corrupt Practices Act. Nevertheless, because we work through independent sales agents and we may encounter significant problems in protecting our proprietary rights in these countries.
We depend heavily on our knowledge.
We believe that our success depends, and time consuming, regardless of the outcome. Thus, even if we werewill likely continue to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other Company business.
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Risks Related to raiseOur Common Stock
Our common stock is a “penny stock,” which places restrictions on broker-dealers recommending the funds necessary to continue our operations, or enter into strategic partnerships that would help us bring our products to market.
Our common stock is defined as “penny stock” under the course of our research and development activities and our business activities, we often rely on confidentiality agreements to protect our proprietary information. Such confidentiality agreements are used, for example, when we talk to manufacturers or clinical development services or potential strategic partners. In addition, each of our employees is required to sign a confidentiality agreement upon joining us. We take steps to protect our proprietary information, and our confidentiality agreements are carefully drafted to protect our proprietary interests. Nevertheless, there can be no guarantee that an employee or an outside party will not make an unauthorized disclosure of our proprietary confidential information. This might happen intentionally or inadvertently. It is possible that a competitor will make use of such information, and that our competitive position will be compromised, in spite of any legal action we might take against persons making such unauthorized disclosures.
broker-dealers must deliver, prior to | ||
● | broker-dealers must disclose the commissions payable to the broker-dealer and its registered representative; | |
● | broker-dealers must disclose current quotations for the securities; | |
● | if a broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market; and | |
● | a broker-dealer must furnish its customers with monthly statements disclosing recent price information for all penny stocks held in the customer’s account and information on the limited market in penny stocks. |
Additional sales practice requirements are imposed on broker-dealers who sell penny stocks to persons other than established customers and accredited investors, generally institutions.investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and must have received the purchaser’s written consent to the transaction prior to sale. These additionaldisclosure requirements may discourage broker-dealers from effecting transactions in securities that are classified as penny stocks, which could severely limithave the market price and liquidityeffect of such securities andreducing the abilitylevel of purchasers to sell such securitiestrading activity in the secondary market. A pennymarket for our common stock. As a result, fewer broker-dealers may be willing to make a market in our stock, which could make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
There is a limited trading market for our common stock.
Our common stock is defined generally asnot listed on any non-exchange listed equity security that has anational securities exchange. Accordingly, investors may find it more difficult to buy and sell our shares than if our common stock was traded on an exchange. Although our common stock is quoted on the OTCQB, it is an unorganized, inter-dealer, over-the-counter market which provides significantly less liquidity than the Nasdaq Capital Market or other national securities exchange. These factors may have an adverse impact on the trading and price of less than $5.00 per share,our common stock.
Provisions of our Restated Certificate of Incorporation could delay or prevent the acquisition or sale of our business.
Our second Amended and Restated Articles of Incorporation permit our Board of Directors to designate new series of preferred stock and issue those shares without any vote or action by our stockholders, subject to certain exceptions.
We do not intend to obtain intended economic benefits could adversely affectpay dividends on our business, financial conditionCommon Stock for the foreseeable future.
We have paid no cash dividends on our common stock to date and operating performances.
Our issuance of Common Stock upon exercise of warrants or options may depress the price of our Common Stock.
As January 25, 2022, we had 167,857,522 shares of common stock issued and outstanding, outstanding warrants to purchase 350,996,043 shares of common stock, and outstanding options to purchase 15,385,000 shares of common stock. The issuance of shares of common stock upon exercise of outstanding warrants or options could result in substantial dilution to our stockholders, which may have a negative effect on the price of our common stock. The Company also had 498,229,802 shares of Preferred A Stock outstanding as of January 25, 2022.
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SPECIAL NOTE REGARDING FORWARD-LOOKING
This prospectus contains forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.
In some cases, you can identify forward-looking statements by terminology, such as “expects”, “anticipates”, “intends”, “estimates”, “plans”, “potential”, “possible”, “probable”, “believes”, “seeks”, “may”, “will”, “should”, “could” or the negative of such terms or other similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus.
You should read this prospectus and the documents that we reference herein and have filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this prospectus, and particularly our forward-looking statements, by these cautionary statements.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of our common stock being offered for sale by the selling stockholders. Upon the exercise of the warrants for an aggregate of 350,996,043 shares of common stock assuming all payments are made by cash and there is no reliance on cashless exercise provisions however, we will receive the exercise price of the warrants, or an aggregate of approximately $4,913,945, from the investors in the April 14, 2020 Private Placement. We will bear all fees and expenses incident to our obligation to register the shares of common stock. Brokerage fees, commissions and similar expenses, if any, attributable to the sale of shares offered hereby will be borne by the selling stockholder.
There is no assurance the warrants will be exercised for cash. We intend to use such proceeds, if any, for general corporate and working capital purposes while beginning to execute our plan of acquiring assets in the biologics and medical device spaces.
DIVIDENDS POLICY
We have not paid cash dividends on our common stock in the past and have no present intention of paying cash dividends on our common stock in the foreseeable future and our stock may not appreciate in value.
2016 | High | Low | ||||||
First Quarter | $ | 1.70 | $ | 0.85 |
2015(1) | High | Low | ||||||
Fourth quarter | $ | 4.23 | $ | 3.46 | ||||
Third quarter | 4.00 | 3.85 | ||||||
Second quarter | 2.40 | 2.25 | ||||||
First quarter | 1.10 | 0.9504 |
Three Months Ended March 31, | ||||||||
2016 | 2015 | |||||||
Revenues | $ | -- | $ | -- | ||||
Operating Expenses | ||||||||
General and administrative | 1,130,711 | 1,149,723 | ||||||
Sales and marketing | 21,272 | -- | ||||||
Research and development | 189,283 | 304,719 | ||||||
Depreciation and amortization | 144,170 | -- | ||||||
Total Operating Expenses | 1,485,436 | 1,454,442 | ||||||
Operating Loss | (1,485,436 | ) | (1,454,442 | ) | ||||
Other Expenses | ||||||||
Interest Expense | 346,850 | -- | ||||||
Total Other Expenses | 346,850 | -- | ||||||
Net Loss | $ | (1,832,286 | ) | $ | (1,454,442 | ) |
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OUR BUSINESS
Overview
H-CYTE, Inc (“the Company raised approximately $1,167,000 in net proceeds uponCompany”) is a hybrid-biopharmaceutical company dedicated to developing and delivering new treatments for patients with chronic respiratory and pulmonary disorders. During the closing of a private placement of common stock. Since we believe that the likelihood of obtaining traditional debt financing at our stage of development is low, our source of funds in the foreseeable future will likely be from the sale of capital stock or some type of structured capital arrangement involving a combination of debt with an equity component.
March 31, 2016 | December 31, 2015 | |||||||
Current Assets | $ | 629,000 | $ | 1,775,000 | ||||
Current Liabilities | 538,000 | 590,000 | ||||||
Working Capital | $ | 91,000 | $ | 1,185,000 |
$ | (1,055,000 | ) | $ | (1,239,000 | ) | |||
(3,000 | ) | (1,500,000 | ) | |||||
(40,000 | ) | 1,084,000 | ||||||
$ | (1,098,000 | ) | $ | (1,655,000) |
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, PLLC (“LI Dallas”), Lung Institute Nashville, PLLC (“LI Nashville”), Lung Institute Pittsburgh, PLLC (“LI Pittsburgh”), and Lung Institute Scottsdale, LLC (“LI Scottsdale”), as we completeVariable Interest Entities (“VIEs”). Additionally, H-CYTE Management, LLC is the Device Verification (DV) buildoperator and testingmanager 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. These two clinics will remain permanently closed.
Autologous Infusion Therapy (“Infusion Vertical”)
The Company’s Biosciences Division includes the Infusion Vertical that develops and implements innovative treatment options in autologous cellular therapy (PRP-PBMC) to treat chronic lung disorders. Committed to an individualized patient-centric approach, this division consistently provides oversight and management of the highest quality care to the LHI clinics located in Tampa, Nashville, and Scottsdale, while producing positive medical outcomes following the strictest CDC guidelines.
Biotech Development Division (“Biotech Vertical”)
During the year ended 2021, the company completed a review of the R&D status regarding the exclusive product supply and services agreements with Rion, LLC (“Rion”) to develop and distribute (post U.S. Food & Drug Administration, the “FDA”, approval) a biologic combining its PRP-PBMC (“PRP”) technology with Rion’s exosomes (“EV”) technology for the DenerveX device and commencementtreatment of the Good Laboratory Practice (GLP) in live tissue testing on our path to submitting for CE mark and eventual FDA approval. Additionally, we anticipate an increase in expenditures of cash to support both a European clinical study to obtain additional clinical data to support marketing goals and to pursue a strategy for an anticipated U.S. clinical trial for eventual U.S. FDA clearance and to support our launch for the product into the European Union.
2015 | 2014 | |||||||
Revenues | $ | 33,045 | $ | -- | ||||
Cost of Goods Sold | 25,383 | -- | ||||||
Gross Profit | 7,662 | -- |
Operating expenses: | ||||||||
General and administrative | 5,000,727 | 1,913,648 | ||||||
Sales and marketing | 102,436 | -- | ||||||
Research and development | 940,179 | 1,020,703 | ||||||
Depreciation and amortization | 433,098 | 2,681 | ||||||
Total operating expenses | 6,476,440 | 2,937,032 | ||||||
Operating loss | (6,468,778 | ) | (2,937,032 | ) | ||||
Other expenses: | ||||||||
Interest expense | 54,299 | -- | ||||||
Total other expenses | 54,299 | -- | ||||||
Net loss | $ | (6,523,077 | ) | $ | (2,937,032 | ) |
Impact of COVID-19
The coronavirus outbreak (“COVID-19”) has adversely affected the marketplace.
On January 30, 2020, the lack of segregation of duties within the accounting functions inherent inWorld Health Organization (“WHO”) announced a small company. We hiredglobal health emergency caused by a controller to perform certain accounting and reporting functions, and we also added John C. Thomas, Jr. to our board of directors in April 2014 as our financial expert and chairnew strain of the Audit Committee. Mr. Thomas is a certified public accountant with over 24 yearscoronavirus and advised of experiencethe risks to the international community as the virus spread globally. In March 2020, the WHO classified the COVID-19 outbreak as a chief financial officer forpandemic based on the rapid increase in exposure globally. The spread of COVID-19 coronavirus has caused public health officials to recommend precautions to mitigate the spread of the virus, especially as to travel and private companies.congregating in large numbers. In addition, certain states and municipalities have enacted quarantining regulations which severely limit the ability of people to move and travel.
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In addition, we have not incurred any interest or penalties. Our policy is to recognize interest and penalties accrued on tax matters as a component of income tax expense.
Competition
Developing and commercializing new productsFDA approved drugs and therapies is highly competitive. The market is characterized by extensive research and clinical efforts and rapid technological change. We faceThe Company faces intense competition worldwide from medical device,pharmaceutical, biomedical technology, and medical productstherapy, and combination products companies, including major medical productspharmaceutical companies. WeThe Company may be unable to respond to technological advances through the development and introduction of new products. Most of ourthe Company’s existing and potential competitors have substantially greater financial, sales and marketing, sales,manufacturing and distribution, manufacturing and technological resources. These competitors may also be in the process of seeking FDA or(or other regulatory approvals, orapprovals) and patent protection for new products. Our competitors may commercialize new products in advance of our products. Our productsThe Company’s biologics product lines also face competition from numerous existing products and procedures, which currently are considered part of the standard of care. We believeThe Company believes that the principal competitive factors in ourits markets are:
● | determining and progressing suitable biological therapies for specific disease states the quality of outcomes for medical conditions; |
● | acceptance by |
● | ease of use and reliability; |
● | technical leadership and superiority; |
● | effective marketing and distribution; |
● | speed to market; and |
● | price and qualification for insurance coverage and reimbursement. |
The Company will also compete in the marketplace to recruit and retain qualified scientific, management and sales personnel, as well as in acquiring technologies and licenses complementary to ourits products or advantageous to ourits business.
The Company is aware that several of several companies that compete orits competitors are developing technologies in ourits current and future products areas. With regardThere are numerous regenerative medicine providers who make unsubstantiated claims that they are able to the DenerveX device, we believe that our principaltreat chronic lung disease. Most of these competitors include device manufacturers Cosman Medical Inc., Stryker Corporationare small clinics with little brand recognition. The landscape is changing as pharma and Spembly Medical Systems. We may also face competition from developing, but potentially untested technologies such as Zyga’s GLYDER device. In order to compete effectively, our products will have to achieve widespread market acceptance, receive adequate insurance coverage and reimbursement, be cost effective and be simultaneously safe and effective.
Customers
The Company’s customer base consists of individuals who are suffering from chronic lung disease that are searching for alternative or adjunct forms of treatment outside of traditional pharmaceutical care which has not been successful for them in the past.
Intellectual Property
The Company’s Infusion Vertical is currently a direct care service provider and contractual agreements such as confidentiality agreements and proprietary information agreements.
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Government Regulations
Governmental authorities in the United States, atU.S. (at the federal, state and local level,levels) and in other countriesabroad, extensively regulate, among other things, the research and development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing, and export and import of products such as those we are developing. Any product that we develop must
FDA Regulation
The Infusion Vertical’s current cellular therapy for chronic lung disease does not require FDA approval due to it being an autologous therapy. The Company’s future biologic biologic therapies will need to be approved by the FDA before they may be legallyare marketed in the United States and byU.S. During the appropriate foreign regulatory agency before they may be legally marketed in foreign countries.
FDA regulations govern, among other things, the development, testing, manufacturing, labeling, safety, storage, record-keeping, market clearance or approval, advertising and promotion, import and export, marketingsales and sales,marketing, and distribution of medical devices and products.
In the United States,U.S., the FDA subjects medicalpharmaceutical and biologic products to rigorous review. If we dothe Company does not comply with applicable requirements, weit may be fined, the government may refuse to approve ourits marketing applications or to allow usit to manufacture or market ourits products, and wethe Company may be criminally prosecuted. Failure to comply with the law could result in, among other things, warning letters, civil penalties, delays in approving or refusal to approve a product, product recall, product seizure, interruption of production, operating restrictions, suspension or withdrawal of product approval, injunctions, or criminal prosecution.
Proprietary Medical Device Business (DenerveX division)
The Company’s business of Medical Devices
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Good Manufacturing Practices ("cGMP"(“GMP”) set forth in the quality system regulations promulgated under section 520 of the Food, Drug and Cosmetic Act. cGMP regulations require, among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation. Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspending manufacturing operations, and civil and criminal penalties. Adverse experiences with the product must be reported to the FDA and could result in the imposition of marketing restrictions through labeling changes or in product withdrawal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following the approval.
United States Anti-Kickback and False Claims Laws
In the United States,U. S., there are Federal and stateState anti-kickback laws that prohibit the payment or receipt of kickbacks, bribes or other remuneration intended to induce the purchase or recommendation of healthcare products and services. Violations of these laws can lead to civil and criminal penalties, including exclusion from participation in Federal healthcare programs. These laws are potentially applicable to manufacturers of products regulated by the FDA as pharmaceuticals, biologics, medical devices, and hospitals, physicians and other potential purchasers of such products. Other provisions of Federal and stateState laws provide civil and criminal penalties for presenting, or causing to be presented, to third-party payers for reimbursement, claims that are false or fraudulent, or which are for items or services that were not provided as claimed. In addition, certain states have implemented regulations requiring medical device and pharmaceutical companies to report all gifts and payments of over $50 to medical practitioners. This does not apply to instances involving clinical trials.
Although we intendthe Company intends to structure ourits future business relationships with clinical investigators and purchasers of ourits products to comply with these and other applicable laws, it is possible that some of ourthe Company’s business practices in the future could be subject to scrutiny and challengechallenged by Federal or stateState enforcement officials under these laws.
Research Productand Development and Technical Operations Expense
Research and development costs and expenses consist primarily of fees paid to external service providers, laboratory testing, supplies, costs for facilities and equipment, and other costs for research and development activities. Research and development expenses are recorded in operating expenses in the period in which they are incurred. Estimates have been used in determining the expense liability of certain 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.
Employees
As of December 31, 2015, weJanuary 25, 2022, the Company had 128 total employees, 11 of which were full-time employees. None of ourits employees are represented by a union and we believe our employee relations to be good.
Available Information
The Company’s business, financial condition, cash flows or results of operations. The Company is not currently a party to any pending legal proceedings, nor is the Company aware of any civil proceeding or government authority contemplating any legal proceeding as of the date of this filing.
Materials filed by the Company with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.govwww.sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file electronically with the SEC.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OPERATIONS
The following discussion and analysis of audit committee
Overview
H-CYTE, Inc (“the Company”) is no family relationship between any directora hybrid-biopharmaceutical company dedicated to developing and executive officer or among any directors or executive officers, exceptdelivering new treatments for patients with chronic respiratory and pulmonary disorders. During the last two years, the Company has evolved into two separate divisions with its entrance into the biologics development space (“Biologics Division”). This new division is complementary to the Company’s current Lung Health Institute (LHI) autologous infusion therapy business (“Infusion Division”) and is focused on underserved disease states. On September 8, 2021, the Company announced that Steve Gorlin is Jarrett Gorlin’s father.
The consolidated results for H-CYTE include the following wholly owned subsidiaries: H-CYTE Management, LLC, Medovex Corp, Cognitive Health Institute, LLC, and Executive Officers
On September 11, 2020, with the blind and was a principal financial contributor to the founding of Camp Kudzu for diabetic children. Presently, he serves as a memberclosing of the board of directorsRights Offering, FWHC, LLC, FWHC Bridge, LLC, and of the executive committee of DemeRx, Inc., NantKwest, Inc. (NASDAQ: NK), and is on the Board of NTC China, Inc.
Autologous Infusion Therapy (“Infusion Division”)
The Infusion Division develops and implements innovative treatment options in autologous cellular therapy (PRP-PBMC) to treat chronic lung disorders. Committed to an individualized patient-centric approach, this division provides oversight and management of the highest quality to the LHI clinics, while producing positive medical outcomes following the strictest Centers for Disease Control and Prevention (the “CDC”) guidelines.
Biotech Development (“Biologics Division”)
On June 21, 2019, H-CYTE entered into an exclusive product supply agreement with Rion, LLC (“Rion”) to develop and distribute (post U.S. Food & Drug Administration, the “FDA”, approval) a biologic combining its PRP-PBMC technology with Rion’s exosomes (“EV”) technology for the treatment of chronic obstructive pulmonary disease (“COPD”), the fourth leading cause of death in the U.S. Rion has established a novel EV technology to harness the healing power of the body. Rion’s innovative 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. This agreement provides for a 10-year exclusive and extendable supply agreement with Rion to enable H-CYTE to develop combined proprietary biologics. The Company is recognized throughoutevaluating alternate EV technologies to determine the worldmost favorable path forward.
On October 9, 2019, the Company entered into a services agreement with Rion which provides the Company the benefit of Rion’s resources and expertise for his scientificthe limited purpose of (i) consulting with and clinicalassisting H-CYTE in the further research contributionsand development for the generation of a new biologic and (ii) subsequently assisting H-CYTE in knee, shoulderseeking and elbow injuries,obtaining FDA Phase 1 IND clearance for this biologic as necessary. Rion has completed the research and his skill as an orthopedic surgeon. Dr. Andrewsdevelopment work which is under review by the Company. The Company is assessing if the Rion combined proprietary biologic is a foundermore viable solution than potentially progressing with a single entity biologic from an alternative commercial source.
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On April 2, 2021, the Company entered into a series of agreements with Medovex, LLC to pursue a joint venture regarding the continued development and current Medical Directorcommercialization of the DenerveX device for business outside of the American Sports Medicine Institute,U.S. The Company has determined that the transactions resulting from the series of agreements with Medovex, LLC are immaterial. The Company will assess the progress of the joint venture on a non-profit organization dedicatedquarterly basis for materiality.
Critical Accounting Policies and Estimates
The Company’s discussion and analysis of its financial condition and results of operations are based on its consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the prevention, educationreported amounts of assets and research in orthopaedicliabilities and sports medicine,the disclosure of assets and liabilities at the date of the financial statements, as well as the Andrews reported amounts of revenues and expenses during the reporting periods.
The Company bases our estimates on historical experience and on various other factors that it 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.
Results of Operations – Three and nine months ended September 30, 2021 and 2020
Revenue, Cost of Sales and Gross Profit
The Company recorded revenue of approximately $460,000 and $1,287,000 for the three and nine months ended September 30, 2021, respectively. The Company recorded revenue of approximately $650,000 and $1,686,000, for the three and nine months ended September 30, 2020, respectively. The decrease in revenue for the three months ended September 30, 2021, as compared to the prior year is attributable to the economic impact that COVID-19 has had on the Company due to its vulnerable patient base being unable or unwilling to travel due to the virus. The Company suspended operations of the Infusion Vertical due to COVID-19 effective March 23, 2020 and did not reopen until August 2020. The Company had pent up demand for the three months ended September 30, 2020 from patients who were not able to come in for treatment due to suspension of operations. The Company experienced higher revenue during the three months ended September 30, 2020 than the three months ended September 30, 2021 due to this pent up demand even though the clinics were only open August and September 2020.
The Company recorded cost of sales of approximately $139,000 and $553,000 for the three and nine months ended September 30, 2021, respectively. The Company recorded cost of sales of approximately $161,000 and $608,000 for the three and nine months ended September 30, 2020, respectively. The decrease in cost of sales for the three months ended September 30, 2021, as compared to the prior year, is attributable to the economic impact that COVID-19 has had on the Company. The Company’s cost of sales is comprised of two main components: medical supplies and personnel costs for the Infusion Vertical. Medical supplies are predominantly variable costs based on the number of treatments provided; personnel expenses are also variable as these are hourly positions. The number of treatments provided, during normal operations, can be handled adequately with the Company’s current level of personnel. The Company possesses the opportunity to increase the number of treatments performed without increasing personnel costs as it can leverage the current personnel’s availability until the Company’s treatment volume reaches critical mass. However, upon an increase in treatment volume beyond that capacity, the Company will need to hire additional personnel.
The Company generated gross profit of approximately $321,000 and $733,000 for the three and nine months ended September 30, 2021, respectively. The Company generated gross profit of approximately $489,000 and $1,078,000 for the three and nine months ended September 30, 2020, respectively. The decrease in gross profit, as compared to the prior year, is attributable to the economic impact that COVID-19 has had on the Company.
Operating Expenses
Salaries and Related Costs
The Company incurred salaries and related costs of approximately $535,000 and $1,783,000 for the three and nine months ended September 30, 2021, respectively. The Company incurred salaries and related costs of approximately $606,000 and $2,425,000 for the three and nine months ended September 30, 2020, respectively.
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Other General and Administrative
The Company incurred other general and administrative costs of approximately $789,000 and $2,229,000 for the three and nine months ended September 30, 2021, respectively. The Company incurred other general and administrative costs of approximately $542,000 and $2,807,000 for the three and nine months ended September 30, 2020, respectively. The decrease, as compared to the prior year, is attributable to the economic impact that COVID-19 has had on the Company.
Of the total other general and administrative costs, approximately $332,000 and $813,000 were related to professional fees for the three and nine months ended September 30, 2021. Professional fees were approximately $393,000 and $1,179,000 for the three and nine months ended September 30, 2020. Professional fees consist primarily of accounting, legal, and public company compliance costs as well as regulatory costs.
Research and Education Institute.
The Company incurred research and development expenses of Orthopaedic Surgery at the University of Alabama Birmingham Medical School, the University of Virginia School of Medicine and the University of South Carolina Medical School. He is Adjunct Professor in the Department of Orthopaedic Surgery at the University of South Alabama and Clinical Professor of Orthopaedics at Tulane University School of Medicine.
Advertising
The Company incurred advertising costs of approximately $59,000 and $224,000 for the three and nine months ended September 30, 2021, respectively. The Company incurred advertising costs of approximately $52,000 and $222,000 for the three and nine months ended September 30, 2020, respectively. The increase, as compared to the prior year, is attributable to the economic impact that COVID-19 had on the Tulane School of Medicine Board of Governors.
Departure of directorsDirectors and Certain Officers, Election of Fast Health CorporationDirectors, Appointment of New Board Members and Robins Morton Construction Company. He has a Doctor of Laws Degree from Livingston University and Doctor of Science Degrees from Troy and Louisiana State Universities. He has recently written a book, Any Given Monday, about sports injuries and how to prevent them for athletes, parents and coaches.
On January 12, 2021, Mr. Papasan served as President of Smith & Nephew Orthopedics. He has been a Director and Chairman of the board of directors of BioMimetic Therapeutics, Inc. [NasdaqGM:BMTI] since August 2005. BioMimetic Therapeutics is developing and commercializing bio-active recombinant protein-device combination products for the healing of musculoskeletal injuries and disease, including orthopedic, periodontal, spine and sports injury applications. Mr. Papasan has also served as a member of the board of directors of Reaves Utility Income Fund [NasdaqCM:UTG], a closed-end management investment company, since February 2003 and of Triumph Bancshares, Inc. (a bank holding company) since April 2005. Mr. Papasan also serves as a Director of SSR Engineering, Inc., AxioMed Spine Corporation, and MiMedx Group, Inc.
On January 12, 2021, Mr. Ray Monteleone was appointed the new Chairman of the Board. Mr. Monteleone is a position held from 2011current member of the Board.
On September 28, 2021, Mr. Robert Greif’s employment agreement with H-Cyte, Inc. (the “Company”) expired, ending his term as the Company’s Chief Executive Officer. The Company chose not to 2012. From 2008 to 2011, he wasrenew his employment agreement. Ms. Tanya Rhodes, the Company’s Chief OperatingTechnology Officer, of AmeriChoice, a subsidiary of United Healthcare Group. He became employed by AmeriChoice after it acquired Unison Health Plans in 2008. Dr. Blank waswill serve as interim Chief Executive Officer of Unison Health Plansthe Company. She will continue to receive a consulting fee of $253,000 per year pursuant to her existing consulting arrangement. Ms. Rhodes is an innovative, growth-oriented leader in the healthcare industry with a broad base of international experience in all aspects of operational business including R&D, clinical and regulatory, and business development. Ms. Rhodes has a demonstrated record of accomplishment for 4 yearsbringing new technologies from concept through commercialization and possesses an in-depth knowledge of biological tissues, enzymes, stem cells, antimicrobials, and natural products. Prior to joining the Company on June 15, 2020, Ms. Rhodes held various C-level positions in many sectors, including wound care, dermatology, aesthetics and plastic surgery. Ms. Rhodes was the Vice President of Innovation for Smith & Nephew and a global executive team member driving a $450 million dollar business. Ms. Rhodes has served as President of Rhodes & Associates since 2016 through which, Ms. Rhodes has held long-term contracts with medical device and drug companies as well as private equity companies. Ms. Rhodes completed her PhD in molecular orbital computational chemistry in the United Kingdom and received a Masters degree in the Management of Technology in the United States.
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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 the Biologics Division. 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.
Going Concern
The Company reported net losses of approximately $4,052,000 for the nine months ended September 30, 2021, respectively.
The Company’s independent registered public accounting firm included an explanatory paragraph with respect to the Company’s ability to continue as a going concern in its report on the Company’s consolidated financial statements for the year ended December 31, 2020. The presence of the going concern explanatory paragraph suggests that the Company may not have sufficient liquidity or minimum cash levels to operate the business. Since its inception, the Company has incurred losses and anticipates that the Company will continue to incur losses until its products can generate enough revenue to offset its operating expenses. The present level of cash is insufficient to satisfy our current operating requirements and Biologics Division business model.
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 discontinue 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.
In the event 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 reduce our expenses, or discontinue 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.
Liquidity and Sources of Liquidity
With the Company historically having experienced losses, the primary source of liquidity has been raising capital through debt and equity offerings, as described below.
Debt
On April 17, 2020, and in subsequent April closings, the Company entered into a Secured Convertible Note and Warrant Purchase Agreement (the “April SPA”) with thirty three investors (the “Purchasers”) pursuant to which the Company received an aggregate of $2,842,695 in gross proceeds through the sale to the Purchasers of Secured Convertible Promissory Notes (the “April Secured Notes”) and warrants (the “April Warrants”) to purchase shares of common stock of the Company (the “April Offering”). The proceeds of the April Offering will be used for working capital and general corporate purposes. The April Offering resulted in the issuance of April Secured Notes to Purchasers in an aggregate principal amount of $3,842,695. This sum included the issuance by the Company to FWHC Bridge, LLC (the “Investor) of an April Secured Note in the amount of $1,000,000 to amend and supersede the A&R Note (see below “Short-term Notes, Related Parties”) previously issued by the Company to the Investor on April 9, 2020. The Investor is an affiliate of FWHC Holdings, LLC, a pre-existing shareholder of the Company, which served as lead investor in the Company’s recent Series D Convertible Preferred Stock Offering. Additionally, in connection with the April Offering, the Company entered into an amendment with the Investor with respect to the outstanding 12% Senior Secured Convertible Note due September 30, 2020, which was originally issued in 2018 and assumed in the Merger and purchased by the Investor from its original holder, George Hawes, on March 27, 2020 (the “Hawes Note”). The Hawes Notes had a principal amount of $424,615 as of March 31, 2020. The amendment to the Hawes Note eliminated the requirement that the Company make monthly payments of accrued interest.
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As part of the April Offering, the holders of certain existing warrants issued by the Company which contained anti-dilution price protection entered into agreements terminating all anti-dilution price protection in their warrants. The Company intends to implement a one-time reduction of the exercise price of such warrants to be equal to the price per share at which shares of preferred stock are offered for purchase at the Qualified Financing once that price has been established.
The short-term notes, related parties, as of March 31, 2020 totaling $2,135,000 is comprised of loans made to the Company during 2019, by Horne Management, LLC, controlled by Chief Executive Officer, William E. Horne aggregating $1,635,000 and a Note in the amount of $500,000 from the Investor. On April 17, 2020, Mr. Horne agreed to convert the notes plus accrued interest owed to Horne Management, LLC, at the time of acquisition, whenthe Qualified Offering, into 4,368,278 shares of common stock and a ten-year warrant to purchase up to an equivalent number of shares of the Company’s common stock at the Qualified Offering price of $0.014.
On September 11, 2020, the right to participate in the registered rights offering (Registration No. 333-239629) of the Company expired. Pursuant to the rights offering, on September 24, 2020, the Company issued (i) 15,235,381 shares of its Series A preferred stock at a price of $0.014 per share to holders of its common stock who validly exercised their subscription rights prior to the expiration time and (ii) 203,049,643 shares of its Series A preferred stock to the standby purchasers as part of the standby commitment. The rights offering, including the standby component, resulted in gross proceeds to the Company of $3,055,985. While the rights offering expired on September 11, 2020, it was generating $950 millionnot consummated until September 24, 2020 while logistical closing conditions including the calculation and clearance of funds were being processed.
In addition, on September 24, 2020, the Company issued an aggregate of 323,844,416 shares of its Series A preferred stock to the holders of outstanding promissory notes in revenues. From 2001the aggregate principal amount and accrued interest of $4,483,617. The notes were converted pursuant to a mandatory conversion triggered by the completion of the rights offering. Such shares were issued under an exemption from registration in reliance on Section 3(a)(9) of the Securities Act. The original notes were issued in reliance on Section 4(a)(2) of the Securities Act.
On April 1, 2021, the Company, entered into a Secured Convertible Note Purchase Agreement (the “April 2021 Note Purchase Agreement”) with five (5) 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 March 31, 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, provided $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, H-Cyte, Inc. (the “Company”) entered into the Second Closing Bring Down Agreement (the “October 2021 Note Purchase Agreement”) whereby the five (5) 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 March 31, 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 $7,500 as part of the October 2021 Note Purchase Agreement.
Interest expense is being accreted to the principal balance using the effective interest method. For the three months and nine months ended September 30, 2021, the Company recorded interest expense of $30,445 for related party convertible notes payable and $20,962 for convertible notes payable and $59,665 for related party convertible notes payable and $41,080 for convertible notes payable, respectively.
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Equity
On September 11, 2020, the right to participate in the registered rights offering (Registration No. 333-239629) of the Company expired. Pursuant to the rights offering, on September 24, 2020, the Company issued (i) 15,235,381 shares of its Series A preferred stock at a price of $0.014 per share to holders of its common stock who validly exercised their subscription rights prior to the expiration time and (ii) 203,049,643 shares of its Series A preferred stock to the standby purchasers as part of the standby commitment. The rights offering, including the standby component, resulted in gross proceeds to the Company of $3,055,985. While the rights offering expired on September 11, 2020, it was not consummated until 2004, Dr. BlankSeptember 24, 2020 while logistical closing conditions including the calculation and clearance of funds were being processed.
On September 24, 2020, the Company issued an aggregate of 323,844,416 Preferred A shares to holders of outstanding promissory notes in the aggregate principal amount, accrued interest, and conversion of certain warrants totaling $4,483,617. The notes were converted pursuant to mandatory conversion triggered by the completion of the rights offering. Such shares were issued under an exemption from registration in reliance on Section 3(a)(9) of the Securities Act. The original notes were issued in reliance on Section 4(a)(2) of the Securities Act. As a result of their participation in the backstop portion of the rights offering and the conversion of their promissory notes, FWHC Holdings, LLC became beneficial owners of approximately 61% of the Company’s outstanding common stock. This percentage includes shares owned by FWHC Bridge, LLC and FWHC Bridge Friends, LLC who have indicated that they are part of a group with FWHC Holdings, LLC.
Working Capital Deficit
Working capital as of September 30, 2021 and December 31, 2020 is summarized as follows:
As Of | ||||||||
September 30, 2021 | December 31, 2020 | |||||||
Current Assets | $ | 458,272 | 1,757,202 | |||||
Current Liabilities | 4,729,248 | 2,892,686 | ||||||
Working Capital Deficit | $ | (4,270,976 | ) | (1,135,484 | ) |
Cash Flows
Cash activity for the nine months ended September 30, 2021 and 2020 is summarized as follows:
Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Cash used in operating activities | $ | (3,988,115 | ) | (5,461,140 | ) | |||
Cash used in investing activities | (7,832 | ) | (2,285 | ) | ||||
Cash provided by financing activities | 2,662,515 | 7,476,576 | ||||||
Net (decrease)/ increase in cash | $ | (1,333,432 | ) | 2,013,151 |
As of September 30, 2021, the Company had approximately $307,000 of cash on hand.
Off-Balance Sheet Arrangements
The 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.
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Result of Operations – Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
The following table sets forth certain operational data including their respective percentages of revenues for the years ended December 31, 2020 and 2019:
H-Cyte, Inc
Statement of Operations
2020 | 2019 | Change | Change % | |||||||||||||
Revenues | $ | 2,150,672 | $ | 8,346,858 | $ | (6,196,186 | ) | -74 | % | |||||||
Gross Profit | 1,383,715 | 6,294,051 | (4,910,336 | ) | -78 | % | ||||||||||
Operating Expenses | 8,476,059 | 36,852,436 | (28,376,377 | ) | -77 | % | ||||||||||
Operating Loss | (7,092,344 | ) | (30,558,385 | ) | 23,466,041 | 77 | % | |||||||||
Other Income | 633,108 | 750,507 | (117,399 | ) | -16 | % | ||||||||||
Net Loss | $ | (6,459,236 | ) | $ | (29,807,878 | ) | $ | 23,348,642 | 78 | % | ||||||
Net Loss attributable to common stockholders | $ | (6,781,411 | ) | $ | (33,196,029 | ) | $ | 26,414,618 | 80 | % | ||||||
Loss per share – Basic and diluted | $ | (0.06 | ) | $ | (0.34 | ) | ||||||||||
Weighted average outstanding shares – basic and diluted | 111,491,261 | 96,370,562 |
Revenue and Gross Profit
Revenue is derived predominantly from the Company’s Biosciences division, which resulted in revenue, net of allowance for refunds, for the year ended December 31, 2020 and December 31, 2019, of approximately $2,151,000 and $8,347,000, respectively. The decrease in revenue for the year ended December 31, 2020, as compared to the prior year is attributable to suspending operations, the permanent closure of two of the five LHI clinics, and the ongoing effects due to COVID-19 to the Biosciences division.
For the years ended December 31, 2020 and December 31, 2019, the Company generated a gross profit totaling approximately $1,384,000 (64% of revenue) and $6,294,000 (75% of revenue), respectively. The decrease in revenue is due to the effects of COVID-19. Gross profit decreased in 2020 compared to 2019 due to the Company using part-time medical staff to treat its patients in Tampa and Scottsdale causing cost of sales for patient care to increase.
Salaries and Related Costs
For the years ended December 31, 2020 and December 31, 2019, the Company incurred approximately $3,199,000 and $8,646,000, respectively, in salaries and related costs. Included in salaries and related costs for the year ended December 31, 2019 was approximately $1,690,000 in compensation expense related to the common stock issued to Mr. William E. Horne, former Chief Executive Officer (“CEO”), on April 25, 2019. These shares were fully vested upon the issuance of Harmony Health Plan,a restricted stock award. Excluding the non-recurring stock compensation expense of approximately $1,690,000, the Company realized a decrease in salaries and related costs for the periods ending December 31, 2020 compared to December 31, 2019, due to its recent cost reduction measures effective in 2020 in response to the COVID-19 pandemic. The Company made the decision in late March 2020, to layoff approximately 40% of its employee base, including corporate and clinical employees and to cease operations at the LHI clinics in Tampa, Nashville, Scottsdale, Pittsburgh, and Dallas. The Company reopened operations in August 2020 at its clinics in Tampa, Nashville, and Scottsdale. The clinics in Pittsburgh and Dallas did not reopen and were closed permanently.
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Other General and Administrative
For the years ended December 31, 2020 and December 31, 2019, the Company incurred approximately $3,747,000 and $6,847,000, respectively, in other general and administrative costs. The decrease is attributable to cost saving measures in response to the COVID-19 pandemic. The Company made the decision in late March 2020, to layoff approximately 40% of its employee base, including corporate and clinical employees and to cease operations at the LHI clinics in Tampa, Nashville, Scottsdale, Pittsburgh, and Dallas. The Company reopened operations in August 2020 at its clinics in Tampa, Nashville, and Scottsdale. The clinics in Pittsburgh and Dallas did not reopen and were closed permanently.
Advertising
For the years ended December 31, 2020 and December 31, 2019, the Company had approximately $297,000 and $4,910,000, respectively, in advertising costs. The decrease is attributable to a shift in the Company’s marketing plan and cost saving measures in response to the COVID-19 pandemic. The Company re-evaluated its marketing plan in 2020 and decided to significantly reduce marketing spend during the COVID-19 pandemic.
Loss on Impairment
The Company recorded a loss on impairment for its DenerveX technology of approximately $2,944,000 and its goodwill totaling approximately $12,564,000 for the year ended December 31, 2019. As the Company has determined that the DenerveX System no longer represents part of its strategic plans for the future, the loss on impairment of the technology was recorded. The Company also determined the fair value of the reporting unit was less than the carrying amount of goodwill. As a result, during the fourth quarter of 2019 the Company recorded a goodwill impairment charge. For the year ended December 31, 2020, the Company did not have impairment losses.
Depreciation & Amortization
For the year ended December 31, 2020, the Company recognized approximately $81,000 in depreciation and amortization expense, compared to approximately $834,000 in 2019. The decrease is primarily attributable to amortization of the technology intangible asset acquired in the Merger for the year ended December 31, 2019. The expense for 2020 was significantly lower due to no amortization recorded in 2020.
Other Income (Expense)
For the years ended December 31, 2020 and 2019, interest expense was approximately $1,463,000 and $299,000 respectively. The increase is attributable to new financing being arranged for the year ended December 31, 2020 along with the closing of the Rights Offering on September 11, 2020.
The change in fair value of redemption put liability and change in fair value of the derivative liability – warrants for the year ended December 31, 2019 were approximately $347,000 and $827,000, respectively, and was a result of the assumption of the Series B Convertible Preferred Stock in the Merger and the Series D Convertible Preferred Stock financing in 2019, respectively. The change in fair value of redemption put liability and change in fair value of the derivative liability – warrants for the year ended December 31, 2020 were approximately $273,000 and $2,987,000, respectively, and was a result of the change in fair value at the end of each reporting period and was subsequently reclassified to equity at the close of the Rights Offering (see Note 12).
Liquidity, Sources of Liquidity, and Going Concern
The Company had approximately $1,641,000 and $1,424,000 of cash on hand at December 31, 2020 and 2019, respectively.
The Company incurred net losses of approximately $6,459,000 and $29,808,000 for the years ending December 31, 2020 and 2019, respectively. The Company has historically incurred losses from operations and expects to continue to generate negative cash flows as the Company’s revenue activities are suspended and as the Company implements its business plan. The consolidated financial statements are prepared using generally accepted accounting principles in the United States (“U.S. GAAP”) as applicable to a going concern.
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The Biosciences division will incur losses until sufficient revenue is attained utilizing the infusion of capital resources to expand marketing and sales initiatives along with the development of a biologics protocol and taking that protocol through the FDA process.
COVID-19 has adversely affected the Company’s financial condition and results of operations. In the first quarter of 2020, the Company took steps to protect its vulnerable patient base (elderly patients suffering from chronic lung disease) by cancelling all treatments effective March 23, 2020 through July 2020. The Company also made the decision in late March, to layoff approximately 40% of its employee base, including corporate and clinical employees, and to cease operations at the LHI clinics located in Tampa, Scottsdale, Pittsburgh, Nashville, and Dallas. The Company resumed operations in August at the Tampa, Nashville, Scottsdale, and Pittsburgh clinics. The Pittsburgh clinic ceased operations permanently at the end of October 2020. The Dallas clinic did not re-open and was closed permanently. The Company believed these expense reductions were necessary during the unexpected COVID-19 pandemic.
The Company has updated its business model to decrease corporate overhead and marketing expense to significantly reduce expenses. The Company believes that as COVID-19 begins to dissipate due to vaccinations being administered nationwide, that patients will again feel comfortable traveling to one of the LHI clinics for treatment. The Company continues to focus on developing a new FDA approved cellular therapy for the treatment of chronic lung disease.
Fair Value Measurements
We measure certain non-financial assets at fair value on a non-recurring basis. These non-recurring valuations include evaluating assets such as long-lived assets and non-amortizing intangible assets for impairment; allocating value to assets in an acquired asset group; and applying accounting for business combinations and derivatives.
We use the fair value measurement framework to value these assets and report the fair values in the periods in which they are recorded or written down.
The fair value measurement framework includes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair values in their broad levels. These levels from highest to lowest priority are as follows:
● | Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities; | |
● | Level 2: Quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted on active markets, but corroborated by market data; and | |
● | Level 3: Unobservable inputs or valuation techniques that are used when little or no market data is available. |
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. We may also engage external advisors to assist us in determining fair value, as appropriate.
Although we believe that the recorded fair value of our financial instruments is appropriate at December 31, 2020, these fair values may not be indicative of net realizable value or reflective of future fair values.
Income Taxes
The Company uses the liability method of accounting for income taxes, which requires recognition of temporary differences between financial statement and income tax bases of assets and liabilities, measured by enacted tax rates. A valuation allowance will be recorded to reduce deferred tax assets when itnecessary.
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The Company files income tax returns in the U.S. federal jurisdiction and certain state jurisdictions. The tax years that could be subject to federal audit are 2017, 2018, and 2019.
Revenue Recognition
We recognize revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which requires that five basic criteria be met before 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. The Company recognizes revenue in accordance with U.S. GAAP as outlined in the FASB ASC 606, Revenue From Contracts with Customers, which requires that five steps be completed 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 satisfies a performance obligation. The Company records revenue under ASC 606 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.
The Company 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.
The Company offers two types of cellular therapy treatments to their patients.
1) | The first type of treatment includes medical services rendered typically over a two-day period in which the patient receives cellular therapy. For this treatment type, revenue is recognized in full at time of service. | |
2) | The Company also offers a four-day treatment in which medical services are rendered typically over 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. Revenue is recognized when services are performed based on the estimated stand-alone selling price for each session of treatment. The Company has deferred recognition of revenue amounting to approximately $634,000 and $1,046,000 at December 31, 2020 and December 31, 2019, respectively. |
Management performed an analysis of its customer refund history for refunds issued related to prior year’s revenue. Management used the results of this historical refund analysis to record a reserve for anticipated future refunds related to recognized revenue. At December 31, 2020 and 2019, the estimated allowance for refunds was acquired by WellCare Health Plans, Inc.approximately $77,000 and $63,000, respectively and is recorded as a contra revenue account.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements as defined in 2004. Dr. BlankRegulation 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.
Consulting Agreements
The Company entered into 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 $5,000 per month. Additionally, 62,500 shares of common stock at $0.29 per share was issued in connection with a separate agreement on August 29, 2019. The Company incurred expense of approximately $10,000 and $83,000 for the years ended December 31, 2020 and 2019, respectively, related to these agreements.
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The Company entered into a consulting agreement with LilyCon Investments, LLC effective February 1, 2019 for services related to evaluation and negotiation of future acquisitions, joint ventures, and site evaluations/lease considerations. The duration of the consulting agreement is for a period of twelve months in the amount of $12,500 per month with a $15,000 signing bonus. Either party may terminate this agreement with or without cause upon 30 days written notice. The agreement also provides LilyCon Investments with $35,000 in stock (to be calculated using an annual variable weighted average price from February 2019 through January 2020) to be granted on the one-year anniversary of this agreement, if the agreement has not been terminated prior to that date. For years ended December 31, 2020 and 2019, the Company expensed a total of approximately $65,000 and $153,000, respectively, in compensation to LilyCon Investments. In February 2020, the Company issued LilyCon Investments $35,000 in shares of H-CYTE stock at an average share price of $0.31 per share for a total of 106,061 shares per the terms of the agreement. In March 2020, this agreement was modified to lower the monthly payment amount to $5,000. This agreement was terminated effective April 1, 2020.
The Company entered into a consulting agreement with Goldin Solutions, effective August 4, 2019, for media engagement and related efforts, including both proactive public relations and crisis management services. The agreement has a medical degree from McGill Universityminimum term of six months, with a $34,650 monthly fee plus expenses payable each month, with the exception of a first month discount of $12,600. For year ended December 31, 2020 and did his fellowship at Childrens HospitalDecember 31, 2019, the Company expensed $99,000 and $162,000, respectively. The Company terminated this agreement in March 2020.
The Company entered Into a consulting agreement with Tanya Rhodes of Philadelphia.
Indemnification
We have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving, at our request, in such capacity, to the maximum extent permitted under the laws of the State of Nevada.
The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. However, we maintain directors and officers insurance coverage that may contribute, up to certain limits, a portion of any future amounts paid for indemnification of directors and officers. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal. Historically, we have not incurred any losses or recorded any liabilities related to performance under these types of indemnities.
Additionally, in the normal course of business, we have made certain guarantees, indemnities and commitments under which we may be required to make payments in relation to certain transactions. These indemnities include intellectual property and other indemnities to our customers and distribution network partners in connection with the sales of our products and therapies, and indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease.
It is not possible to determine the maximum potential loss under these guarantees, indemnities and commitments due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision.
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Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standard Board (“FASB”) established Topic 842, Leases, by issuing Accounting Standards Update (“ASU”) No. 2016-02 (as amended), which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve 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. For the lease agreements in which the Company is the lessee, under Topic 842, lessees are required to recognize a lease liability and right-of-use asset for all leases (except for 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 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.
In June 2018, FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718)—Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Company adopted ASU 2018-07 in the first quarter of 2019. The adoption of this standard did not have a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which amends the approaches and methodologies in accounting for income taxes during interim periods and makes changes to certain income tax classifications. The new standard allows exceptions to the use of the incremental approach for intra-period tax allocation, when there is a loss from continuing operations and income or a gain from other items, and to the general methodology for calculating income taxes in an interim period, when a year-to date loss exceeds the anticipated loss for the year. The standard also requires franchise or similar taxes partially based on income to be reported as income tax and the effects of enacted changes in tax laws or rates to be included in the annual effective tax rate computation from the date of enactment. Lastly, in any future acquisition, the Company would be required to evaluate when the step-up in the tax basis of goodwill is part of the business combination and when it should be considered a separate transaction. The standard will be effective for the Company beginning January 1, 2021, with early adoption of the amendments permitted. The Company is currently evaluating the impact from the adoption of ASU 2019-12 on its consolidated financial statements.
MANAGEMENT
The following table sets forth information about our executive officers and directors:
Name | Position(s) | Age | ||
Jeremy Daniel | Chief Financial Officer | 45 | ||
Raymond Monteleone | Chairman of the Board (1) | 74 | ||
Michael Yurkowsky | Chief Executive Officer and Director | 47 | ||
Tanya Rhodes | Chief Science Officer | 61 | ||
William E Horne | Director | 67 | ||
Richard Rosenblum | Director | 62 | ||
Matthew Anderer | Director | 55 |
(1) | Chairman of audit committee and compensation committee |
Raymond Monteleone
Raymond Monteleone serves managerial and consultative roles at several enterprises. Mr. Monteleone currently serves as the chairman and president of Paladin Global Partners, LLC since 2007; a board member and vice president of Dannelly, Monteleone & Associates, LLC since 2010; sits on the board of Chenmoore Engineering Inc. since 2015; is a managing member at Diner Investment Partners, LLC since 2016 and Uyona Management, LLC since 2013; a managing member and the chief financial officer at HBRE, LLC since 2013 and Horne Management, LLC since 2011; and the president at Monteleone & Associates Consulting, Inc. since 2005. Mr. Monteleone received a college degree from the New York Institute of Technology and an MBA degree from Florida Atlantic University. Mr. Monteleone is until recently was the interim CFO of LVI Intermediate Holdings, Inc.
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A former partner with Arthur Young (now EY), Raymond Monteleone joined H-CYTE after working closely with several large and small companies serving as board member and/or advisor, specializing in strategic planning, health care, tax and financial planning and corporate management. Mr. Monteleone previously held officer positions with Sensormatic Electronics Corporation, a billion-dollar company listed in the New York Stock Exchange and was a member of the Board of Directors of Rexall Sundown, Inc., a medical technologylarge public entity. He also previously served as an officer working closely with the Board of Directors of Laser Spine Institute (“LSI”) and worked as deputy commissioner, chief operating officer, and chief financial officer with the Florida Department of Education. He attended an exclusive Arthur Young Harvard Business School program and earned his MBA from Florida Atlantic University. Considered an expert in financial analysis and business management, Mr. Monteleone is regularly featured as a lecturer at various universities and professional associations.
William E. Horne
William “Bill” Horne is a founder and former Chief Executive Officer and Chairman of the Board of Laser Spine Institute. From 2005 to 2015, Mr. Horne served as the company’s CEO, expanding the homegrown organization from one facility with nine employees, to seven state-of-the-art surgery centers with more than 1,000 employees across six states, while driving annual revenues as high as $288M during his tenure. In his role as Chairman of the Board, he led the strategic direction of the company, which has made it possible for more than 75,000 patients to take back their lives from chronic pain with its minimally invasive spine procedures.
Michael Yurkowsky
Michael Yurkowsky operates his own family office, YP Holdings LLC, which has an investment portfolio of 50 private companies and participated in over 100 financing transactions with public companies since 2012. He is alsoPreviously Mr. Yurkowsky managed his own hedge fund and worked as a broker at several national broker-dealer firms.
Michael Yurkowsky comes to H-CYTE with more than 25 years of experience in financial services. Mr. Yurkowsky spent the Founderfirst ten years of CG3 Consulting, LLC, a global medical technology advisory firm in Minneapolis, Boston and San Diego which he founded in 2008. CG3 Consulting provides consulting services to clients in the healthcare, scientific and technology industries. Prior to establishing CG3 Consulting, Mr. Kullmann was a senior director at Medtronic in their $2.3 billion Cardiovascular Division. He started his career working as a surgical sales representativebroker with several national broker-dealers and as a licensed investment banker. He went on to start and manage his own hedge fund, specializing in debt arbitrage. In 2012, he opened his own family office, YP Holdings LLC, which has invested in more than 50 private companies and participated in more than 100 public company financing transactions. Throughout his career, Mr. Yurkowsky has served on multiple public and private boards and has been involved in several M&A transactions.
Jeremy Daniel
Jeremy Daniel has been the Chief Financial Officer of Regenerative Medicine Solutions, LLC (“RMS”) since 2013. Prior to that, Mr. Daniel worked in the Texas Medical Centerprivate sector in Houston.the accounting and finance field for the past twenty years. Mr. KullmannDaniel is a Certified Public Accountant and received a college degree from the University of Cincinnati and an MBA degree from Xavier University. The Company currently does not have any employment agreement with Mr. Daniel.
Matthew Anderer
Mr. Anderer started his career in the United States Air Force as a fast jet and special operations pilot and instructor before taking operational and staff officer roles with Special Operations Command and NATO. He has servedcommanded worldwide airlift capability of the highest posts within the White House and from a technology perspective, he has directed a range of high-profile, high-value acquisition projects. Mr. Anderer was the Director of the US Air Force leadership and citizenship development program for 220,000 cadets before taking command of the busiest air mobility group in senior marketing, market developmentthe world, responsible for support to destinations world-wide. Among other contingency crisis operations in this capacity, Matt played a crucial role establishing robust, resilient, and sales leadership positions at Boston Scientific, Baxter, Johnson & Johnson,repeatable processes to prevent the potential spread of the Ebola Virus for aircraft, cargo and four start-up medical device companies – twopassengers that transited sub-Saharan West Africa. He is currently the training systems Country Integration Lead for Lockheed Martin’s F-35 International customers, a position that he has held since prior to 2017.
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Most recently, Mr. Anderer was also a member of which had successful liquidity eventsthe Board for Deverra Theraputics, a combined value of $220m.clinical stage cell therapy company headquartered in Seattle. He is a graduate of Northern MichiganVillanova University, Air Command and Staff College, Naval Staff College and the Geneva Center for Security Policy.
Richard Rosenblum
Mr. Rosenblum is a business veteran and entrepreneur in the areas of the financial services, capital markets, healthcare, technology and real estate. His experience ranges from serving as managing director at several investment merchant banks to heading companies as a C-suite executive. He also sits on the boards of public and private healthcare, life sciences and technology-sector companies.
Mr. Rosenblum is currently President, CFO and Board Member of Innovative Payment Solutions, Inc., a California-based FinTech company focused on building a 21st century universal digital payment and money remittance platform. As the founder of Harborview Capital Advisors, LLC, Mr. Rosenblum leads a team of strategic advisors in the areas of capital formation, merchant banking and management consulting, and has an MBA from California Coastal University. The board believes thatraised more than $250 million in capital funding for companies. Since founding it over 20 years ago, Mr. Kullmann has the experience, qualifications, attributes and skills necessary to serve as President and Chief Operating Officer because of his years of experience in the medical technology field.
Mr. Rosenblum received his B.A. in Finance & Accounting from the State University of New York at Buffalo in 1981, graduating summa cum laude.
Family Relationships
There are no family relationships among our Senior Vice President since November, 2013. Prior to joiningexecutive officers and directors.
Election of Directors
All directors hold office until the next annual meeting of security holders or until their successors have been qualified. The officers of our Company he wasare appointed by our board of directors and hold office until their death, resignation or removal from office.
Involvement in Certain Legal Proceedings
During the Chief Operations Officer for Judicial Correction Services (2006 – 2013) supervisingpast ten years, our directors or executive officers have not been the day to day operationssubject of the JCS community supervision division, which supervised over 50,000 active probationers throughout the southeast United States. He was responsible for supervision of over 400 employees and over 1.8 million financial transactions per year. Dennis is a graduate of the University of Central Florida and has a degree in Psychology with an emphasis on Drug and Alcohol addiction.following events:
1. | A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing; | |
2. | Convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses); | |
3. | The subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities; | |
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4. | Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; | |
5. | Engaging in any type of business practice; or | |
6. | Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws; | |
7. | The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity; | |
8. | Was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated; | |
9. | Was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated; | |
10. | Was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: | |
11. | Any Federal or State securities or commodities law or regulation; or | |
12. | Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or | |
13. | Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
14. | Was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Liability and Indemnification of Directors and Officers
Our Articles of Incorporation provide that to the fullest extent permitted under Nevada law, our directors will not be personally liable to the Company or its stockholders for monetary damages for breach of the duty of care, breach of fiduciary duty or breach of any other duties as directors. Our Articles of Incorporation also provide for indemnification of our directors and officers by the Company to the fullest extent permitted by law. The Company maintains D&O insurance coverage.
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Role of Board in Risk Oversight Process
Our boardBoard of directorsDirectors has responsibility for the oversight of the Company’s risk management processes and, either as a whole or through its committees, regularly discusses with management our major risk exposures, their potential impact on our business and the steps we take to manage them. The risk oversight process includes receiving regular reports from board committees and members of senior management to enable our board to understand the company’s risk identification, risk management and risk mitigation strategies with respect to areas of potential material risk, including operations, finance, legal, regulatory, strategic and reputational risk.
The audit committee reviews information regarding liquidity and operations and oversees our management of financial risks. Periodically, the audit committee reviews our policies with respect to risk assessment, risk management, loss prevention and regulatory compliance. Oversight by the audit committee includes direct communication with our external auditors, and discussions with managementthe CFO regarding significant risk exposures and the actions management has taken to limit, monitor or control such exposures. The compensation committee is responsible for assessing whether any of our compensation policies or programs has the potential to encourage excessive risk-taking. The nominating/corporate governance committee manages risks associated with the independence of the board, corporate disclosure practices, and potential conflicts of interest. While each committee is responsible for evaluating certain risks and overseeing the management of such risks, the entire board is regularly informed through committee reports about such risks. Matters of significant strategic risk are considered by our board as a whole.
Board Committees and Independence
Our boardBoard of directorsDirectors has established an audit committee, a nominating and corporate governance committee and a compensation committee, each of which operates under a charter that has been approved by our board.
The corporate governance committee is in the process of the Company's current independent directors, Major General C.A. “Lou” Hennies, Scott M. W. Haufe, M.D., Thomas E. Hills, John C. Thornas Jr., and Larry Papasan, are independent under the rules of the NASDAQ Capital Market. Accordingly, our board has determined that all of the members of each of the board’s three standing committees are independent as defined under the rules of the NASDAQ Capital Market. In addition, all members of the audit committee meet the independence requirements contemplated by Rule 10A-3 under the Securities Exchange Act of 1934, or the Exchange Act.
Mr. ThomasMonteleone chairs the audit committee. The audit committee’s main function is to oversee our accounting andthe financial reporting processes, internal systemshealth of control, independent registered public accounting firm relationships and the audits of our financial statements. This committee’s responsibilities include, among other things:
Code of Business Conduct and Ethics
We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A current copy of the code will be posted on the Corporate Governance section of our website, www.MedoveX.com. www.hcyte.com.
In addition, we intend to post on our website all disclosures that are required by law or the listing standards of The NASDAQOTCQB Capital Market concerning any amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this Annual Report.
Procedures for Security Holders to Recommend Nominees for Election as Directors
There have been no material changes to the procedures by which security holders may recommend nominees to the board of directors since the Company last described such procedures or any material changes thereto.
Company Policy as to Director Attendance at Annual Meetings of Stockholders
The following table sets forth the compensation paid to officers andCompany’s policy encourages board members during the fiscal years ended December 31, 2015 and 2014. The table sets forth this information for MedoveX Corporation including salary, bonus, and certain other compensation to the Board members and named executive officers for the past three fiscal years.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Company’s named executive officers and other individuals:
Name & Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||
Jarrett Gorlin, CEO | 2014 | 180,000 | 36,000 | - | - | 216,000 | ||||||||||||||||
2015 | 272,000 | - | 272,000 | |||||||||||||||||||
Patrick Kullmann, COO | 2014 | 170,000 | 34,000 | 204,000 | ||||||||||||||||||
2015 | 231,000 | - | 231,000 | |||||||||||||||||||
Charles Farrahar, Former CFO | 2014 | 110,000 | 22,000 | 132,000 | ||||||||||||||||||
2015 | - | - | - | |||||||||||||||||||
Jeffery Wright, CFO | 2014 | 110,000 | - | 110,000 | ||||||||||||||||||
2015 | 130,000 | - | 130,000 | |||||||||||||||||||
Dennis Moon, EVP | 2014 | 120,000 | 24,000 | 144,000 | ||||||||||||||||||
2015 | 201,000 | - | 201,000 | |||||||||||||||||||
Manfred Sablowski, SVP | 2014 | - | - | - | ||||||||||||||||||
2015 | 150,000 | - | 150,000 |
Grant Date | Options Granted | Exercise Price | Fair Value of Underlying Stock | Intrinsic Value | |||||||||
1/27/2015 | 125,000 | 5.99 | 5.99 | None | |||||||||
5/8/2015 | 50,000 | 3.61 | 3.61 | None | |||||||||
8/11/2015 | 145,000 | 2.91 | 2.91 | None |
Grant date | January 27 | May 8 | August 11 | |||||||||
Weighted Fair value of options granted | $ | 3.97 | $ | 2.31 | $ | 1.94 | ||||||
Expected term (years) | 6 | 6 | 6 | |||||||||
Risk-free interest rate | 1.48 | % | 1.70 | % | 1.71 | % | ||||||
Volatility | 76 | % | 72 | % | 76 | % | ||||||
Dividend yield | None | None | None |
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at 12/31/2013 | 60,000 | $ | 2.50 | 9.8 | $ | -- | ||||||||||
Exercisable at 12/31/2013 | 15,000 | $ | 2.50 | 9.8 | $ | -- | ||||||||||
Granted | -- | -- | -- | $ | -- | |||||||||||
Exercised | -- | -- | -- | -- | ||||||||||||
Cancelled | -- | -- | -- | -- | ||||||||||||
Outstanding at 12/31/2014 | 60,000 | $ | 2.50 | 8.8 | $ | -- | ||||||||||
Exercisable at 12/31/2014 | 30,000 | $ | 2.50 | 8.8 | $ | -- | ||||||||||
Granted | 320,000 | $ | 4.22 | 9.3 | $ | -- | ||||||||||
Exercised | -- | -- | -- | -- | ||||||||||||
Cancelled | -- | -- | -- | -- | ||||||||||||
Outstanding at 12/31/2015 | 380,000 | $ | 3.95 | 9.1 | $ | -- | ||||||||||
Exercisable at 12/31/2015 | 125,000 | $ | 3.95 | 9.1 | $ | -- |
EXECUTIVE AND DIRECTOR COMPENSATION
Name & Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Option Awards ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||
Robert Greif, former CEO | 2021 | 316,438 | - | 1,872,125 | - | 2,188,563 | ||||||||||||||||||
2020 | 104,580 | 80,000 | - | - | 184,580 | |||||||||||||||||||
Michael Yurkowsky, CEO | 2021 | 15,000 | - | 191,833 | - | 206,833 | ||||||||||||||||||
2020 | - | - | - | - | ||||||||||||||||||||
Jeremy Daniel, CFO | 2021 | 200,000 | - | 274,250 | - | 474,250 | ||||||||||||||||||
2020 | 200,000 | - | - | - | 200,000 | |||||||||||||||||||
Tanya Rhodes, CSO | 2021 | 252,000 | - | 275,313 | - | 527,313 | ||||||||||||||||||
2020 | 120,000 | - | - | - | 120,000 | |||||||||||||||||||
William E. Horne, former CEO | 2021 | - | - | 110,500 | - | 110,500 | ||||||||||||||||||
2020 | 144,786 | - | - | - | 144,786 |
The current annualized salaries of our executive officers as of January 25, 2022 are as follows:
Name & Position | Annual Salary | |||
Jarrett Gorlin, CEO | $ | 272,000 | ||
Patrick Kullmann, President & COO | $ | 231,000 | ||
Jeffery Wright, CFO | $ | 130,000 | ||
Dennis Moon, VP | $ | 201,000 | ||
Manfred Sublowski, Senior VP, Sales and Marketing | $ | 150,000 |
Name & Position | Annual Salary | |||
Michael Yurkowsky, CEO | $ | 180,000 | ||
Jeremy Daniel, CFO | $ | 200,000 | ||
Tanya Rhodes, CSO | $ | 252,000 |
Director Compensation
There are understandings between the Company and Mr. Michael Yurkowsky as follows: $4,167 per quarter for each full quarter of service.
There are understandings between the Company and Mr. Raymond Monteleone as follows: $2,500 per quarter 2015 director’s fees as stock grants.
There are understandings between the Company and Mr. Richard Rosenblum as follows: $5,000 a month to serve on the Board of Directors.
There are understandings between the Company and Mr. Matthew Anderer as follows: $5,000 a month to serve on the Board of Directors.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSOWNER AND MANAGEMENT
The information is presented for each person we know to be a beneficial owner of 5% or more of our securities, each of our directors and executive officers, and our officers and directors as a group.
The percentage of common equity beneficially owned is based upon 12,855,803167,857,522 shares of Common Stock and 498,229,802 shares of Series A Preferred Stock, which converts to Common Stock at a 1:1 ratio, issued and outstanding as of June 16, 2016, under the assumption that all Streamline shareholders submit their transmittal letters to receive their proportional interest in shares of MedoveX common stock.
The number of shares beneficially owned by each stockholder is determined under the rules issued by the Securities and Exchange Commission and includes voting or investment power with respect to such securities.
Under these rules, beneficial ownership includes any shares as to which the individual or entity has sale or shared voting power or investment power. Unless otherwise indicated, the address of all listed stockholders is c/o MEDOVEX, 3279 Hardee Avenue, Atlanta, Georgia 30341. H-CYTE, 201 E Kennedy Blvd, Suite 425, Tampa, Florida.
Unless otherwise indicated each of the stockholders listed has sole voting and investment power with respect to the shares beneficially owned, subject to community property laws where applicable.
Number of Shares Beneficially Owned(1) | Percentage of common equity beneficially owned | |||||||
Scott M.W. Haufe, M.D., Director | 774,110 | (2)(4) | 6.0 | % | ||||
Jarrett Gorlin, Director and Officer | 517,037 | (3)(10) | 4.0 | % | ||||
Larry W. Papasan, Director | 201,076 | (4) | 1.6 | % | ||||
John C. Thomas, Jr., Director | 75,400 | 0.6 | % | |||||
Patrick Kullmann, Officer | 224,932 | (5)(8) | 1.7 | % | ||||
Jeffery Wright, Officer | 29,875 | (7) | 0.2 | % | ||||
Major General C.A. “Lou” Hennies, Chairman | 104,288 | (4) | 0.8 | % | ||||
James R. Andrews, M.D., Director | 104,288 | (4) | 0.8 | % | ||||
Thomas E. Hills, Director | 104,288 | (4) | 0.8 | % | ||||
Steve Gorlin, Director and Co-Chairman | 881,503 | (6) | 6.9 | % | ||||
Randal R. Betz, M.D., Director | 104,288 | (4) | 0.8 | % | ||||
James R. Andrews, M.D., Director | 104,288 | (4) | 0.8 | % | ||||
Dennis Moon, Officer | 204,864 | (9) | 1.6 | % | ||||
Sablowski, Manfred, Officer | 47,725 | (11) | 0.4 | % | ||||
Officers and Directors as a Group (12 persons) | 27.0 | % |
Number of Shares Beneficially Owned(1) | Percentage of common equity beneficially owned (2) | |||||||
William E. Horne, Director and Officer (3) | 29,850,111 | 4.43 | % | |||||
Michael Yurkowsky, Director and Officer (4) | 6,208,979 | 0.93 | % | |||||
RMS Shareholder, LLC | 50,925,276 | 7.65 | % | |||||
FWHC Holdings (5) | 654,961,014 | 68.65 | % | |||||
Raymond Monteleone, Director | 3,000,000 | 0.45 | % | |||||
Jeremy Daniel, Officer | 1,000,000 | 0.15 | % | |||||
Officers and Directors as a Group (4 persons) | 40,059,090 | 2.91 | % |
(1) | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to shares beneficially owned and options and warrants exercisable within 60 days. Beneficial ownership is based on information furnished by the individuals or entities. |
(2) | Percentage calculated using for each person or entity the sum of that person’s or entity’s outstanding shares plus shares from exercisable options and warrants and shares from convertible securities divided by the sum of total outstanding shares plus that person’s or entity’s outstanding shares plus shares from exercisable options and warrants and shares from convertible securities. |
(3) | Includes |
(5) | Represents 15,518,111 common shares, |
Equity Compensation Plan Information
In October 2013,the Merger, the Company adoptedassumed the 2013 Stock Option Incentive Plan (the “Plan”). The Plan will also be submitted in due course for approval by our stockholders, to the extent required under federal tax laws or other applicable laws.
The Plan is intended to secure for us and our stockholders the benefits arising from ownership of our Common Stock by individuals we employ or retain who will be responsible for the future growth of the enterprise. The Plan is also designed to help attract and retain superior personnel for positions of substantial responsibility, including advisory relationships where appropriate, and to provide individuals with an additional incentive to contribute to our success.
The “Administrator” of the Plan is the Compensation Committee of the Board;CEO; however, the Administrator may also delegate to one or more officers of the Company the authority to make most determinations otherwise reserved for decision by the Administrator. Under the Plan, the Administrator has the flexibility to determine eligible participants and the type and amount of awards to grant to eligible participants.
The Administrator may make the following types of grants under the Plan, each of which will be an “Award”:
● | qualified incentive stock options (“QISOs”); |
● | nonqualified stock options; and |
● | awards of restricted stock and/or restricted stock units. |
Our officers, key employees, directors, consultants and other independent contractors or agents who are responsible for or contribute to our management, growth or profitability will be eligible for selection by the Administrator to participate in the Plan, provided, however, that QISOs may be granted only to our employees.
We authorized and reserved for issuance under the Plan an aggregate of 1,150,0002,650,000 shares of our Common Stock. The Company’s only stock option grant in 2019 was a fully vested option to purchase 250,000 shares of the Company’s common stock that was issued to the Company’s CEO pursuant to his employment agreement, which stated that this option grant would be fully vested if it was not issued within fifteen days of the Merger. The option was not granted within that time frame and was fully vested when issued.
As of December 31, 2015,September 30, 2021, we have grantedoutstanding an aggregate of 380,000385,000 options to purchase common stock at a weighted average price of $3.95$1.39 per shareshare. In 2019 we granted an aggregate of 280,085 common stock shares from the Plan to certain employees,outside consultants and to outside directors.at the market price on the day of grant. If any of the awards granted under the Plan expire, terminate or are forfeited for any reason before they have been exercised, vested or issued in full, the unused shares allocable to or subject to those expired, terminated or forfeited awards will become available for further grants under the Plan.
On April 1, 2021, the Board of Directors of the Company approved a non-qualified stock option agreement and granted an aggregate of 54,750,000 stock options to certain directors and officers of the Company having an exercise price of $0.07 per share and an expiration date of ten years from the date of grant (The “Options). The Director’s Options vest over a period of three years, and the Chief Executive Officer and Chief Financial Officer’s Options vest over a period of four years. These options were granted outside of the Plan. The Board of Directors decided not to renew the former CEO’s (Robert Greif) employment contract, therefore, 25,500,000 unvested shares were forfeited.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Policies and Procedures for Related Person Transactions
Our boardBoard of directorsDirectors has adopted written policies and procedures for the review of any transaction, arrangement or relationship in which we are a participant, the amount involved exceeds $120,000 and one of our executive officers, directors, director nominees or 5% stockholders, or their immediate family members, each of whom we refer to as a “related person,” has a direct or indirect material interest.
If a related person proposes to enter into such a transaction, arrangement or relationship, which we refer to as a “related person transaction,” the related person must report the proposed related person transaction to our Chief Executive Officer.CEO. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by our audit committee. Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction.
If advance review and approval is not practicable, the committee will review, and, in its discretion, may ratify the related person transaction. The policy also permits the chairman of the committee to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by the committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually.
A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the committee after full disclosure of the related person’s interest in the transaction. As appropriate for the circumstances, the committee will review and consider:
● | the related person’s interest in the related person transaction; |
● | the approximate dollar value of the amount involved in the related person transaction; |
● | the approximate dollar value of the amount of the related person’s interest in the transaction without regard to the amount of any profit or loss; |
● | whether the transaction was undertaken in the ordinary course of our business; |
● | whether the terms of the transaction are no less favorable to us than terms that could have been reached with an unrelated third party; and |
● | the purpose of, and the potential benefits to us of, the transaction. |
The committee may approve or ratify the transaction only if the committee determines that, under all of the circumstances, the transaction is in our best interests. The committee may impose any conditions on the related person transaction that it deems appropriate.
In addition to the transactions that are excluded by the instructions to the SEC’s related person transaction disclosure rule, our board of directors has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of this policy:
● | interests arising solely from the related person’s position as an executive officer of another entity (whether or not the person is also a director of such entity) that is a participant in the transaction, where (i) the related person and all other related persons own in the aggregate less than a 10% equity interest in such entity, (ii) the related person and his or her immediate family members are not involved in the negotiation of the terms of the transaction and do not receive any special benefits as a result of the transaction and (iii) the amount involved in the transaction is less than the greater of $200,000 or 5% of the annual gross revenues of the company receiving payment under the transaction; and |
● | a transaction that is specifically contemplated by provisions of our charter or bylaws. |
The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by the compensation committee in the manner specified in its charter.
We did not have a written policy regarding the review and approval of related person transactions. Nevertheless, with respect to such transactions, it was our policy for our board of directors to consider the nature of and business reason for such transactions, how the terms of such transactions compared to those which might be obtained from unaffiliated third parties and whether such transactions were otherwise fair to and in the best interests of, or not contrary to, our best interests.
In addition, all related person transactions required prior approval, or later ratification, by our board of directors.
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Stock Option Grants to Executive Officers and Directors
We authorized and reserved for issuance under the Plan an aggregate of 1,150,0002,650,000 shares of our Common Stock. In October 2013, we granted an aggregate of 60,000The Company did not grant stock options under the plan in 2020. The Company’s only stock option grant in 2019 was a fully vested option to purchase 250,000 shares of the Company’s common stock at $2.50 per sharethat was issued to our outside directors,the Company’s CEO pursuant to his employment agreement, which stated that this option grant would be fully vested if it was not issued within fifteen days of the Merger. The option was not granted within that time frame and in January 2015 we granted an aggregate of 125,000 options to purchase common stock at $5.99 to employees and consultants.was fully vested when issued. If any of the Awards granted under the Plan expire, terminate or are forfeited for any reason before they have been exercised, vested or issued in full, the unused shares allocable to or subject to those expired, terminated or forfeited awards will become available for further grants under the Plan.
On April 1, 2021, the Board of Directors of the Company approved a non-qualified stock option agreement and granted an aggregate of 54,750,000 stock options to certain directors and officers of the Company having an exercise price of $0.07 per share and an expiration date of ten years from the date of grant (The “Options). The Director’s Options vest over a period of three years, and the Chief Executive Officer and Chief Financial Officer’s Options vest over a period of four years. These options were granted outside of the Plan. The Board of Directors decided not to renew the former CEO’s (Robert Greif) employment contract, therefore, 25,500,000 unvested shares were forfeited.
Policies and Procedures for Approving Related Person Transactions
Our policy and procedure with respect to any related person transaction between the Company and any related person requiring disclosure under Item 404(a) of regulation S-K under the Exchange Act, is that the Company'sCompany’s audit committee reviews all such transactions.
This review covers any material transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which the Company was and is to be a participant, and a related party had or will have a direct or indirect material interest, including, purchases of goods or services by or from the related party or entities in which the related party has a material interest, indebtedness, guarantees of indebtedness and employment by the Company of a related party. The board of directors has adopted a written policy reflecting the policy and procedure identified above.
DESCRIPTION OF SECURITIES
Authorized Capital Stock
As of the date of this prospectus, our authorized capital stock consists of 1,600,000,000 shares of common stock, $0.001 par value, and provisions1,000,000,000 shares of our certificatepreferred stock, $0.001 par value.
As of incorporation and bylaws are summaries and are qualified by reference to the certificate of incorporation and the bylaws that will be in effect upon the closingdate of this offering. We have filed copies of these documents with the SEC as exhibits to our registration statement, of which this prospectus, forms a part. The description of the capital stock reflects changes to our capital structure that will occur upon the closing of this offering.
Common Stock
Holders of our common stock are entitled to one vote for each share heldowned as of record on all matters submitted to a voteon which stockholders may vote. Holders of stockholders andcommon stock do not have cumulative voting rights. Anrights in the election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock.
Preferred Stock
Our Second Amended Charter authorizes our Board to issue preferred stock from time to time with such designations, preferences, conversion or other rights, voting powers, restrictions, dividends or limitations as to dividends or other distributions, qualifications or terms or conditions of redemption as shall be determined by the Board for each class or series of stock. Preferred stock is available for possible future financings or acquisitions and for general corporate purposes without further authorization of stockholders unless such authorization is required by applicable law, or the rules of any securities exchange or market on which our stock is then listed or admitted to trading.
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Our Second Amended Charter permits our Board of Directors to designate new series of preferred stock and issue those shares without any vote or action by our stockholders, subject to and may be adversely affectedcertain approval rights by the holders of Series A Preferred Shares. Such newly authorized and issued shares of preferred stock could contain terms that grant special voting rights to the holders of such shares that make it more difficult to obtain stockholder approval for an acquisition of our business or increase the cost of any such acquisition.
As of the date of this prospectus, there were 498,229,802 shares of Series A preferred stock, 0 shares of Series B preferred stock and 0 shares of Series D preferred stock, issued and outstanding.
The Second Amended Charter, among other things, authorizes the Company to issue up to 1,000,000,000 shares of preferred stock, among which 800,000,000 shares shall be designated as the new Series A preferred stock. The following is a summary of the rights, preferences, powers, privileges and restrictions, qualifications and limitations as described in the Second Amended Charter:
1. Dividends.
From and after the date of the issuance of any shares of Series A preferred stock, dividends at the rate of eight percent (8%) per annum of Base Amount (as defined below) shall accrue on such shares of Series A preferred stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A preferred stock) (the “Series A Accruing Dividends”). “Base Amount” means, with respect to each share of Series A preferred stock at any time, the Series A Original Issue Price for such share plus all previously compounded Series A Accruing Dividends with respect to such share at such time. The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on shares of common stock payable in shares of common stock) unless the holders of the Series A preferred stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A preferred stock in an amount at least equal to the sum of (i) the amount of the aggregate Series A Accruing Dividends then accrued on such share of Series A preferred stock and not previously paid and (ii) (A) in the case of a dividend on common stock or any class or series that is convertible into common stock, that dividend per share of Series A preferred stock as would equal the product of (1) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into common stock and (2) the number of shares of common stock issuable upon conversion of a share of Series A preferred stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (B) in the case of a dividend on any class or series that is not convertible into common stock, at a rate per share of Series A preferred stock determined by (1) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (2) multiplying such fraction by an amount equal to the Series A Original Issue Price (as defined in the Second Amended Charter); provided that, if the Company declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of Series A preferred stock pursuant to this section shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series A preferred stock dividend.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.
Preferential Payments to Holders of Series A Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of any series ofSeries A preferred stock that we may designatethen outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders and, issue in the future.event of a Deemed Liquidation Event (as defined in the Second Amended Charter), 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 of the Company), together with any other assets of the Company available for distribution to its stockholders, all to the 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 amount per share equal to one (1) times the Series A Original Issue Price for such share of Series 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 Series A preferred stock the full amount to which they shall be entitled under subsection 2.1 of the Second 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.
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In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, after the payment in full of all Series A Liquidation Amounts (as defined in the Second 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 Company 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 number 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 our certificatethe Second Amended and Restated Articles of incorporation, our boardIncorporation immediately prior to such liquidation, dissolution or winding up of directors is authorizedthe Company.
3. Voting.
On any matter presented to issuethe stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series A preferred stock in one or more series without stockholder approval. Our boardshall be entitled to cast the number of directors hasvotes equal to the discretion to determinenumber of whole shares of common stock into which the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences,shares of each series of preferred stock.
The holders of record of the effect of making it more difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. There will be no shares of Preferred Stock outstanding upon the closing of this offering.
4. Conversion.
The holders of our directors then in office.
Each share of Series A preferred stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of common stock as is determined by dividing the Series A Original Issue Price by the Series A Conversion Price (as defined below) in effect at the time of conversion. The “Series A Conversion Price” shall initially be equal to the Series A Original Issue Price. The Series A Conversion Price, and the rate at which shares of Series A preferred stock are available for future issuance without stockholder approval,may be converted into shares of common stock, shall be subject to adjustment as provided in the Second Amended and Restated Articles of Incorporation.
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In the event of a notice of redemption of any limitations imposedshares of Series A preferred stock, the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the last full day preceding the date fixed for redemption, unless the redemption price is not fully paid on such redemption date, in which case the Conversion Rights for such shares shall continue until such price is paid in full. In the event of a liquidation, dissolution or winding up of the Company or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series A preferred stock.
Upon the vote or written consent of the Requisite Holders, all of the outstanding Series A preferred stock shall convert into shares of common stock of the Company in accordance with the Second Amended and Restated Articles of Incorporation.
5. Redemption.
Unless prohibited by Nevada law governing distributions to stockholders, each share of Series A preferred stock shall be redeemed by the listing standardsCompany at a price equal to at a price equal to the greater of (A) 100% of the NASDAQ Capital Market.Series A Original Issue Price per such share of Series A preferred stock, plus any Series A Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon and (B) the fair market value of such share of Series A preferred stock (as determined in accordance with the Second Amended and Restated Articles of Incorporation) as of the date of the Company’s receipt of a request for redemption (the “Redemption Price”), in three (3) annual installments commencing not more than sixty (60) days after receipt by the Company at any time on or after the second (2nd) anniversary of the date on which the first share of Series A preferred stock was issued from the Requisite Holders of written notice requesting redemption of all shares of Series A preferred stock (the “Redemption Request”). Upon receipt of a Redemption Request, the Company shall apply all of its assets to any such redemption, and to no other corporate purpose, except to the extent prohibited by Nevada law governing distributions to stockholders.
We do not plan to list the Series A preferred stock or the subscription rights on any stock exchange or the over-the-counter stock exchange market.
Warrants and Options
As of the date of this prospectus, the Company had outstanding warrants exercisable to purchase 350,996,043 shares of common stock at an exercise price of $0.014 per share, subject to certain adjustments as described below, and outstanding options exercisable to purchase 15,385,000 shares of common stock at an exercise price of $0.07 per share. The exercise prices of such warrants are subject to adjustment based on varying anti-dilution provisions contained in such warrants but in no event will the exercise price of such warrants be below the offering price in the rights offering.
Anti-Takeover Provisions of Nevada State Law
Certain anti-takeover provisions of Nevada law could have the effect of delaying or preventing a third-party from acquiring us, even if the acquisition arguably could benefit our stockholders. Nevada’s “combinations with interested stockholders” statutes, NRS 78.411 through 78.444, inclusive, prohibit specified types of business “combinations” between certain Nevada corporations and any person deemed to be an “interested stockholder” for two years after such person first becomes an “interested stockholder” unless the corporation’s board of directors approves the combination, or the transaction by which such person becomes an “interested stockholder”, in advance, or unless the combination is approved by the board of directors and sixty percent of the corporation’s voting power not beneficially owned by the interested stockholder, its affiliates and associates. Further, in the absence of prior approval certain restrictions may apply even after such two-year period. However, these statutes do not apply to any combination of a corporation and an interested stockholder after the expiration of four years after the person first became an interested stockholder. For purposes of these statutes, an “interested stockholder” is any person who is (1) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation, or (2) an affiliate or associate of the corporation and at any time within the two previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition of the term “combination” is sufficiently broad to cover most significant transactions between a corporation and an “interested stockholder.” These additional sharesstatutes generally apply to Nevada corporations with 200 or more stockholders of record. However, a Nevada corporation may elect in its articles of incorporation not to be governed by these particular laws, but if such election is not made in the corporation’s original articles of incorporation, the amendment (1) must be approved by the affirmative vote of the holders of stock representing a majority of the outstanding voting power of the corporation not beneficially owned by interested stockholders or their affiliates and associates, and (2) is not effective until 18 months after the vote approving the amendment and does not apply to any combination with a person who first became an interested stockholder on or before the effective date of the amendment. We have made such an election in our original articles of incorporation.
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Nevada’s “acquisition of controlling interest” statutes, NRS 78.378 through 78.379, inclusive, contain provisions governing the acquisition of a controlling interest in certain Nevada corporations. These “control share” laws provide generally that any person that acquires a “controlling interest” in certain Nevada corporations may be useddenied voting rights, unless a majority of the disinterested stockholders of the corporation elects to restore such voting rights. Absent such provision in our bylaws, these laws would apply to us as of a particular date if we were to have 200 or more stockholders of record (at least 100 of whom have addresses in Nevada appearing on our stock ledger at all times during the 90 days immediately preceding that date) and do business in the State of Nevada directly or through an affiliated corporation, unless our articles of incorporation or bylaws in effect on the tenth day after the acquisition of a controlling interest provide otherwise. These laws provide that a person acquires a “controlling interest” whenever a person acquires shares of a subject corporation that, but for the application of these provisions of the NRS, would enable that person to exercise (1) one fifth or more, but less than one third, (2) one third or more, but less than a varietymajority or (3) a majority or more, of corporate finance transactions, acquisitionsall of the voting power of the corporation in the election of directors. Once an acquirer crosses one of these thresholds, shares which it acquired in the transaction taking it over the threshold and employee benefit plans.within the 90 days immediately preceding the date when the acquiring person acquired or offered to acquire a controlling interest become “control shares” to which the voting restrictions described above apply.
Nevada law also provides that directors may resist a change or potential change in control if the directors determine that the change is opposed to, or not in the best interests of, the corporation. The existence of authorized but unissuedthe foregoing provisions and unreservedother potential anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood that you could receive a premium for your common stock and preferred stock could make more difficult or discouragein an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Interwest TransferIssuer Direct Corporation. with its principal address at 1981 Murray Holladay Road, Suite 100, SLC UT, 84117. Its telephone number is 801.272.9294.
Stock Quotation
Our common stock is currently quoted on OTCQB and under the symbols “HCYT”.
Indemnification of Directors and Officers
Our Articles of Incorporation provide that to the fullest extent permitted under Nevada law, our directors will not be personally liable to the Company Inc. or its stockholders for monetary damages for breach of the duty of care, breach of fiduciary duty or breach of any other duties as directors. Our Articles of Incorporation also provide for indemnification of our directors and officers by the Company to the fullest extent permitted by law. The Company maintains D&O insurance coverage.
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PRIVATE PLACEMENT OF WARRANTS
On April 17, 2020 (the “Signing Date”), we entered into a securities purchase agreement (the “Purchase Agreement”) with several institutional and accredited investors pursuant to which we sold to the investors in a private placement an aggregate of 363,146,765 warrants to purchase up to an aggregate of 363,146,765 shares of common stock for gross proceeds to the Company of approximately $5,084,000.
We intend to use the net proceeds primarily for working capital and general corporate purposes.
The Warrants are exercisable for a period of ten (10) years from the date of issuance and has an exercise price of $0.014 per share, subject to adjustment as set forth in the Warrant for stock splits, stock dividends, recapitalizations and similar customary adjustments. The investor may exercise the warrant on a cashless basis if the shares of common stock underlying the warrant (the “Warrant Shares”) are not then registered pursuant to an effective registration statement.
The Investors have contractually agreed to restrict their ability to exercise the Warrants such that the number of shares of the Company’s common stock held by the Investors and their respective affiliates after such exercise does not exceed the Beneficial Ownership Limitation set forth in the Warrant which may not exceed 4.99% (or 9.99%, at the election of each Investor) of the Company’s then issued and outstanding shares of common stock.
SELLING STOCKHOLDERS
The common stock being offered by the selling stockholders are those issuable to the investor upon exercise of the warrants. For additional information regarding the issuances of those warrants see “Private Placement of Warrants” above. We are registering the shares of common stock in order to permit the selling stockholders to offer the shares for resale from time to time. Except for the ownership of the shares of common stock and warrants, unless otherwise indicated the selling stockholders have not had any material relationship with us within the past three years.
The table below lists the selling stockholders and other information regarding the beneficial ownership of the shares of common stock by the selling stockholders. The second column lists the number of shares of common stock beneficially owned each of the by the selling stockholders, based on its ownership of the shares of common stock, preferred stock and warrants, as of January 25, 2022 assuming exercise of the warrants and preferred stock held by the selling stockholders on that date, without regard to any limitations on exercises. As of January 25, 2022, 167,857,522 shares of the Company’s common stock were issued and outstanding.
The third column lists the shares of common stock being offered by this prospectus by the selling stockholders.
This prospectus generally covers the resale of the maximum number of shares of common stock issuable upon exercise of the related warrants, determined as if the outstanding warrants were exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the registration right agreement, without regard to any limitations on the NASDAQ Capital Marketexercise of the warrants. The fourth column assumes the sale of all of the shares offered by the selling stockholders pursuant to this prospectus.
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Unless indicated otherwise as set forth in the footnotes below, under the symbol “MDVX,”terms of the warrants the investors may not exercise the warrants to the extent such exercise would cause such investor, together with its affiliates and attribution parties, to beneficially own a number of shares of common stock which would exceed 4.99% of our Series A Warrantsthen outstanding common stock following such exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of the warrants which have not been exercised (the “Beneficial Ownership Limitation”).
Name of Selling Stockholder | Ownereship before the Offering | Maximum Number of shares of Common Stock to be Sold Pursuant to this Prospectus | Ownership after the Offering | |||||||||
FWHC Bridge, LLC | 602,654,164 | (1) | 150,324,857 | 452,329,307 | ||||||||
FWHC Bridge Friends, LLC | 22,118,983 | (2) | 7,488,063 | 14,630,920 | ||||||||
CTS Equities, L.P. (f/ka/ Blue Zone Med) | 57,984,955 | (3) | 18,720,156 | 39,264,799 | ||||||||
CFRS Investments, LLC | 77,416,438 | (4) | 26,208,219 | 51,208,219 | ||||||||
Grammen Holdings, LLC | 11,059,491 | (5) | 3,744,031 | 7,315,460 | ||||||||
JEK SEP/Property, LP | 5,529,746 | (6) | 1,872,016 | 3,657,730 | ||||||||
EFO Breathe Easy, LP | 1,105,949 | (7) | 374,403 | 731,546 | ||||||||
Bronx Sox Partners, LP | 3,317,847 | (8) | 1,123,209 | 2,194,638 | ||||||||
Eminence Interests, LP | 3,317,847 | (9) | 1,123,209 | 2,194,638 | ||||||||
WPE Kids Partners, LP | 11,059,491 | (10) | 3,744,031 | 7,315,460 | ||||||||
James R. Tipps | 829,461 | (11) | 280,802 | 548,659 | ||||||||
Richard Molinsky | 561,076 | 561,076 | 0 | |||||||||
John Vaughn Deasy | 2,863,385 | (12) | 842,407 | 2,020,978 | ||||||||
Lance McNeill | 2,761,937 | (13) | 934,540 | 1,827,397 | ||||||||
Tim Erensen | 928,933 | (14) | 280,538 | 648,395 | ||||||||
Julie Krupala | 1,658,924 | (15) | 561,605 | 1,097,319 | ||||||||
DB-BZ, LLC | 31,398,729 | (16) | 9,360,079 | 22,038,650 | ||||||||
Ralph Cioffi | 953,757 | (17) | 280,450 | 673,307 | ||||||||
Edward G. Gongola, Jr. | 552,973 | (18) | 187,201 | 365,772 | ||||||||
Rellie, LLC | 1,105,949 | (19) | 374,403 | 731,546 | ||||||||
Lee R. Weeks | 828,757 | (20) | 280,450 | 548,307 | ||||||||
Chaac Capital Group, LLC | 828,757 | (21) | 280,450 | 548,307 | ||||||||
G Capital Investments LLC | 11,036,007 | (22) | 3,732,289 | 7,303,718 | ||||||||
Curt J. Miller | 1,859,524 | (23) | 561,605 | 1,297,919 | ||||||||
NADG (US) Investments LLLP | 11,803,418 | (24) | 3,740,509 | 8,062,909 | ||||||||
Gregg Gagliardi | 476,967 | (25) | 140,269 | 336,698 | ||||||||
S. Adele Jones | 1,907,514 | (26) | 560,900 | 1,346,614 | ||||||||
Alexandra H. Jones | 1,907,514 | (27) | 560,900 | 1,346,614 | ||||||||
Uyona Management II, LLC* | 16,575,147 | (28) | 5,609,002 | 10,966,145 | ||||||||
Peter Jacobsen | 3,814,325 | (29) | 1,121,448 | 2,692,877 | ||||||||
Virginia E. Dadey | 372,289 | 372,289 | 0 | |||||||||
John Lemak | 1,160,260 | (30) | 392,630 | 767,630 | ||||||||
YPH, LLC* | 5,515,656 | (31) | 1,864,971 | 3,650,685 |
* | Individual or entity is controlled by an officer and/or director of the Company. |
(1) | Comprised of 336,785,551 shares of preferred stock; | |
(2) | Comprised of 14,630,920 shares of preferred stock; | |
(3) | Comprised of 2,687,500 shares of common stock held under the name Blue Zone Med and 36,577,299 shares of preferred stock under the name CTD Equity; | |
(4) | Comprised of 51,208,219 shares of preferred stock; | |
(5) | Comprised of 7,315,460 shares of common stock; |
50 |
(6) | Comprised of 3,657,730 shares of common stock; | |
(7) | Comprised of 7,315,546 shares of common stock; | |
(8) | Comprised of 2,194,638 shares of common stock; | |
(9) | Comprised of 2,194,638 shares of common stock; | |
(10) | Comprised of 7,315,460 shares of common stock; | |
(11) | Comprised of 548,659 shares of preferred stock; | |
(12) | Comprised of 2,020,978 shares of common stock; | |
(13) | Comprised of 1,827,397 shares of preferred stock; | |
(14) | Comprised of 100,000 shares of common stock and 548,395 shares of preferred stock; | |
(15) | Comprised of 1,097,319 shares of common stock; | |
(16) | Comprised of 3,750,000 shares of common stock and 18,288,650 shares of preferred stock; | |
(17) | Comprised of 125,000 shares of common stock and 548,307 shares of preferred stock; | |
(18) | Comprised of 365,772 shares of common stock; | |
(19) | Comprised of 731,546 shares of common stock; | |
(20) | Comprised of 548,307 shares of preferred stock; | |
(21) | Comprised of 548,307 shares of preferred stock; | |
(22) | Comprised of 7,303,718 shares of preferred stock; | |
(23) | Comprised of 200,000 shares of common stock held jointly with his wife and 1,097,919 shares of preferred stock held individually; | |
(24) | Comprised of 8,062,909 shares of common stock; | |
(25) | Comprised of 62,500 shares of common stock and 274,198 shares of preferred stock; | |
(26) | Comprised of 250,000 shares of common stock and 1,096,614 shares of preferred stock; | |
(27) | Comprised of 250,000 shares of common stock and 1,096,614 shares of preferred stock; | |
(28) | Comprised of 10,966,145 shares of preferred stock; | |
(29) | Comprised of 500,000 shares of common stock and 2,192,877 shares of preferred stock; | |
(30) | Comprised of 767,630 shares of common stock; | |
(31) | Comprised of 3,650,685 shares of preferred stock; |
51 |
PLAN OF DISTRIBUTION
The Selling Stockholders (the “Selling Stockholders”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the OTCQB or any other stock exchange, market or trading facility on which the securities are listedtraded or in private transactions. The selling stockholders may offer their shares at fixed or negotiated prices. Each Selling Stockholder may use any one or more of the following methods when selling securities:
● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
● | block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
● | an exchange distribution in accordance with the rules of the applicable exchange; |
● | privately negotiated transactions; |
● | settlement of short sales; |
● | in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security; |
● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
● | a combination of any such methods of sale; or |
● | any other method permitted pursuant to applicable law. |
The Selling Stockholders may also sell securities under Rule 144 or any other exemption from registration under the symbol “MDVXW.Securities Act of 1933, as amended (the “Securities Act”
Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.
In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each of the Selling Stockholders have informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
52 |
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Stockholder or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
LEGAL MATTERS
The validity of the securities being offered by this prospectus has been passed upon for us by Sichenzia Ross Ference LLP, New York, New York. Sichenzia Ross Ference LLP or certain members or employees of Sichenzia Ross Ference LLP have been issued common stock of the Company.
EXPERTS
The consolidated balance sheetsfinancial statements of MedoveX Corporation and subsidiariesH-CYTE, Inc. as of December 31, 2015 and 2014, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years then ended wereDecember 31, 2020 and 2019 have been audited by
WHERE YOU CAN FIND MORE INFORMATION
Federal securities laws require us to file periodicinformation with the SEC concerning our business and operations. Accordingly, we file annual, quarterly, and special reports, proxy statements and other information with the SEC. SuchCommission. The SEC maintains a web site (http://www.sec.gov) at which you can read or download our reports proxy statements and other informationinformation.
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities being offered hereby. As permitted by us can be inspectedthe rules and copies at the SEC's Public Reference Room located at 100 F Street, N.E. Washington, D.C. 20549 at the prescribed rates. The SEC also maintains a site on the World Wide Web that contains reports, proxy and information statements and other information regarding registrants that file electronically. The address of such site is http://www.sec.gov. Please call 1-800-SEC-0330 for further information on the operationregulations of the SEC's Public Reference Room.
53 |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
H-Cyte, Inc
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
(Unaudited)
(Unaudited) | ||||||||
Sept 30, 2021 | December 31, 2020 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | 307,213 | $ | 1,640,645 | ||||
Accounts receivable | 9,200 | - | ||||||
Patient financing receivable, current portion | 35,080 | - | ||||||
Other receivables | 551 | 22,123 | ||||||
Prepaid expenses | 106,228 | 94,434 | ||||||
Total Current Assets | 458,272 | 1,757,202 | ||||||
Right-of-use asset | 162,207 | 278,552 | ||||||
Property and equipment, net | 40,344 | 139,175 | ||||||
Patient financing receivable, net of current portion | 61,547 | - | ||||||
Other assets | 18,412 | 29,239 | ||||||
Total assets | $ | 740,782 | $ | 2,204,168 | ||||
Liabilities and Stockholders’ Deficit | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 1,044,727 | $ | 1,006,968 | ||||
Accrued liabilities | 187,119 | 276,415 | ||||||
Other current liabilities | 141,330 | 154,812 | ||||||
Short-term notes, related party | ||||||||
Short-term convertible notes payable | ||||||||
Notes payable, current portion | 67,444 | 67,444 | ||||||
Dividend payable | ||||||||
Convertible notes payable, related parties | 1,584,665 | - | ||||||
Convertible notes payable | 1,091,080 | - | ||||||
PPP Loan, current portion | 105,878 | 606,811 | ||||||
Deferred revenue | 410,031 | 634,149 | ||||||
Lease liability, current portion | 92,589 | 139,189 | ||||||
Interest payable | 4,385 | 6,898 | ||||||
Total Current Liabilities | 4,729,248 | 2,892,686 | ||||||
Long-term Liabilities | ||||||||
Lease liability, net of current portion | 87,304 | 157,050 | ||||||
Notes payable, net of current portion | ||||||||
Derivative liability - warrants | ||||||||
Redemption put liability | ||||||||
PPP Loan, net of current portion | - | 202,271 | ||||||
Total Long-term Liabilities | 87,304 | 359,321 | ||||||
Total Liabilities | 4,816,552 | 3,252,007 | ||||||
Commitments and Contingencies (Note 10) | ||||||||
Mezzanine Equity | ||||||||
Total Mezzanine Equity | ||||||||
Stockholders’ Equity (Deficit) | ||||||||
Preferred Stock - $ par value: shares authorized; Series A Preferred Stock - $ par value: shares authorized, and shares issued and outstanding at September 30, 2021 and, December 31, 2020, respectively | 515,874 | 538,109 | ||||||
Common stock - $ par value: shares authorized, and shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 149,394 | 127,159 | ||||||
Additional paid-in capital | 43,540,358 | 42,515,999 | ||||||
Accumulated deficit | (47,911,264 | ) | (43,858,974 | ) | ||||
Non-controlling interest | (370,132 | ) | (370,132 | ) | ||||
Total Stockholders’ Deficit | (4,075,770 | ) | (1,047,839 | ) | ||||
Total Liabilities and Stockholders’ Deficit | $ | 740,782 | $ | 2,204,168 |
The accompanying notes are an integral part of these consolidated financial statements
F-2 |
H-Cyte, Inc
Consolidated Statement of Operations
(Expressed in U.S Dollars)
(Unaudited)
Three Months Ended Sept 30, | Nine Months Ended Sept 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues | $ | 460,216 | $ | 649,892 | $ | 1,286,841 | $ | 1,686,168 | ||||||||
Cost of Sales | (138,786 | ) | (161,252 | ) | (553,454 | ) | (608,079 | ) | ||||||||
Gross Profit | 321,430 | 488,640 | 733,387 | 1,078,089 | ||||||||||||
Operating Expenses | ||||||||||||||||
Salaries and related costs | 534,752 | 606,294 | 1,782,646 | 2,425,094 | ||||||||||||
Share based compensation | 162,359 | - | 1,024,359 | 643 | ||||||||||||
Loss on disposal of property and equipment | - | - | 92,804 | - | ||||||||||||
Other general and administrative | 789,365 | 542,317 | 2,229,120 | 2,806,707 | ||||||||||||
Research and development | 3,285 | 201,658 | 3,285 | 1,151,658 | ||||||||||||
Advertising | 58,643 | 51,643 | 223,871 | 222,196 | ||||||||||||
Loss on impairment | ||||||||||||||||
Depreciation and amortization | 300 | 30,095 | 13,859 | 69,447 | ||||||||||||
Total Operating Expenses | 1,548,704 | 1,432,007 | 5,369,944 | 6,675,745 | ||||||||||||
Operating Loss | (1,227,274 | ) | (943,367 | ) | (4,636,557 | ) | (5,597,656 | ) | ||||||||
Other Income (Expense) | ||||||||||||||||
Forgiveness of PPP loan | 698,820 | - | 698,820 | - | ||||||||||||
Gain on extinguishment of debt | - | - | - | 1,300,088 | ||||||||||||
Interest expense | (50,516 | ) | (1,039,349 | ) | (110,446 | ) | (1,458,521 | ) | ||||||||
Other income (expense) | (7,641 | ) | (34,504 | ) | (4,107 | ) | (25,182 | ) | ||||||||
Change in fair value of redemption put liability | - | 97,997 | - | 272,705 | ||||||||||||
Loss on derivative instrument | - | - | - | (2,306,121 | ) | |||||||||||
Warrant modification expense | - | - | - | (70,851 | ) | |||||||||||
Change in fair value of derivative liability - warrants | - | 5,869,102 | - | 2,986,853 | ||||||||||||
Total Other Income (Expense) | 640,663 | 4,893,246 | 584,267 | 698,971 | ||||||||||||
Net Income (Loss) | $ | (586,611 | ) | $ | 3,949,879 | $ | (4,052,290 | ) | $ | (4,898,685 | ) | |||||
Accrued dividends on outstanding Series B Convertible Preferred Stock | - | 7,856 | - | 44,456 | ||||||||||||
Finance costs on issuance of Series D Convertible Preferred Stock | ||||||||||||||||
Deemed dividend on adjustment to exercise price on convertible debt and certain warrants | ||||||||||||||||
Deemed dividend on beneficial conversion features | ||||||||||||||||
Deemed dividend on Series D Convertible Preferred Stock | - | 36,450 | - | 277,719 | ||||||||||||
Net Income (Loss) attributable to common stockholders | $ | (586,611 | ) | $ | 3,905,573 | $ | (4,052,290 | ) | $ | (5,220,860 | ) | |||||
Net Income (Loss) per share | ||||||||||||||||
Basic | $ | (0.00 | ) | $ | 0.03 | $ | (0.03 | ) | $ | (0.05 | ) | |||||
Diluted | $ | (0.00 | ) | $ | 0.01 | $ | (0.03 | ) | $ | (0.05 | ) | |||||
Weighted average outstanding shares - basic | 142,407,798 | 116,970,322 | 140,074,271 | 106,691,185 | ||||||||||||
Weighted average outstanding shares - diluted | 142,407,798 | 664,244,972 | 140,074,271 | 106,691,185 |
The accompanying notes are an integral part of these consolidated financial statements
F-3 |
H-Cyte, Inc
Statements of Stockholders’ Equity (Deficit)
(Expressed in U. S. Dollars)
(Unaudited)
Three months ended | Preferred Series A Stock | Preferred Series B Stock | Common Stock | Additional Paid-in | Accumulated | Non-controlling | Total Stockholders’ | |||||||||||||||||||||||||||||||||
September 30, 2020 and 2021 | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||||
Balances - June 30, 2020 | - | $ | - | 6,100 | $ | 6 | 104,246,357 | $ | 104,246 | $ | 27,761,076 | $ | (46,248,302 | ) | $ | (370,132 | ) | $ | (18,753,106 | ) | ||||||||||||||||||||
Share based compensation | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series A Preferred Stock to common stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series A Preferred Stock to common stock, shares | ||||||||||||||||||||||||||||||||||||||||
Purchase accounting adjustments | ||||||||||||||||||||||||||||||||||||||||
Purchase accounting adjustments, Shares | ||||||||||||||||||||||||||||||||||||||||
Adjustment for assets and liabilities not included in Merger | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with private placement offering | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with private placement offering, shares | ||||||||||||||||||||||||||||||||||||||||
Finance costs on issuance of Series B Convertible Preferred Stock and related warrants | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to conversion of short-term debt | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to conversion of short-term debt, shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of warrants pursuant to conversion of short-term debt | ||||||||||||||||||||||||||||||||||||||||
Issuance of additional exchange shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of additional exchange shares, shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to conversion of convertible short-term debt | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to conversion of convertible short-term debt, Shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to warrant exchange | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock pursuant to warrant exchange, Shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series B Convertible Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series B Convertible Preferred Stock, Shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock per restricted stock award to executive | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock per restricted stock award to executive,shares | ||||||||||||||||||||||||||||||||||||||||
Repurchase of Series B Convertible Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
Repurchase of Series B Convertible Preferred Stock, Shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock to pay accrued dividends on Series B Convertible Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock to pay accrued dividends on Series B Convertible Preferred Stock, Shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock to pay accrued interest on convertible short-term debt | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock to pay accrued interest on convertible short-term debt, Shares | ||||||||||||||||||||||||||||||||||||||||
Deemed dividend on adjustment to exercise price on convertible debt and certain warrants | ||||||||||||||||||||||||||||||||||||||||
Deemed dividend on beneficial conversion features | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock per restricted stock award to executive | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock per restricted stock award to executive, Shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of warrants pursuant to short-term notes, related party | ||||||||||||||||||||||||||||||||||||||||
Deemed dividend on Series D Convertible Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
Beneficial conversion of Series D Convertible Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
Finance costs on issuance of Series D Convertible Preferred Stock and related warrants | ||||||||||||||||||||||||||||||||||||||||
Accrued dividends on Series B Convertible Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series B Convertible Preferred Stock to Common Stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series B Convertible Preferred Stock to Common Stock, Shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series D Convertible Preferred Stock to Common Stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series D Convertible Preferred Stock to Common Stock. shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of Short-term convertible notes payable - related party | ||||||||||||||||||||||||||||||||||||||||
Conversion of Short-term convertible notes payable - related party, shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of April Advance notes - related parties | ||||||||||||||||||||||||||||||||||||||||
Conversion of April Advance notes - related parties, shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of warrants pursuant to conversion of Short-term convertible notes | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with extinguishment of short-term notes, related party | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with extinguishment of short-term notes, related party, Shares | ||||||||||||||||||||||||||||||||||||||||
Deemed dividend on Series D Convertible Preferred Stock at issuance | ||||||||||||||||||||||||||||||||||||||||
Reclassification of related party warrants to equity | ||||||||||||||||||||||||||||||||||||||||
Issuance of warrants pursuant to extension of convertible short-term notes, related party | ||||||||||||||||||||||||||||||||||||||||
Issuance of Series A Preferred Stock in Rights Offering, net of issuance costs | ||||||||||||||||||||||||||||||||||||||||
Issuance of Series A Preferred Stock in Rights Offering, net of issuance costs, shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of warrants to Common Stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of warrants to Common Stock,shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series B Preferred Stock to Common Stock | - | - | (6,100 | ) | (6 | ) | 2,119,713 | 2,120 | 150,983 | - | - | 153,097 | ||||||||||||||||||||||||||||
Accrued dividends on Series B Preferred Stock | - | - | - | - | - | - | (7,856 | ) | - | - | (7,856 | ) | ||||||||||||||||||||||||||||
Adjustment of exercise price on certain warrants | ||||||||||||||||||||||||||||||||||||||||
Reclassification of Series B warrants to equity | ||||||||||||||||||||||||||||||||||||||||
Reclassification of Series D warrants to equity | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series B Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series B Preferred Stock, shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of Short-term related party convertible notes to Preferred Stock | 35,860 | 412,541 | 448,401 | |||||||||||||||||||||||||||||||||||||
Conversion of Short-term related party convertible notes to Preferred Stock, shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of Common Stock in connection with extinguishment of short term notes, related parties | ||||||||||||||||||||||||||||||||||||||||
Issuance of Common Stock in connection with extinguishment of short term notes, related parties, shares | ||||||||||||||||||||||||||||||||||||||||
Deemed dividend on Series D Preferred Stock | - | - | - | - | - | - | (36,450 | ) | - | - | (36,450 | ) | ||||||||||||||||||||||||||||
Deemed dividend on Series D Preferred Stock at issuance | ||||||||||||||||||||||||||||||||||||||||
Issuance of Common Stock in exchange for consulting fees incurred | ||||||||||||||||||||||||||||||||||||||||
Issuance of Common Stock in exchange for consulting fees incurred, shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of warrants pursuant to private placement of Series D Convertible Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of Short-term convertible notes to Preferred Stock | 287,984,337 | 287,984 | - | - | - | - | 4,751,484 | - | - | 5,039,468 | ||||||||||||||||||||||||||||||
Issuance of warrants pursuant to extension of convertible short-term notes | ||||||||||||||||||||||||||||||||||||||||
Issuance of warrants pursuant to extension of maturity date on convertible debt | ||||||||||||||||||||||||||||||||||||||||
Conversion of related party warrants to equity | - | - | - | - | - | - | 107,123 | - | - | 107,123 | ||||||||||||||||||||||||||||||
Conversion of Series D Preferred Stock to Common Stock | - | - | - | - | 15,773,363 | 15,773 | 6,422,441 | - | - | 6,438,214 | ||||||||||||||||||||||||||||||
Reclassification of Series B warrants to Common Stock | - | - | - | - | - | - | 73,805 | - | - | 73,805 | ||||||||||||||||||||||||||||||
Reclassification of Series D warrants to Common Stock | - | - | - | - | - | - | 337,400 | - | - | 337,400 | ||||||||||||||||||||||||||||||
Issuance of Series A Preferred Stock in Rights Offering | 218,285,024 | 218,285 | - | - | - | - | 2,517,451 | - | - | 2,735,736 | ||||||||||||||||||||||||||||||
Conversion of Short-term related party convertible notes to Preferred Stock | 35,860,079 | 35,860 | - | - | - | - | 412,541 | - | - | 448,401 | ||||||||||||||||||||||||||||||
Stock based compensation | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series A Preferred Stock to common stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series A Preferred Stock to common stock, shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of share based compensation | ||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | 3,949,879 | - | 3,949,879 | ||||||||||||||||||||||||||||||
Balances – September 30, 2020 | 542,129,440 | $ | 542,129 | - | $ | - | 122,139,433 | $ | 122,139 | $ | 42,489,998 | $ | (42,298,423 | ) | $ | (370,132 | ) | $ | 485,711 |
Preferred Series A Stock | Preferred Series B Stock | Common Stock | Additional Paid-in | Accumulated | Non-controlling | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
Balances - June 30, 2021 | 520,305,884 | $ | 520,305 | - | - | 144,962,989 | $ | 144,963 | $ | 43,377,999 | $ | (47,324,653 | ) | $ | (370,132 | ) | $ | (3,651,518 | ) | |||||||||||||||||||||
Share based compensation | - | - | - | - | - | - | 162,359 | - | - | 162,359 | ||||||||||||||||||||||||||||||
Conversion of Series A Preferred Stock to common stock | (4,431,530 | ) | (4,431 | ) | - | - | 4,431,530 | 4,431 | - | - | - | - | ||||||||||||||||||||||||||||
Net Loss | - | - | - | - | - | - | - | (586,611 | ) | - | (586,611 | ) | ||||||||||||||||||||||||||||
Balances – September 30, 2021 | 515,874,354 | $ | 515,874 | - | - | 149,394,519 | $ | 149,394 | $ | 43,540,358 | $ | (47,911,264) | $ | (370,132 | ) | $ | (4,075,770) |
F-4 |
Nine months ended | Preferred Series A Stock | Preferred Series B Stock | Common Stock | Additional Paid-in | Accumulated | Non-controlling | Total Stockholders’ | |||||||||||||||||||||||||||||||||
September 30, 2020 and 2021 | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | ||||||||||||||||||||||||||||||
Balances - December 31, 2019 | - | $ | - | 6,100 | $ | 6 | 99,768,704 | $ | 99,769 | $ | 28,172,146 | $ | (37,362,531 | ) | $ | (370,132 | ) | $ | (9,460,742 | ) | ||||||||||||||||||||
Accrued dividends on Series B Preferred Stock | - | - | - | - | - | - | (44,456 | ) | - | - | (44,456 | ) | ||||||||||||||||||||||||||||
Adjustment of exercise price on certain warrants | - | - | - | - | - | - | (438,913 | ) | - | - | (438,913 | ) | ||||||||||||||||||||||||||||
Reclassification of Series B warrants to equity | - | - | - | - | - | - | 73,805 | - | - | 73,805 | ||||||||||||||||||||||||||||||
Reclassification of Series D warrants to equity | - | - | - | - | - | - | 337,400 | - | - | 337,400 | ||||||||||||||||||||||||||||||
Conversion of Series B Preferred Stock | - | - | (6,100 | ) | (6 | ) | 2,119,713 | 2,120 | 150,983 | - | - | 153,097 | ||||||||||||||||||||||||||||
Conversion of Series D Preferred Stock to Common Stock | - | - | - | - | 15,773,363 | 15,773 | 6,422,441 | - | - | 6,438,214 | ||||||||||||||||||||||||||||||
Conversion of Short-term related party convertible notes to Preferred Stock | 35,860,079 | 35,860 | - | - | - | - | 412,541 | - | - | 448,401 | ||||||||||||||||||||||||||||||
Issuance of Common Stock in connection with extinguishment of short term notes, related parties | - | - | - | - | 4,368,278 | 4,368 | 214,046 | - | - | 218,414 | ||||||||||||||||||||||||||||||
Deemed dividend on Series D Preferred Stock | - | - | - | - | - | - | (277,719 | ) | - | - | (277,719 | ) | ||||||||||||||||||||||||||||
Deemed dividend on Series D Preferred Stock at issuance | - | - | - | - | - | - | - | (37,207 | ) | - | (37,207 | ) | ||||||||||||||||||||||||||||
Conversion of related party warrants to equity | - | - | - | - | - | - | 107,123 | - | - | 107,123 | ||||||||||||||||||||||||||||||
Issuance of Common Stock in exchange for consulting fees incurred | - | - | - | - | 109,375 | 109 | 34,891 | - | - | 35,000 | ||||||||||||||||||||||||||||||
Issuance of warrants pursuant to private placement of Series D Convertible Preferred Stock | - | - | - | - | - | - | 31,902 | - | - | 31,902 | ||||||||||||||||||||||||||||||
Conversion of short-term convertible notes to Preferred Stock | 287,984,337 | 287,984 | - | - | - | - | 4,751,484 | - | - | 5,039,468 | ||||||||||||||||||||||||||||||
Issuance of warrants pursuant to extension of convertible short-term notes | - | - | - | - | - | - | 17,636 | - | - | 17,636 | ||||||||||||||||||||||||||||||
Issuance of warrants pursuant to extension of maturity date on convertible debt | - | - | - | - | - | - | 6,595 | - | - | 6,595 | ||||||||||||||||||||||||||||||
Issuance of Series A Preferred Stock in Rights Offering | 218,285,024 | 218,285 | - | - | - | - | 2,517,451 | - | - | 2,735,736 | ||||||||||||||||||||||||||||||
Share based compensation | - | - | - | - | - | - | 643 | - | - | 643 | ||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (4,898,685 | ) | - | (4,898,685 | ) | ||||||||||||||||||||||||||||
Balances – September 30, 2020 | 542,129,440 | $ | 542,129 | - | $ | - | 122,139,433 | $ | 122,139 | $ | 42,489,998 | $ | (42,298,423 | ) | $ | (370,132 | ) | $ | 485,711 |
Preferred Series A Stock | Preferred Series B Stock | Common Stock | Additional Paid-in | Accumulated | Non-controlling | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
Balances - December 31, 2020 | 538,109,409 | $ | 538,109 | - | $ | - | 127,159,464 | $ | 127,159 | $ | 42,515,999 | $ | (43,858,974 | ) | $ | (370,132 | ) | $ | (1,047,839 | ) | ||||||||||||||||||||
Balance | 538,109,409 | $ | 538,109 | - | $ | - | 127,159,464 | $ | 127,159 | $ | 42,515,999 | $ | (43,858,974 | ) | $ | (370,132 | ) | $ | (1,047,839 | ) | ||||||||||||||||||||
Conversion of Series A Preferred Stock to common stock | (22,235,055 | ) | (22,235 | ) | - | - | 22,235,055 | 22,235 | - | - | - | - | ||||||||||||||||||||||||||||
Share based compensation | - | - | - | - | - | - | 1,024,359 | - | - | 1,024,359 | ||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (4,052,290 | ) | - | (4,052,290) | |||||||||||||||||||||||||||||
Balances – September 30, 2021 | 515,874,354 | $ | 515,874 | - | $ | - | 149,394,519 | $ | 149,394 | $ | 43,540,358 | $ | (47,911,264 | ) | $ | (370,132 | ) | $ | (4,075,770) | |||||||||||||||||||||
Ending balance | 515,874,354 | $ | 515,874 | - | $ | - | 149,394,519 | $ | 149,394 | $ | 43,540,358 | $ | (47,911,264 | ) | $ | (370,132 | ) | $ | (4,075,770 | ) |
The accompanying notes are an integral part of these financial statements
F-5 |
H-Cyte, Inc
Consolidated Statements of Cash Flows
(Expressed in U.S Dollars)
(Unaudited)
Nine Months Ended Sept 30, | ||||||||
2021 | 2020 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (4,052,290 | ) | $ | (4,898,685 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 13,859 | 69,447 | ||||||
Loss on impairment | ||||||||
Loss on asset disposal | 92,804 | |||||||
Amortization of debt discount | - | 1,395,007 | ||||||
Interest and penalties on extension of short-term convertible notes | ||||||||
Forgiveness of PPP loan | (698,820 | ) | - | |||||
Issuance of warrants to extend convertible debt | - | 17,636 | ||||||
Issuance of warrants pursuant to short-term notes, related party | - | (1,300,088 | ) | |||||
Issuance of warrants to extend short-term debt | - | 6,595 | ||||||
Share based compensation expense | 1,024,359 | 643 | ||||||
Loss on write-off of inventory | ||||||||
Common stock issued for consulting services | - | 35,000 | ||||||
Income from change in fair value adjustment of derivative liability - warrants | ||||||||
Change in fair value of redemption put liability | (272,705 | ) | ||||||
Change in fair value of derivative liability - warrants | - | (2,986,853 | ) | |||||
Change in fair value of derivative liability - warrants | - | (272,705 | ) | |||||
Change in fair value of derivative liability - Day one derivative loss | - | 2,306,121 | ||||||
Issuance of warrants to extend short-term debt, related party | ||||||||
Bad debt expense | ||||||||
Issuance of warrants pursuant to extension of maturity date on convertible debt | ||||||||
Issuance of Common Stock pursuant to warrant exchange | ||||||||
Gain on extinguishment of short-term notes, related party | (1,300,088 | ) | ||||||
Warrant modification expense | - | 70,851 | ||||||
Loss on disposal of property and equipment | 92,804 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (9,200 | ) | 20,167 | |||||
Patient financing receivable, current portion | (35,080 | ) | - | |||||
Other receivables | 21,572 | 16,372 | ||||||
Patient financing receivable, net of current portion | (61,547 | ) | - | |||||
Prepaid expenses and other assets | (968 | ) | 707,457 | |||||
Interest payable | 6,333 | 35,565 | ||||||
Accounts Payable | 37,759 | (237,409 | ) | |||||
Accrued liabilities | (89,296 | ) | (21,206 | ) | ||||
Other current liabilities | (13,482 | ) | (15,680 | ) | ||||
Deferred revenue | (224,118 | ) | (409,375 | ) | ||||
Net Cash Used in Operating Activities | (3,988,115 | ) | (5,461,140 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Purchase of property and equipment | (7,832 | ) | (2,285 | ) | ||||
Purchase of business, net of cash acquired | ||||||||
Net assets not included in purchase transaction | ||||||||
Net Cash Used in Investing Activities | (7,832 | ) | (2,285 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Proceeds from short-term related party notes | 1,584,665 | |||||||
Payment of dividends | ||||||||
Proceeds from convertible notes payable, related parties | 1,584,665 | - | ||||||
Proceeds from convertible notes payable | 1,091,080 | - | ||||||
Proceeds from PPP loan | - | 809,082 | ||||||
Payment on debt obligations | ||||||||
Proceeds from common stock, net of issuance costs | ||||||||
Proceeds from Secured Convertible Promissory Notes | ||||||||
Proceeds from issuance of Series D Convertible Preferred Stock, net of issuance costs | ||||||||
Payments on PPP Loan | (13,230 | ) | (10,937 | ) | ||||
Proceeds from warrants, net of issuance costs | - | 3,842,695 | ||||||
Proceeds from issuance of Preferred Stock Series A, net of issuance costs | - | 2,735,736 | ||||||
Proceeds from Preferred stock Series A, net of issuance costs | 2,735,736 | |||||||
Payment on Preferred stock Series B Convertible Preferred Stock redemption | ||||||||
Proceeds from issuance of Series D Convertible Preferred Stock | - | 100,000 | ||||||
Net Cash Provided by Financing Activities | 2,662,515 | 7,476,576 | ||||||
Net Change in Cash | (1,333,432 | ) | 2,013,151 | |||||
Cash - Beginning of period | 1,640,645 | 1,424,096 | ||||||
Cash - End of period | $ | 307,213 | $ | 3,437,247 | ||||
Supplementary Cash Flow Information | ||||||||
Cash paid for interest | $ | 3,367 | $ | 17,066 | ||||
Non-cash investing and financing activities | ||||||||
Deemed Dividend on Series D Convertible Preferred Stock | $ | - | $ | 314,926 | ||||
Conversion of Series D Preferred Stock to Common Stock | - | 6,438,214 | ||||||
Conversion of related party (Horne) warrants to equity | - | 107,123 | ||||||
Reclassification of Series B warrants to equity | - | 73,805 | ||||||
Reclassification of Series D warrants to equity | - | 337,400 | ||||||
Issuance of Common Stock in exchange for consulting fees | - | 35,000 | ||||||
Issuance of warrants to extend short-term debt | - | 6,595 | ||||||
Issuance of warrants pursuant to extension of convertible short-term notes | - | 17,636 | ||||||
Conversion of Series B Preferred Stock to Common Stock | - | 153,097 | ||||||
Conversion of short-term related party convertible notes to Preferred Stock | - | 412,541 | ||||||
Conversion of short-term convertible notes to Preferred Stock | - | 4,751,484 | ||||||
Dividends accrued on Series B Preferred Stock | - | 44,456 | ||||||
Adjustment of exercise price on convertible debt | - | 438,913 | ||||||
Issuance of Common Stock in connection with extinguishment of short-term notes, related parties | - | 218,414 | ||||||
Issuance of Warrants in connection with Series D Convertible Preferred Stock | - | 31,902 |
The accompanying notes are an integral part of these consolidated financial statements
F-6 |
H-Cyte, Inc
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(Unaudited)
Note 1 - Description of the Company
H-CYTE, Inc (“the Company”) is a hybrid-biopharmaceutical company dedicated to developing and delivering new treatments for patients with chronic respiratory and pulmonary disorders. During the last two years, the Company has evolved into two separate divisions with its entrance into the biologics development space (“Biologics Division”). This new division is complementary to the Company’s current Lung Health Institute (LHI) autologous infusion therapy business (“Infusion Division”) and is focused on underserved disease states. On September 8, 2021, the Company announced that its Lung Health Institute facilities changed its name to Centers for Respiratory Health as the clinics continue to deliver treatments for patients with chronic respiratory and pulmonary disorders.
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, PLLC (“LI Dallas”), Lung Institute Nashville, PLLC (“LI Nashville”), Lung Institute Pittsburgh, PLLC (“LI Pittsburgh”), and Lung Institute Scottsdale, LLC (“LI Scottsdale”), as Variable Interest Entities (“VIEs”). Additionally, H-CYTE Management, LLC is 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. These two clinics will remain permanently closed.
On September 11, 2020, with the closing of the Rights Offering, FWHC, LLC, FWHC Bridge, LLC, and FWHC Bridge Friends, LLC (collectively known as “FWHC”) gained control of the Company by subsequently owning approximately 61% of the fully diluted shares of the Company (for further discussion, see Notes 8 and 9-”Equity Transactions” to the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K).
Autologous Infusion Therapy (“Infusion Division”)
The Infusion Division develops and implements innovative treatment options in autologous cellular therapy (PRP-PBMC) to treat chronic lung disorders. Committed to an individualized patient-centric approach, this division provides oversight and management of the highest quality to the LHI clinics, while producing positive medical outcomes following the strictest Centers for Disease Control and Prevention (the “CDC”) guidelines.
Biotech Development (“Biologics Division”)
On June 21, 2019, H-CYTE entered into an exclusive product supply agreement with Rion, LLC (“Rion”) to develop and distribute (post U.S. Food & Drug Administration, the “FDA”, approval) a biologic combining its PRP-PBMC technology with Rion’s exosomes (“EV”) technology for the treatment of chronic obstructive pulmonary disease (“COPD”), the fourth leading cause of death in the U.S. Rion has established a novel EV technology to harness the healing power of the body. Rion’s innovative 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. This agreement provides for a 10-year exclusive and extendable supply agreement with Rion to enable H-CYTE to develop combined proprietary biologics. The Company is evaluating alternate EV technologies to determine the most favorable path forward.
On October 9, 2019, the Company entered into a services agreement with Rion which provides the Company the benefit of Rion’s resources and expertise for the limited purpose of (i) consulting with and assisting H-CYTE in the further research and development for the generation of a new biologic and (ii) subsequently assisting H-CYTE in seeking and obtaining FDA Phase 1 IND clearance for this biologic as necessary. Rion has completed the research and development work which is under review by the Company. The Company is assessing if the Rion combined proprietary biologic is a more viable solution than potentially progressing with a single entity biologic from an alternative commercial source.
F-7 |
On April 2, 2021, the Company entered into a series of agreements with Medovex, LLC to pursue a joint venture regarding the continued development and commercialization of the DenerveX device for business outside of the U.S. The Company has determined that the transactions resulting from the series of agreements with Medovex, LLC are immaterial. The Company will assess the progress of the joint venture on a quarterly basis for materiality.
Note 2 – Basis of presentation
The accompanying interim consolidated financial statements have been prepared based upon U.S. Securities and Exchange Commission rules that permit reduced disclosure for interim periods. Therefore, they do not include all information and footnote disclosures necessary for a complete presentation of 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 and for the fiscal years ended December 31, 2020 and 2019, which included all information and notes necessary for such complete presentation in conjunction with its 2020 Annual Report on Form 10-K.
The results of operations for the interim period ended September 30, 2021 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, 2020, which are contained in the Company’s 2020 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, 2020.
Principles of Consolidation
Note 3 - Liquidity, Going Concern and Management’s Plans
The Company incurred net losses of approximately $587,000and $4,052,000for the three and nine months ended September 30, 2021. The Company has historically incurred losses from operations and expects to continue to generate negative cash flows as it implements its plan around the Biosciences Division. The interim consolidated financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) as applicable to a going concern.
COVID-19 has adversely affected the Company’s financial condition and results of operations. The impact of the outbreak of COVID-19 on the economy in the U.S. and the rest of the world is expected to continue to be significant. The extent to which the COVID-19 outbreak will continue to impact the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which its financial condition and results of operations will be affected.
F-8 |
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) 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 March 31, 2022with an annual interest rate of 8%. The Notes, plus accrued interest, 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, H-Cyte, Inc. (the “Company”) entered into the Second Closing Bring Down Agreement (the “October 2021 Note Purchase Agreement”) whereby the five (5) 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 March 31, 2022and 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 April 2021 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 $7,500as part of the October 2021 Note Purchase Agreement. The Company chose early adoption of ASU 2020-06 Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity effective January 1, 2021 related to the April 2021 and October 2021 Note Purchase Agreements.
The Company had cash on hand of approximately $307,000 as of September 30, 2021 and approximately $644,000 as of November 9, 2021. 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 the Biosciences Division’s business model.
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 discontinue 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.
Note 4 – Right-of-use Asset And Lease Liability
The components of lease expense, which are included in other general and administrative expense, for the three and nine months ended September 30, 2021 and 2020, respectively, are as follows:
Schedule of Components of Lease Expense
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Operating lease expense | $ | 69,582 | 140,381 | 253,233 | 442,409 |
Cash paid for amounts included in the measurement of lease liabilities for the three and nine months ended September 30, 2021 and 2020, respectively, are as follows:
Schedule of Cash Paid for Amounts Included the Measurement of Lease Liabilities
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Operating cash flows from operating leases | $ | 69,582 | 140,381 | 253,233 | 442,409 |
Supplemental balance sheet and other information related to operating leases are as follows:
Schedule of Supplemental Balance Sheet and Other Information
September 30, 2021 | December 31, 2020 | |||||||
Operating leases right-of-use assets | $ | 162,207 | 278,552 | |||||
Lease liability, current portion | 92,589 | 139,189 | ||||||
Lease liability, net of current portion | 87,304 | 157,050 | ||||||
Total operating lease liabilities | $ | 179,893 | 296,239 | |||||
Weighted average remaining lease term | 1.92 years | 2.32 years | ||||||
Weighted average discount rate | 9.96 | % | 10.31 | % |
F-9 |
Future maturities of operating lease liabilities as of September 30, 2021 are as follows:
Schedule of Maturities of Lease Liabilities
Operating leases | ||||
Remainder of 2021 | $ | 25,584 | ||
2022 | 102,891 | |||
2023 | 69,333 | |||
Due after two years through three years | 69,333 | |||
Total lease payments | 197,808 | |||
Total lease payments | 197,808 | |||
Less: Interest | 17,915 | |||
Total lease liability | $ | 179,893 |
The Company did not renew its corporate office space lease in Tampa, FL which expired on March 31, 2021. The Company leases medical clinic space in Tampa, FL, Nashville, TN, and Scottsdale, AZ. These clinic locations have various expiration dates through August 31, 2023. The leasing arrangements contain various renewal options that are adjusted for increases in the consumer price index or agreed upon rates. The Company entered into a twelve-month lease extension for its Tampa location beginning April 1, 2021 totaling $71,775. The Company also entered into a twelve-month lease extension for its Nashville location beginning November 1, 2021 totaling $94,500. The Dallas, TX lease expired on July 31, 2020 and the Pittsburgh, PA lease expired on October 31, 2020, neither of which were renewed as these clinic locations were permanently closed. The Company decided that its corporate staff will continue working remotely but the Company will have a small corporate meeting room in the Tampa LHI clinic.
Note 5 - Property And Equipment
Property and equipment, net, consists of the following:
Schedule of Property and Equipment
Useful Life | September 30, 2021 | December 31, 2020 | ||||||||
Furniture and fixtures | 5-7 years | $ | 96,185 | $ | 231,222 | |||||
Computers and software | 3-7 years | 213,660 | 246,323 | |||||||
Leasehold improvements | 15 years | 40,130 | 155,583 | |||||||
Property and equipment | 349,975 | 633,128 | ||||||||
Less: accumulated depreciation | (309,631 | ) | (493,953 | ) | ||||||
Total | $ | 40,344 | $ | 139,175 |
Depreciation expense was approximately $300and $14,000for the three and nine months ended September 30, 2021, respectively. Depreciation expense was approximately $30,000 and $69,000 for the three and nine months ended September 30, 2020, respectively. The Company uses the straight-line depreciation method to calculate depreciation expense. The Company recorded a loss on disposal of approximately $0 and $93,000 for the three and nine months ended September 30, 2021, respectively.
Note 6 – Related Party Transactions
Board Members and Officers and Related Expenses
Effective February 1, 2019, 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 in addition to regular quarterly board meeting fees. Effective March 25, 2020, the Company reduced the advisory services to $5,000 per month and the fees per quarter as the Audit Committee Chair to $2,500 per quarter. On January 12, 2021, Mr. Monteleone was appointed as Chairman of the Board and Compensation Committee Chair. There are understandings between the Company and Mr. Monteleone for him to receive $5,000 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. The Company expensed approximately $18,000 and $53,000 in compensation to Mr. Monteleone for the three and nine months ended September 30, 2021, respectively. The Company expensed approximately $18,000 and $65,000 in compensation to Mr. Monteleone for the three and nine months ended September 30, 2020, respectively.
F-10 |
Effective October 1, 2020, the Company entered into an oral agreement with Mr. Michael Yurkowsky in which Mr. Yurkowsky will receive $4,167 per month to serve on the Board of Directors. The Company expensed approximately $13,000 and $38,000 in compensation to Mr. Yurkowsky for the three and nine months ended September 30, 2021, respectively. For the three and nine months ended September 30, 2020, the Company expensed $0.
On January 12, 2021, Mr. William Horne stepped down as Chairman of the Board. Mr. Horne will remain a member of the Board. Effective March 1, 2021, the Company entered into an oral agreement with Mr. Horne in which Mr. Horne will receive $4,167 per month to serve on the Board of Directors. The Company expensed approximately $13,000 and $29,000 in Board fee compensation to Mr. Horne for the three and nine months ended September 30, 2021. For the three and nine months ended September 30, 2020, the Company expensed $0.
Debt and Other Obligations
The convertible notes payable and convertible notes payable, related parties are detailed in Note 3 - “Liquidity, Going Concern and Management’s Plans” in this Form 10-Q.
Change in Control
On September 11, 2020, with the closing of the Rights Offering, FWHC, LLC, FWHC Bridge, LLC, and FWHC Bridge Friends, LLC (collectively known as “FWHC”) gained control of the Company by subsequently owning approximately 273,356,67610-year warrants at $0.014 upon the closing of the Rights Offering. % of the fully diluted shares of the Company. On July 28, 2020, the Company issued an aggregate of shares of its common stock to FWHC upon the conversion of its issued Series D Convertible Preferred Stock. The Preferred Stock was converted pursuant to a mandatory conversion triggered by the majority holder of the Series D Convertible Preferred Stock as set forth in the Certificate of Designations for the Series D Convertible Preferred Stock. On September 11, 2020, with the closing of the Rights Offering, FWHC was issued shares of Preferred A Stock for conversion of the outstanding promissory notes from April 2020, shares of Preferred A Stock for conversion of the April Secured Note, shares of Preferred A Stock for conversion of the Hawes Notes, and shares of Preferred A Stock issued upon the closing of the Rights Offering. FWHC was also issued
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) 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 March 31, 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, H-Cyte, Inc. (the “Company”) entered into the Second Closing Bring Down Agreement (the “October 2021 Note Purchase Agreement”) whereby the five (5) 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 March 31, 2022and 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 $7,500 as part of the October 2021 Note Purchase Agreement.
Note 7 - Equity Transactions
Common Stock Issuance
In February 2020, the Company issued LilyCon Investments $35,000 in shares of the Company’s common stock at a weighted average share price of $ per share for a total of shares per the terms of the consulting agreement executed in February 2019.
F-11 |
On April 23, 2020, Horne Management, LLC agreed to convert the related notes plus accrued interest into (i) ten-year warrant to purchase up to an equivalent number of shares of the Company’s common stock with such conversion to be effective as of April 17, 2020. This warrant will have an exercise price equal to the price per share at which securities were offered to investors for purchase at the Qualified Financing, which was $0.014, and is exercisable beginning on the day immediately following the closing of the Rights Offering, which occurred on September 11, 2020. shares of common stock of the Company and (ii) a
On July 28, 2020, the Company issued an aggregate of shares of its common stock upon the conversion of all of its issued and outstanding Series B and Series D Preferred Stock (the “Preferred Stock”) and accumulated dividends. The Preferred Stock was converted pursuant to a mandatory conversion triggered by the majority holder of the Series D Preferred Stock as set forth in the Certificate of Designations for the Series D Preferred Stock.
On July 29, 2020, the Company filed its Second Amended and Restated Certificate of Incorporation (the “Amended COI”). The Amended COI provides for the issuance of up to shares of Common Stock and shares of Preferred Stock, of which shares are designated as Series A Preferred Stock and eliminates the previously authorized classes of preferred stock. The Amended COI also delineates the rights of the Series A Preferred Stock.
Series A Preferred Stock
On September 11, 2020, the registered Rights Offering (Registration No. 333-239629) of the Company expired. Pursuant to the Rights Offering, on September 24, 2020, the Company issued (i) 3,055,985. shares of its Series A preferred stock at a price of $ per share to holders of its common stock who validly exercised their subscription rights prior to the expiration time and (ii) shares of its Series A preferred stock to the standby purchasers as part of the standby commitment. The Rights Offering, including the standby component, resulted in gross proceeds to the Company of $
Additionally, on September 24, 2020, the Company issued an aggregate of 4,483,617. The notes were converted pursuant to a mandatory conversion triggered by the completion of the Rights Offering (for further discussion, see Note 9 - “Equity Transactions” to the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K). shares of its Series A Preferred Stock to the holders of outstanding promissory notes, issued in April 2020, in the aggregate principal amount and accrued interest of $
During the three and nine months ended September 30, 2021, and shares of Series A Preferred Stock were converted to Common Stock at the request of certain Series A Preferred Shareholders.
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 holders 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 at a 1:1 ratio immediately upon request of the Series A Holder.
Liquidation
Series A Preferred Stock does not have preferential treatment over common stock shareholders if the Company liquidates or dissolves.
F-12 |
Share-Based Compensation
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 the stock-based compensation awards are expected to be outstanding.
Stock Option Activity
On April 1, 2021, the Board of Directors of the Company approved and granted to 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 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.
The Board of Directors decided not to renew the former CEO’s (Robert Greif) employment contract; therefore, the unvested shares were forfeited resulting in a reduction of share-based compensation of approximately $
for the period ending September 30, 2021 that was recognized during the period ending June 30, 2021.For the nine months ended September 30, 2020, all outstanding stock options were fully vested, and related compensation expense recognized. For the nine months ended September 30, 2021, options were outstanding and were vested. For the three and nine months ended September 30, 2021 the Company recognized approximately $and $in stock-based compensation expense, respectively. The Company has approximately $of unrecognized compensation costs related to non-vested stock options, which is expected to be recognized over a weighted average period of approximately years.
Schedule of Assumptions Used to Calculate Fair Value of Stock Options
2021 Grants | ||||||||||||
Option value | $ | 0.054 | to | 0.056 | ||||||||
Risk Free Rate | 0.90 | % | to | 1.37 | % | |||||||
Expected Dividend- yield | - | to | - | |||||||||
Expected Volatility | % | to | % | |||||||||
Expected term (years) | to |
Summary of Stock Option Activity
Shares | Weighted Average Exercise Price | Weighted Average Remaining Term (Years) | ||||||||||
Outstanding at December 31, 2019 | 425,000 | $ | 1.38 | |||||||||
Granted | - | 0 | - | |||||||||
Expired/Cancelled | (15,000 | ) | 1.35 | - | ||||||||
Outstanding and exercisable at September 30, 2020 | 410,000 | $ | 1.39 | |||||||||
Outstanding at December 31, 2020 | 410,000 | $ | 1.39 | |||||||||
Granted | 54,750,000 | 0.07 | ||||||||||
Expired/Cancelled | (25,525,000 | ) | 0.07 | - | ||||||||
Outstanding at September 30, 2021 | 29,635,000 | $ | 0.10 | |||||||||
Exercisable at September 30, 2021 | 14,801,667 | $ | 0.10 |
Summary of Stock Option Activity Non-vested
Shares | Weighted Average Grant Date Fair Value | |||||||
Non-vested at December 31, 2020 | - | - | ||||||
Granted | 54,750,000 | 0.03 | ||||||
Vested | (14,416,667 | ) | 0.05 | |||||
Forfeited | (25,500,000 | ) | 0.07 | |||||
Non-vested at September 30, 2021 | 14,833,333 | 0.11 |
Non-Controlling Interest
For the nine months ended September 30, 2021 and 2020, the Company consolidated the results for LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale as VIEs. The Company owns no portion of any of these four entities, however, the Company maintains control through their management role for each of the clinics, in accordance with each clinic’s respective management services agreement. Based on these agreements, the Company has the responsibility to run and make decisions on behalf of the clinics, except for medical care and procedures. Beginning in January 2018, the Company adopted the policy, for all of the VIEs, that the management fee charged by the Company would equal the amount of net income from each VIE on a monthly basis, bringing the amount of the net income to $0 each month for the VIEs. Due to this change in policy, there was no change in the non-controlling interest for the nine months ended September 30, 2021 or 2020 related to the net income (loss) as it was $0 each month through the management fee charged by the Company. The LI Dallas and LI Pittsburgh clinics did not reopen in 2020 after the temporary closure of all LI clinics due to COVID-19. These two clinics will remain permanently closed.
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 method. 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
2021 | 2020 | |||||||
For the Nine Months Ended September 30, | ||||||||
2021 | 2020 | |||||||
Warrants to purchase common stock (in the money) | 385,033,082 | 367,515,043 | ||||||
Series A Preferred Stock convertible to common stock | 515,874,354 | 542,129,440 | ||||||
Total | 900,907,436 | 909,644,483 |
Excluded from the above table are warrants and stock options for the nine months ended September 30, 2021 as they are out of the money (exercise price greater than $0.04). Inclusion of such would be anti-dilutive.
F-13 |
Note 8 – Commitments & Contingencies
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 legal 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. As of September 30, 2021, the Company had no litigation matters which required any accrual or disclosure.
Rion Agreements
On June 21, 2019, H-CYTE entered into an exclusive product supply agreement with Rion, LLC (“Rion”) to develop and distribute (post FDA approval) a biologic for chronic obstructive pulmonary disease (“COPD”), the fourth leading cause of death in the U.S. Rion has established a novel biologics technology to harness the healing power of the body. Rion’s innovative 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. This agreement provides for a 10-year exclusive and extendable supply agreement with Rion to enable H-CYTE to develop proprietary biologics. The Company is currently evaluating the potential of a combined biologic and the utilization of this agreement.
On October 9, 2019, the Company entered into a services agreement with Rion which provides the Company the benefit of Rion’s resources and expertise for the limited purpose of (i) consulting with and assisting H-CYTE in the further research and development for the generation of a new biologic and (ii) subsequently assisting H-CYTE in seeking and obtaining FDA Phase 1 IND clearance for this biologic as necessary. Rion also agrees to consult with H-CYTE in its arrangement for services from third parties unaffiliated with Rion to support research, development, regulatory approval, and commercialization of the biologic. For the three and nine months ended September 30, 2021 the Company expensed $0. For the three and nine months ended September 30, 2020 the Company expensed $202,000 and $1,152,000, respectively. The Company is currently evaluating the potential of a combined biologic and the utilization of this agreement.
F-14 |
Note 9 – Short-term Debt
Convertible Notes Payable
Convertible Notes payable represents a securities purchase agreement with select accredited investors, which was assumed in the Asset Purchase Agreement between Medovex Corp and Regenerative Medicine Solutions, LLC (“Merger”) in 2019 (see Note 1 – “Description of the Company” to the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K). The debt assumed by the Company, as part of the merger, consisted of $750,000 of units (the “Units”) with a purchase price of $ per Unit. Each Unit consists of (i) a 12% senior secured convertible note, initially convertible into shares of the Company’s common stock, par value $ 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 Convertible Notes were secured by all of the assets of the Company.
In 2019, $100,000 of the Convertible Notes were converted into shares of common stock, and $350,000 of the Convertible Notes were redeemed by the Company. The Company reached an extension with the remaining noteholder which extended the maturity date of the Hawes Notes for one year, until September 30, 2020. The notes had a principal balance of $300,000 plus penalties of approximately $85,000 and accrued interest of approximately $40,000 for a total adjusted principal balance upon renewal of $424,615 as of March 31, 2020. In connection with the April Offering, the Company entered into an amendment with the Investor with respect to the outstanding 12% Senior Secured Convertible Note due September 30, 2020, which was originally issued in 2018 and assumed in the Merger and which was purchased by the Investor from its original holder, George Hawes, on March 27, 2020 (see Note 11 –“Debt” to the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K).
On April 1, 2021, the Company, entered into a Secured Convertible Note Purchase Agreement (the “April 2021 Note Purchase Agreement”) with five (5) 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 March 31, 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.
Interest expense is being accreted to the principal balance using the effective interest method. For the three months and nine months ended September 30, 2021, the Company recorded interest expense of $30,445 for related party convertible notes payable and $20,962 for convertible notes payable and $59,665 for related party convertible notes payable and $41,080 for convertible notes payable, respectively.
Notes Payable
Notes payable were assumed in the Merger and are due in aggregate monthly installments of approximately $5,800 and carry an interest rate of 5%. Each note originally had a maturity date of August 1, 2019. The Company finalized an eighteen-month extension to March 1, 2021.The Company is working with the lender for an additional extension of the promissory notes. The promissory notes have an aggregate outstanding balance of approximately $67,000 at September 30, 2021 and December 31, 2020. The Company has not made payments on this note since February 10, 2020, due to COVID-19, resulting in accrued interest of approximately $5,000.
On March 27, 2020, the Company issued a demand note in the principal amount of $500,000 to FWHC Bridge, LLC (the “Investor”) in exchange for a loan made by the Investor in such amount to cover the Company’s working capital needs. Subsequently on April 9, 2020, in exchange for an additional loan of $500,000 made by the Investor to the Company, the Company amended and restated the demand note to reflect a new principal amount of $1,000,000, which became the A&R Note (see Note 11-”Debt” to the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K).
F-15 |
Paycheck Protection Program
On April 29, 2020, the Company issued a promissory note in the principal amount of $809,082 to the Bank of Tampa in connection with a loan in such amount made under the Paycheck Protection Program (“PPP Loan”). The PPP Loan bears an interest rate of 1% per annum and matures on April 29, 2022. The Company elected to use a 24-week Covered Period, per the SBA Paycheck Protection Program guidelines, which ended on October 14, 2020.
The Company could apply for loan forgiveness in an amount equal to the sum of the following costs incurred by the Company:
1) payroll costs;
2) any payment of interest on covered mortgage obligations;
3) any payment on a covered rent obligation; and
4) any covered utility payment
The Company received notification from the Small Business Administration (“SBA”), dated August 17, 2021, notifying it that $689,974 in principal and $8,847 in interest was forgiven under the guidelines of the Paycheck Protection Program. As of September 30, 2021, the current balance is $105,878 with $405 in interest payable.
Note 10 – Derivative Liabilities
The Company’s derivative liabilities are classified within Level 3 of the fair value hierarchy because certain unobservable inputs were used in the valuation models. These assumptions included estimated future stock prices, potential down-round financings for the Warrants, and potential redemptions for the Redemption Put Liability.
The following are rollforwards of the liabilities during the nine months ended September 30, 2020:
Schedule of Fair Value, Liabilities Measured On Recurring Basis
Derivative Liability - Warrants | ||||
Balance at December 31, 2019 | $ | 315,855 | ||
Series D Warrant reclass from equity to liability classification | 509,762 | |||
Warrants issued with modification of Horne Note | 198,994 | |||
Warrants issued with April 17, 2020 financing | 6,148,816 | |||
Fair value adjustments | (2,986,853 | ) | ||
Warrant reclassification from liability to equity classification | (4,186,574 | ) | ||
Balance at September 30, 2020 | $ | — |
F-16 |
Redemption Put Liability | ||||
Balance at December 31, 2019 | $ | 267,399 | ||
Issuance of Series D Convertible Preferred Stock | 5,306 | |||
Fair value adjustments | (272,705 | ) | ||
Balance at September 30, 2020 | $ | — |
(1) | The Company did not have any assets or liabilities measured at fair value using Level 1 or 2 of the fair value hierarchy as of September 30, 2020. |
(2) | Upon the closing of a Qualified Financing on September 11, 2020, the Derivative Liability- Warrants were reclassed to stockholder’s equity. |
(3) | The Series D Preferred Stock was converted into common stock on July 28, 2020 at which time the Derivative Put Liability was no longer applicable, and its fair value as adjusted to zero and the extinguishment was recorded to income. |
Derivative Liability- Warrants
Series B Warrants
As part of the April 2020 Offering, the holders of the Series B Warrants agreed to terminate anti-dilution price protection in their warrants and adjusted the exercise price to equal the price per share at which shares of preferred stock are offered for purchase in a Qualified Financing. The modification resulted in an increase of approximately $75,000 to the fair value of the derivative liability related to the Series B Warrants. In addition, the Company recorded a change in fair market value of approximately $317,000 to the fair value of the derivative liability before the reclass to equity.
Upon the closing of a Qualified Financing, which occurred on September 11, 2020, the exercise price of the Series B Warrants became fixed at $0.014 and the warrants then met the conditions for equity classification. Consequently, they were revalued as of the date of the Qualified Financing using a Black Scholes valuation technique with the following assumptions: Trading market price - $0.027, estimated exercise price - $0.014, volatility - 260%, risk free rate - 0.13% and an estimated remaining term of 1.33 years. The fair value of the Series B Warrants totaling $73,805 was then reclassed from a derivative liability to stockholders’ equity.
Series D Warrants
In conjunction with the Series D Preferred Financing, the Company originally issued Series D warrants to purchase 14,669,757 shares of Common Stock with an exercise price of $0.75 per share. At inception, the Series D warrants met all the criteria to be classified as equity. As part of the April 2020 Offering, the exercise price of the Series D Warrants was reduced to the price per share at which shares of preferred stock are offered for purchase in a Qualified Financing. The modification of the exercise price resulted in the warrants requiring liability classification. The Series D Warrants were measured at fair value before and after the modification, resulting in a fair market value of approximately $510,000 when the warrants were reclassified to a liability on July 28, 2020.
Upon the closing of a Qualified Financing, which occurred on September 11, 2020, the exercise price of the Series D Warrants became fixed at $0.014 and the warrants then met the conditions for equity classification. Consequently, the Series D Warrants were revalued as of the date of the Qualified Financing using a Black Scholes valuation technique with the following assumptions: Trading market price - $0.027, estimated exercise price - $0.014, volatility - 111%, risk free rate - 0.67% and an estimated term of 9.2 years. The fair value of the Series D Warrants totaling $337,400 was then reclassed from a derivative liability to stockholders’ equity.
Horne Warrants
On April 23, 2020, Horne Management, LLC agreed to convert the related notes plus accrued interest into (i) ten-year warrant to purchase up to an equivalent number of shares of the Company’s common stock with such conversion to be effective as of April 17, 2020. The warrant will have an exercise price equal to the price per share at which securities are offered to investors for purchase at the Qualified Financing. The revised exercise price caused the warrants to require liability classification at fair value and the warrants were valued using a Lattice model with the following assumptions: Trading market price- $0.05, estimated exercise price- $ , volatility- 101%, risk free rate- 0.65% and an estimated term of 10 years. At inception, the estimated fair value of the Horne Warrants was approximately $199,000. shares of common stock of the Company and (ii) a
Upon the closing of a Qualified Financing, which occurred on September 11, 2020, the exercise price of the Series D Warrants became fixed at $0.014 and the warrants then met the conditions for equity classification. Consequently, the Horne Warrants were revalued as of the date of the Qualified Financing using a Lattice valuation technique with the following assumptions: Trading market price- $0.027, estimated exercise price- $0.014, volatility- 103%, risk free rate- 0.67% and an estimated term of 10 years. The fair value of the Horne Warrants totaling $107,123 was then reclassed from a derivative liability to stockholders’ equity.
April Bridge Loan and Converted Advance Warrants
The April 2020 Offering entitled the investors to warrants with the right to purchase up to 100% of the aggregate number of shares of Common Stock into which the Purchaser’s Note may ultimately be converted. The Company also received a $1,000,000 advance which was converted into a Converted Advance Note and Converted Advance Warrants in April 2020. The Converted Advance Warrants entitle the holder to purchase up to 200% of the aggregate number of shares of Common Stock into which the Converted Advanced Note may ultimately be converted.
The Company received an aggregate of $2,842,695 in gross proceeds through the April Offering and an advance of $1,000,000 (A&R Note) which was converted into an Advance Note on April 17, 2020. The Company expected the price per share at which securities would be offered for purchase in the Qualified Financing to be $0.014 resulting in the assumption there would be approximately and shares issuable upon exercise of the Purchaser Warrants and the Converted Advance Warrants, respectively. The warrants were valued using a Lattice model with the following assumptions: Trading market price - $0.05, estimated exercise price - $0.014, volatility - 103%, risk free rate- 0.65% and an estimated term of 10 years. At inception, the estimated fair value of the Purchaser Warrants and the Converted Advance Warrants was approximately $3,279,000 and $2,869,000, respectively for a total of approximately $6,149,000.
Upon the closing of a Qualified Financing, which occurred on September 11, 2020, the exercise price of the Purchaser and Converted Advance Warrants became fixed at $0.014 and the Company then had sufficient authorized and unissued shares available to satisfy all their commitments under their equity-linked contracts. There are 212,821,929 and 150,324,857 shares issuable upon exercise of the Purchaser and the Converted Advance Warrants, respectively. The Warrants were revalued as of the date of the Qualified Financing using a Lattice valuation technique with the following assumptions: Trading market price - $0.027, estimated exercise price - $0.014, volatility - 107%, risk free rate - 0.67% and an estimated term of 10 years. The fair value of the Warrants of $3,668,247 was then reclassed from a derivative liability to stockholders’ equity.
When the Company entered into the April Offering and revised the exercise price of their warrants to the price per share at which shares of preferred stock are offered for purchase in a Qualified Financing, they no longer had sufficient authorized and unissued shares available to satisfy all their commitments to issue shares under their equity-linked contracts. The Company adopted the sequencing approach based on the earliest issuance date. Therefore, warrants issued before the April Offering did not require liability classification, while Warrants issued with the April financing, or subsequently, were classified as liabilities until such time the Company had sufficient authorized shares.
At December 31, 2019, due to the down round provision contained in the warrants, which could provide for the issuance of additional warrant shares as well as a reduction in the exercise price, the model also considered subjective assumptions related to the shares that would be issued in a down-round financing and the potential adjustment to the exercise price. On April 17, 2020, the holders of the warrants agreed to terminate all anti-dilution price protections in their warrants.
F-17 |
The derivative liability has been remeasured to fair value at the end of each reporting period and the change in fair value, of approximately $5,869,102 and ($2,986,853), has been recorded as a component of other income (expense) in the Company’s consolidated statement of operations for the three and nine months ended September 30, 2020, respectively. For the three month period ended September 30, 2020, the derivative liability has been remeasured to fair value at September 11, 2020 and then converted to equity due to the Qualified Financing and fixed as all derivative liabilities were converted.
The fair value of the derivative liability included on the consolidated balance sheet was approximately $0 and $316,000 as of September 30, 2020 and December 31, 2019, respectively.
In conjunction with the Series D Preferred financing (See Note 12), the Company offered the Series B warrant holders the option to exchange their warrants on the basis of 1 warrant for 0.40 common shares. Warrant holders chose to exchange 1,007,813 warrants with a fair value of approximately $75,000 for 403,125 shares of common stock with a fair value of approximately $73,000. On the date of the exchange, the Series B Warrants were first adjusted to fair value with the change in fair value being recorded in earnings.
Redemption Put Liability
As described in Note 12, the redemption put provision embedded in the Series D financing required bifurcation and measurement at fair value as a derivative. If the redemption put provision is triggered, it allows either payment in cash or the issuance of “Trigger Event Warrants”. Accordingly, the fair value of the Redemption put liability considered management’s estimate of the probability of cash payment versus payment in Trigger Event Warrants and was valued using a Monte Carlo Simulation which uses randomly generated stock-price paths obtained through a Geometric Brownian Motion stock price simulation. The fair value of the redemption provision was significantly influenced by the fair value of the Company’s stock price, stock price volatility, changes in interest rates and management’s assumptions related to the redemption factor. On July 28, 2020, the Series D Preferred Stock was converted into Common Stock, at which time the redemption put was no longer applicable and the fair value of the redemption put was adjusted to zero.
The fair market value of the redemption put liability at inceptionwas approximately $614,000which was recorded as a liability and remeasured to fair value at the end of each reporting period. The change in fair value of approximately $98,000 and $273,000 has been recorded as a component of other income (expense) in the Company’s consolidated statement of operations for the three and nine months ended September 30, 2020, respectively. The fair value of the redemption put liability included on the consolidated balance sheet was approximately $0 and $267,000 as of September 30, 2020 and December 31, 2019, respectively.
The Company did not have any assets or liabilities measured at fair value using Level 1 or 2 of the fair value hierarchy as of December 31, 2020 (see Note 12- “Derivative Liability-Warrants and Redemption Put” to the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K).
Note 11 - Common Stock Warrants
A summary of the Company’s warrant issuance activity and related information for the period ended September 30, 2021 and 2020 is as follows:
Summary of Warrant Activity
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | ||||||||||
Outstanding and exercisable at December 31, 2019 | 44,806,076 | $ | 0.78 | |||||||||
Issued | 368,325,486 | 0.015 | 10.30 | |||||||||
Total outstanding at September 30, 2020 | 413,131,562 | 0.09 | ||||||||||
Outstanding and exercisable at December 31, 2020 | 413,423,972 | $ | 0.015 | |||||||||
Expired | (5,783,189 | ) | $ | 0.33 | — | |||||||
Issued | 0 | 0 | — | |||||||||
Total outstanding and exercisable at September 30, 2021 | 407,640,783 | $ | 0.58 |
F-18 |
The fair value of all warrants issued are determined by using the Black-Scholes valuation technique and were assigned based on the relative fair value of both the common stock and the warrants issued. The inputs used in the Black-Scholes valuation technique to value each of the warrants as of their respective issue dates are as follows:
Schedule of Assumptions for Warrants
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 (%) | ||||||||||||||||||||||||
Short-term note, related party | 1/13/2020 | 268,571 | $ | 0.12 | $ | 0.75 | $ | 0.07 | 3 years | 1.60 | 145.76 | |||||||||||||||||||||
Private placement of Series D Convertible Preferred Stock | 1/17/2020 | 244,996 | $ | 0.15 | $ | 0.75 | $ | 0.13 | 10 years | 1.84 | 144.30 | |||||||||||||||||||||
Granted for bridge financing | 4/8/2020 | 296,875 | $ | 0.05 | $ | 0.40 | $ | 0.04 | 3 years | 0.34 | 131.82 | |||||||||||||||||||||
Short-term note, related party conversion | 4/17/2020 | 4,368,278 | $ | 0.05 | $ | 0.014 | $ | 0.05 | 10 years | 0.65 | 100.64 | |||||||||||||||||||||
Granted for bridge financing | 9/11/2020 | 364,439,176 | $ | 0.05 | $ | 0.014 | $ | 0.017 | 10 years | 0.65 | 96.97 |
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.
Note 12 - Series D Convertible Preferred Stock
On November 15, 2019, the Company entered into a securities purchase agreement with selected accredited investors whereby the Company offered (i) up to ten-year warrant (the “Series D Warrant”) to purchase 14,669,757 shares of common stock. The Series D Warrants are exercisable for a period of 10 years from issuance at an initial exercise price of $0.75 per share, subject to adjustment for traditional equity restructurings and reorganizations. shares of Series D Convertible Preferred Stock the (“Series D Shares”) at a price of $ per share and (ii) a
On November 21, 2019, the Company entered into a securities purchase agreement with FWHC Holdings, LLC (“FWHC”) an accredited investor for the purchase of shares of Series D Convertible Preferred Stock, par value $ per share and the Series D Warrant (the “FWHC Investment”; see note 14 - “Mezzanine Equity and Series D Convertible Preferred Stock” to the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K).
For the nine months ended September 30, 2021 and 2020, the Company recorded $0 and $278,476, respectively, in deemed dividends on the Series D Convertible Preferred Stock in accordance with the 8% stated dividend resulting in a total balance of Series D Convertible Preferred stock of $6,281,433 at September 30, 2020. All outstanding shares of Series D Convertible Preferred Stock were converted into shares of Common Stock on July 28, 2020. The conversion was pursuant to a mandatory conversion triggered by the majority holder of the Series D Convertible Preferred Stock as set forth in the Certificate of Designations.
As of December 31, 2020, the Company does not have any Series D Convertible Preferred Stock outstanding (see Note 9 - “Equity Transactions” to the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K).
Schedule of Shares Outstanding
Note 13 – Income Taxes
The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC Topic 740, “Income Taxes”. Under the liability method, deferred taxes are determined based on temporary differences between the financial statement and tax bases of assets and liabilities using tax rates expected to be in effect during the years in which the difference turns around. The Company accounts for interest and penalties on income taxes as income tax expense. A valuation allowance is recorded when it is more likely than not that a tax benefit will not be realized. In determining the need for valuation allowances the Company considers projected future taxable income and the availability of tax planning strategies.
From inception to September 30, 2021, 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 offset by a valuation allowance as of September 30, 2021 and December 31, 2020. Management of the Company evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and determined that it is more likely than not that the Company will not recognize the full benefits of the deferred tax assets.
The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. There are 0 uncertain tax positions at September 30, 2021 and December 31, 2020. The Company has not undergone any tax examinations since inception.
Deferred tax assets and liabilities consist of the following at December 31:
Schedule of Deferred Tax Assets and Liabilities
Note 14 - Subsequent Events
The Company has evaluated subsequent events through November 11, 2021 and has determined that there have been no events that would require adjustments to or disclosure in the September 30, 2021 interim Consolidated Financial Statements other than those disclosed in this Form 10-Q.
On October 14, 2021, H-Cyte, Inc. (the “Company”) entered into the Second Closing Bring Down Agreement (the “October 2021 Note Purchase Agreement”) whereby the five (5) 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 bear an annual interest rate of 8% and are due and payable on March 31, 2022. The Notes are convertible into shares of Common Stock at a discount of 20% of the price paid for such New Securities in the next financing that meets the definition of a Qualified Financing as defined in the April 2021 Note Purchase Agreement. The Notes are secured by all 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 $7,500 as part of the October 2021 Note Purchase Agreement.
F-19 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors and Shareholders of
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Medovex Corporation and SubsidiaryH-CYTE, Inc. (the “Company”) as of December 31, 20152020 and 2014,2019, and the related consolidated statements of operations, changes in stockholders’ equitydeficit and cash flows for the years then ended. ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of their operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has negative working capital, has an accumulated deficit, has a history of significant operating losses, and has a history of negative operating cash flow. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding this matter are also discussed in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesOur audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements referredthat were communicated or required to above present fairly, in allbe communicated to the audit committee and that: (1) relate to accounts or disclosures that are material respects,to the financial position of Medovex Corporation and Subsidiary, as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Debt and equity accounting considerations
As discusseddescribed in NoteNotes 9, 12 and 14 to the consolidated financial statements, the Company had various debt and equity transactions that required accounting considerations, significant estimates and judgements around certain features and the possibility of conversion or redemption, the valuation of certain components of the financings, including the valuation around certain freestanding and embedded derivatives.
The Company determined that warrants issued in connection with certain financings required derivative liability classification. These warrants were initially measured at fair value and subsequently have been remeasured to fair value at each reporting period, prior to their reclassification to equity in September 2020 at the close of the Company’s productsSeries A Preferred Stock Rights Offering.
The Company determined that due to the nature of the financing features, mezzanine equity classification was appropriate for the Series D Convertible preferred stock itself and the redemption put required derivative liability classification. The redemption put liability was initially measured at fair value and subsequently has been remeasured at fair value at each reporting period, prior to their reclassification to equity in July 2020 when the Series D Convertible Preferred Stock was called and converted to common stock.
There is no current observable market for these types of derivatives and, as such, the Company determined the fair value of the freestanding instruments or embedded derivatives using the Black-Scholes-Merton option pricing model or a binomial lattice model to measure the fair value of the debt and/or equity instrument both with and without the embedded feature.
We identified the accounting considerations and related valuations, including the related fair value determinations of the various debt and equity financings and classification of such as a critical audit matter. The principal considerations for our determination were: (1) the accounting consideration in determining the nature of the various features and weighting of evidence (2) the evaluation of the potential derivatives and potential bifurcation in the instruments, and (3) considerations related to the determination of the fair value of the various debt and equity instruments and the conversion and redemption features that include complex valuation models and assumptions utilized by management. Auditing these elements is especially challenging and requires auditor judgement due to the nature and extent of audit effort required to address these matters, including the extent of specialized skill or knowledge needed.
Changes in the accounting determinations and the related valuation assumptions can have a significant impact on the valuation of the embedded and freestanding derivative liabilities. For example, all other things being equal, generally, an increase in the Company’s stock price, change of control probability, risk-adjusted yields term to maturity/conversion or stock price volatility increases the value of the derivative liability.
Our audit procedures related to management’s conclusion on the evaluation and related valuation of freestanding and embedded derivatives, included the following, among others: (1) Utilized personnel with specialized knowledge and skill in technical accounting to assist in: (i) evaluating the relevant terms and conditions of the various financings, and (ii) assessing the appropriateness of conclusions reached by the Company with respect to the accounting for the convertible debt/equity, and the assessment and accounting for potential derivatives. (2) We used a valuation specialist to assist us in evaluating the Company’s models, valuation methodology, and significant assumptions used in the fair value estimates.
/s/ Frazier & Deeter, LLC
Tampa, Florida
March 25, 2021
We have served as the Company’s auditor since 2018.
F-20 |
H-Cyte, Inc
Consolidated Balance Sheets
(Audited)
2020 | 2019 | |||||||
December 31, | ||||||||
2020 | 2019 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | 1,640,645 | $ | 1,424,096 | ||||
Accounts receivable | - | 22,667 | ||||||
Other receivables | 22,123 | 18,673 | ||||||
Prepaid expenses | 94,434 | 810,143 | ||||||
Total Current Assets | 1,757,202 | 2,275,579 | ||||||
Right -of-use asset | 278,552 | 738,453 | ||||||
Property and equipment, net | 139,175 | 219,703 | ||||||
Other assets | 29,239 | 36,877 | ||||||
Total Assets | $ | 2,204,168 | $ | 3,270,612 | ||||
Liabilities, Mezzanine Equity, and Stockholders’ Deficit | ||||||||
Current Liabilities | ||||||||
Interest payable | $ | 6,898 | $ | 53,198 | ||||
Accounts payable | 1,006,968 | 1,485,542 | ||||||
Accrued liabilities | 276,415 | 324,984 | ||||||
Other current liabilities | 154,812 | 175,181 | ||||||
Short-term notes, related party | - | 1,635,000 | ||||||
Short-term convertible notes payable | - | 424,615 | ||||||
Notes payable, current portion | 67,444 | 66,836 | ||||||
Dividend payable | - | 108,641 | ||||||
PPP Loan, current portion | 606,811 | - | ||||||
Deferred revenue | 634,149 | 1,046,156 | ||||||
Lease liability, current portion | 139,189 | 453,734 | ||||||
Total Current Liabilities | 2,892,686 | 5,773,887 | ||||||
Long-term Liabilities | ||||||||
Lease liability, net of current portion | 157,050 | 302,175 | ||||||
Notes payable, net of current portion | - | 11,545 | ||||||
Derivative liability - warrants | - | 315,855 | ||||||
Redemption put liability | - | 267,399 | ||||||
PPP Loan, net of current portion | 202,271 | - | ||||||
Total Long-term Liabilities | 359,321 | 896,974 | ||||||
Total Liabilities | 3,252,007 | 6,670,861 | ||||||
Commitments and Contingencies (Note 10) | - | - | ||||||
Mezzanine Equity | ||||||||
Series D Convertible Preferred Stock - $ | par value: shares authorized, shares and shares issued and outstanding at December 31, 2020 and 2019, respectively- | 6,060,493 | ||||||
Total Mezzanine Equity | ||||||||
Stockholders’ Equity (Deficit) | ||||||||
Series A Preferred Stock - $ | par value: shares authorized, and shares issued and outstanding at December 31, 2020 and, 2019, respectively538,109 | - | ||||||
Series B Convertible Preferred Stock - $ | par value: shares authorized; and shares issued and outstanding at December 31, 2020 and 2019, respectively- | 6 | ||||||
Common stock - $ | par value: shares authorized, and shares issued and outstanding at December 31, 2020 and 2019, respectively127,159 | 99,769 | ||||||
Additional paid-in capital | 42,515,999 | 28,172,146 | ||||||
Accumulated deficit | (43,858,974 | ) | (37,362,531 | ) | ||||
Non-controlling interest | (370,132 | ) | (370,132 | ) | ||||
Total Stockholders’ Deficit | (1,047,839 | ) | (9,460,742 | ) | ||||
Total Liabilities, Mezzanine Equity and Stockholders’ Deficit | $ | 2,204,168 | $ | 3,270,612 |
The accompanying notes are being developedan integral part of these financial statements.
F-21 |
H-Cyte, Inc
Consolidated Statements of Operations
2020 | 2019 | |||||||
December 31, | ||||||||
2020 | 2019 | |||||||
Revenues | $ | 2,150,672 | $ | 8,346,858 | ||||
Cost of Sales | �� | (766,957 | ) | (2,052,807 | ) | |||
Gross Profit | 1,383,715 | 6,294,051 | ||||||
Operating Expenses | ||||||||
Salaries and related costs | $ | 3,198,867 | $ | 8,646,471 | ||||
Other general and administrative | 3,746,784 | 6,847,335 | ||||||
Research and development | 1,152,065 | 106,214 | ||||||
Advertising | 296,873 | 4,909,724 | ||||||
Loss on impairment | - | 15,508,401 | ||||||
Depreciation and amortization | 81,470 | 834,291 | ||||||
Total Operating Expenses | 8,476,059 | 36,852,436 | ||||||
Operating Loss | (7,092,344 | ) | (30,558,385 | ) | ||||
Other Income (Expense) | ||||||||
Other expense | (86,816 | ) | (124,118 | ) | ||||
Interest expense | (1,462,750 | ) | (299,331 | ) | ||||
Change in fair value of redemption put liability | 272,704 | 346,696 | ||||||
Change in fair value of derivative liability - warrants | 2,986,854 | 827,260 | ||||||
Gain on extinguishment of short-term notes, related party | 1,300,088 | - | ||||||
Warrant modification expense | (70,851 | ) | - | |||||
Loss on derivative instrument | (2,306,121 | ) | - | |||||
Total Other Income (Expense) | 633,108 | 750,507 | ||||||
Net Loss | $ | (6,459,236 | ) | $ | (29,807,878 | ) | ||
Accrued dividends on Series B Convertible Preferred Stock | 44,456 | 84,939 | ||||||
Finance costs on issuance of Series D Convertible Preferred Stock | - | 66,265 | ||||||
Deemed dividend on adjustment to exercise price on convertible debt and certain warrants | - | 287,542 | ||||||
Deemed dividend on Series D Convertible Preferred Stock | 277,719 | 2,916,813 | ||||||
Deemed dividend on beneficial conversion features | - | 32,592 | ||||||
Net Loss attributable to common stockholders | $ | (6,781,411 | ) | $ | (33,196,029 | ) | ||
Loss per share - Basic and diluted | $ | (0.06 | ) | $ | (0.34 | ) | ||
Weighted average outstanding shares - basic and diluted | 111,491,261 | 96,370,562 |
The accompanying notes are an integral part of these financial statements.
F-22 |
H-Cyte, Inc
Consolidated Statements of Stockholders’ Deficit
For the years ended December 31, 2020 and have not generated material revenues2019
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
Preferred Series A Stock | Preferred Series B Stock | Common Stock | Additional Paid-in | Accumulated | Non-Controlling | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
Balances - December 31, 2018 | — | $ | — | — | $ | — | 33,661,388 | $ | 33,661 | $ | 3,566,339 | $ | (9,296,408 | ) | $ | (370,132 | ) | $ | (6,066,540 | ) | ||||||||||||||||||||
Purchase accounting adjustments | — | — | 9,250 | 9 | 24,717,270 | 24,717 | 12,657,182 | — | — | 12,681,908 | ||||||||||||||||||||||||||||||
Adjustment of exercise price on certain warrants | ||||||||||||||||||||||||||||||||||||||||
Reclassification of Series B warrants to equity | ||||||||||||||||||||||||||||||||||||||||
Reclassification of Series D warrants to equity | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series B Convertible Preferred Stock to Common Stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series B Convertible Preferred Stock to Common Stock, Shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series D Convertible Preferred Stock to Common Stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series D Convertible Preferred Stock to Common Stock, Shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of Short-term convertible notes payable - related party | ||||||||||||||||||||||||||||||||||||||||
Conversion of Short-term convertible notes payable - related party, Shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of April Advance notes - related parties | ||||||||||||||||||||||||||||||||||||||||
Conversion of April Advance notes - related parties, Shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of Short-term convertible notes to Preferred Stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of Short-term convertible notes to Preferred Stock, Shares | ||||||||||||||||||||||||||||||||||||||||
Issuance of warrants pursuant to conversion of Short-term convertible notes | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with extinguishment of short-term notes, related party | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with extinguishment of short-term notes, related party, Shares | ||||||||||||||||||||||||||||||||||||||||
Deemed dividend on Series D Convertible Preferred Stock at issuance | ||||||||||||||||||||||||||||||||||||||||
Reclassification of related party warrants to equity | ||||||||||||||||||||||||||||||||||||||||
Issuance of warrants pursuant to extension of convertible short-term notes, related party | ||||||||||||||||||||||||||||||||||||||||
Issuance of Series A Preferred Stock in Rights Offering, net of issuance costs | ||||||||||||||||||||||||||||||||||||||||
Issuance of Series A Preferred Stock in Rights Offering, net of issuance costs, Shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series A Preferred Stock to Common Stock | ||||||||||||||||||||||||||||||||||||||||
Conversion of Series A Preferred Stock to Common Stock, Shares | ||||||||||||||||||||||||||||||||||||||||
Conversion of warrants to Common Stock | �� | |||||||||||||||||||||||||||||||||||||||
Conversion of warrants to Common Stock, Shares | ||||||||||||||||||||||||||||||||||||||||
Adjustment for assets and liabilities not included in Merger | — | — | — | — | — | — | — | 5,258,300 | — | 5,258,300 | ||||||||||||||||||||||||||||||
Issuance of common stock in connection with private placement offering | — | — | — | — | 17,700,000 | 17,700 | 4,402,087 | — | — | 4,419,787 | ||||||||||||||||||||||||||||||
Issuance of warrants in connection with private placement offering | — | — | — | — | — | — | 2,663,797 | — | — | 2,663,797 | ||||||||||||||||||||||||||||||
Finance costs on issuance of Series B Convertible Preferred Stock and related warrants | — | — | — | — | — | — | (132,513 | ) | — | — | (132,513 | ) | ||||||||||||||||||||||||||||
Issuance of common stock pursuant to conversion of short-term debt | — | — | — | — | 500,000 | 500 | 125,437 | — | — | 125,937 | ||||||||||||||||||||||||||||||
Issuance of warrants pursuant to conversion of short-term debt | — | — | — | — | — | — | 74,063 | — | — | 74,063 | ||||||||||||||||||||||||||||||
Issuance of additional exchange shares | — | — | — | — | 17,263,889 | 17,264 | (17,264 | ) | — | — | — | |||||||||||||||||||||||||||||
Issuance of common stock pursuant to conversion of convertible short-term debt | — | — | — | — | 250,000 | 250 | 99,750 | — | — | 100,000 | ||||||||||||||||||||||||||||||
Issuance of common stock pursuant to warrant exchange | — | — | — | — | 403,125 | 403 | 72,160 | — | — | 72,563 | ||||||||||||||||||||||||||||||
Conversion of Series B Convertible Preferred Stock | — | — | (2,650 | ) | (2 | ) | 715,279 | 716 | (714 | ) | — | — | — | |||||||||||||||||||||||||||
Repurchase of Series B Convertible Preferred Stock | — | — | (500 | ) | (1 | ) | — | — | (49,999 | ) | — | — | (50,000 | ) | ||||||||||||||||||||||||||
Issuance of common stock to pay accrued dividends on Series B Convertible Preferred Stock | — | — | — | — | 50,367 | 50 | 19,376 | — | — | 19,426 | ||||||||||||||||||||||||||||||
Issuance of common stock to pay accrued interest on convertible short-term debt | — | — | — | — | 1,667 | 2 | 665 | — | — | 667 | ||||||||||||||||||||||||||||||
Issuance of common stock in exchange for consulting fees incurred | — | — | — | — | 280,085 | 280 | 95,253 | — | — | 95,533 | ||||||||||||||||||||||||||||||
Deemed dividend on adjustment to exercise price on convertible debt and certain warrants | — | — | — | — | — | — | 287,542 | (287,542 | ) | — | — | |||||||||||||||||||||||||||||
Deemed dividend on beneficial conversion features | — | — | — | — | — | — | 32,592 | (32,592 | ) | — | — | |||||||||||||||||||||||||||||
Issuance of common stock per restricted stock award to executive | — | — | — | — | 4,225,634 | 4,226 | 1,686,028 | — | — | 1,690,254 | ||||||||||||||||||||||||||||||
Issuance of warrants pursuant to short-term notes, related party | — | — | — | — | — | — | 56,378 | — | — | 56,378 | ||||||||||||||||||||||||||||||
Issuance of warrants pursuant to extension of maturity date on convertible debt | — | — | — | — | — | — | 106,158 | — | — | 106,158 | ||||||||||||||||||||||||||||||
Deemed dividend on Series D Convertible Preferred Stock | — | — | — | — | — | — | (60,493 | ) | (3,130,146 | ) | — | (3,190,639 | ) | |||||||||||||||||||||||||||
Beneficial conversion of Series D Convertible Preferred Stock | — | — | — | — | — | — | 623,045 | — | — | 623,045 | ||||||||||||||||||||||||||||||
Finance costs on issuance of Series D Convertible Preferred Stock and related warrants | — | — | — | — | — | — | (37,618 | ) | (66,265 | ) | — | (103,883 | ) | |||||||||||||||||||||||||||
Issuance of warrants pursuant to private placement of Series D Convertible Preferred Stock | — | — | — | — | — | — | 1,893,006 | — | — | 1,893,006 | ||||||||||||||||||||||||||||||
Stock based compensation | — | — | — | — | — | — | 94,828 | — | — | 94,828 | ||||||||||||||||||||||||||||||
Accrued dividends on Series B Convertible Preferred Stock | — | — | — | — | — | — | (84,939 | ) | — | — | (84,939 | ) | ||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (29,807,878 | ) | — | (29,807,878 | ) | ||||||||||||||||||||||||||||
Balances – December 31, 2019 | — | $ | - | 6,100 | $ | 6 | 99,768,704 | $ | 99,769 | $ | 28,172,146 | $ | (37,362,531 | ) | $ | (370,132 | ) | $ | (9,460,742 | ) |
Preferred Series A Stock | Preferred Series B Stock | Common Stock | Additional Paid-in | Accumulated | Non-Controlling | Total Stockholders’ | ||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||
Balances - December 31, 2019 | — | $ | - | 6,100 | $ | 6 | 99,768,704 | $ | 99,769 | $ | 28,172,146 | $ | (37,362,531 | ) | $ | (370,132 | ) | $ | (9,460,742 | ) | ||||||||||||||||||||
Beginning balance | — | $ | - | 6,100 | $ | 6 | 99,768,704 | $ | 99,769 | $ | 28,172,146 | $ | (37,362,531 | ) | $ | (370,132 | ) | $ | (9,460,742 | ) | ||||||||||||||||||||
Accrued dividends on Series B Convertible Preferred Stock | — | — | — | — | — | — | (44,456 | ) | — | — | (44,456 | ) | ||||||||||||||||||||||||||||
Adjustment of exercise price on certain warrants | — | — | — | — | — | — | (438,913 | ) | — | — | (438,913 | ) | ||||||||||||||||||||||||||||
Reclassification of Series B warrants to equity | — | — | — | — | — | — | 73,805 | — | 73,805 | |||||||||||||||||||||||||||||||
Reclassification of Series D warrants to equity | — | — | — | — | — | — | 337,400 | — | — | 337,400 | ||||||||||||||||||||||||||||||
Conversion of Series B Convertible Preferred Stock to Common Stock | — | — | (6,100 | ) | (6 | ) | 2,119,713 | 2,120 | 150,983 | — | — | 153,097 | ||||||||||||||||||||||||||||
Conversion of Series D Convertible Preferred Stock to Common Stock | — | — | — | — | 15,773,363 | 15,773 | 6,422,441 | — | — | 6,438,214 | ||||||||||||||||||||||||||||||
Conversion of Short-term convertible notes payable - related party | 35,860,079 | 35,860 | — | — | — | — | 412,541 | — | — | 448,401 | ||||||||||||||||||||||||||||||
Conversion of April Advance notes - related parties | 198,194,248 | 198,194 | — | — | — | — | 2,579,961 | — | — | 2,778,155 | ||||||||||||||||||||||||||||||
Conversion of Short-term convertible notes to Preferred Stock | 89,790,089 | 89,790 | — | — | — | — | 1,167,271 | — | — | 1,257,061 | ||||||||||||||||||||||||||||||
Issuance of warrants pursuant to conversion of Short-term convertible notes | — | — | — | — | — | — | 1,004,252 | — | — | 1,004,252 | ||||||||||||||||||||||||||||||
Issuance of common stock in connection with extinguishment of short-term notes, related party | — | — | — | — | 4,368,278 | 4,368 | 214,046 | — | — | 218,414 | ||||||||||||||||||||||||||||||
Deemed dividend on Series D Convertible Preferred Stock | — | — | — | — | — | — | (277,719 | ) | — | — | (277,719 | ) | ||||||||||||||||||||||||||||
Deemed dividend on Series D Convertible Preferred Stock at issuance | — | — | — | — | — | — | — | (37,207 | ) | — | (37,207 | ) | ||||||||||||||||||||||||||||
Reclassification of related party warrants to equity | — | — | — | — | — | — | 107,123 | — | — | 107,123 | ||||||||||||||||||||||||||||||
Issuance of Common Stock in exchange for consulting fees incurred | — | — | — | — | 109,375 | 109 | 34,891 | — | — | 35,000 | ||||||||||||||||||||||||||||||
Issuance of warrants pursuant to private placement of Series D Convertible Preferred Stock | — | — | — | — | 31,902 | — | — | 31,902 | ||||||||||||||||||||||||||||||||
Issuance of warrants pursuant to extension of convertible short-term notes, related party | — | — | — | — | — | — | 17,636 | — | — | 17,636 | ||||||||||||||||||||||||||||||
Issuance of warrants pursuant to extension of maturity date on convertible debt | — | — | — | — | — | — | 6,595 | — | — | 6,595 | ||||||||||||||||||||||||||||||
Issuance of Series A Preferred Stock in Rights Offering, net of issuance costs | 218,285,024 | 218,285 | — | — | — | — | 2,517,451 | — | — | 2,735,736 | ||||||||||||||||||||||||||||||
Stock based compensation | — | — | — | — | — | — | 643 | — | — | 643 | ||||||||||||||||||||||||||||||
Conversion of Series A Preferred Stock to Common Stock | (4,020,031 | ) | (4,020 | ) | — | — | 4,020,031 | 4,020 | — | — | — | — | ||||||||||||||||||||||||||||
Conversion of warrants to Common Stock | — | — | — | — | 1,000,000 | 1,000 | 26,000 | — | — | 27,000 | ||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | (6,459,236 | ) | — | (6,459,236 | ) | ||||||||||||||||||||||||||||
Balances - December 31, 2020 | �� | 538,109,409 | $ | 538,109 | — | $ | - | 127,159,464 | $ | 127,159 | $ | 42,515,999 | $ | (43,858,974 | ) | $ | (370,132 | ) | $ | (1,047,839 | ) | |||||||||||||||||||
Ending balance | 538,109,409 | $ | 538,109 | — | $ | - | 127,159,464 | $ | 127,159 | $ | 42,515,999 | $ | (43,858,974 | ) | $ | (370,132 | ) | $ | (1,047,839 | ) |
The accompanying notes are an integral part of these financial statements.
F-23 |
H-Cyte, Inc
Consolidated Statements of Cash Flows
2020 | 2019 | |||||||
December 31, | ||||||||
2020 | 2019 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (6,459,236 | ) | $ | (29,807,878 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 81,470 | 834,291 | ||||||
Loss on impairment | — | 15,508,401 | ||||||
Loss on asset disposal | 1,342 | — | ||||||
Amortization of debt discount | 1,395,007 | 152,342 | ||||||
Interest and penalties on extension of short-term convertible notes | — | 85,365 | ||||||
Stock-based compensation | 643 | 1,785,082 | ||||||
Loss on write-off of inventory | — | 131,455 | ||||||
Common stock issued for consulting services | 35,000 | 95,533 | ||||||
Income from change in fair value adjustment of derivative liability - warrants | (2,986,854 | ) | (827,260 | ) | ||||
Change in fair value of redemption put liability | (272,704 | ) | (346,696 | ) | ||||
Change in fair value of Derivative Liability - Day one derivative loss | 2,306,121 | — | ||||||
Issuance of warrants to extend short-term debt, related party | 17,636 | — | ||||||
Bad debt expense | 6,000 | 90,137 | ||||||
Issuance of warrants pursuant to extension of maturity date on convertible debt | 6,595 | 106,158 | ||||||
Issuance of Common Stock pursuant to warrant exchange | 27,000 | — | ||||||
Gain on extinguishment of short-term notes, related party | (1,300,088 | ) | — | |||||
Warrant modification expense | 70,851 | — | ||||||
Changes in operating assets and liabilities, net of purchase transaction: | ||||||||
Accounts receivable | 16,667 | 48,195 | ||||||
Other receivables | (3,450 | ) | (13,529 | ) | ||||
Prepaid expenses and other assets | 723,578 | (697,529 | ) | |||||
Interest payable | 36,196 | (10,592 | ) | |||||
Accounts payable | (478,572 | ) | 121,907 | |||||
Accrued liabilities | (48,569 | ) | (263,874 | ) | ||||
Other current liabilities | (20,369 | ) | (2,875 | ) | ||||
Deferred revenue | (412,007 | ) | 720,092 | |||||
Net Cash Used in Operating Activities | (7,257,743 | ) | (12,291,275 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Purchase of property and equipment | (2,284 | ) | (20,686 | ) | ||||
Purchase of business, net of cash acquired | — | (302,710 | ) | |||||
Net assets not included in purchase transaction | — | (69,629 | ) | |||||
Net Cash Used in Investing Activities | (2,284 | ) | (393,025 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Proceeds from short-term related party notes | — | 1,635,000 | ||||||
Payment of dividends | — | (14,684 | ) | |||||
Proceeds from Paycheck Protection Plan | 809,082 | — | ||||||
Payment on debt obligations | (10,937 | ) | (370,636 | ) | ||||
Proceeds from common stock, net of issuance costs | — | 4,337,106 | ||||||
Proceeds from Secured Convertible Promissory Notes | 3,842,695 | 2,613,965 | ||||||
Proceeds from issuance of Series D Convertible Preferred Stock, net of issuance costs | 100,000 | 5,888,017 | ||||||
Proceeds from Preferred stock Series A, net of issuance costs | 2,735,736 | — | ||||||
Payment on Preferred stock Series B Convertible Preferred Stock redemption | — | (50,000 | ) | |||||
Net Cash Provided by Financing Activities | 7,476,576 | 14,038,768 | ||||||
Net Increase in Cash | 216,549 | 1,354,468 | ||||||
Cash - Beginning of period | 1,424,096 | 69,628 | ||||||
Cash - End of period | $ | 1,640,645 | $ | 1,424,096 | ||||
Supplementary Cash Flow Information | ||||||||
Cash paid for interest | $ | 33,136 | $ | 197,500 | ||||
Non-cash investing and financing activities | ||||||||
Common stock issued to pay accrued dividends | — | 19,426 | ||||||
Deemed dividend on adjustment to exercise price on convertible debt and certain warrants | — | 287,542 | ||||||
Deemed dividend on beneficial conversion feature | — | 32,592 | ||||||
Deemed dividend on Series D Convertible Preferred Stock | 314,926 | 3,190,639 | ||||||
Conversion of debt obligations to Common Stock | — | 225,937 | ||||||
Conversion of Series D Convertible Preferred Stock and accrued dividends to Common Stock | 6,438,214 | 623,045 | ||||||
Reclassification of related party warrants to equity | 107,123 | — | ||||||
Reclassification of Series B warrants to equity | 73,805 | — | ||||||
Reclassification of Series D warrants to equity | 337,400 | — | ||||||
Conversion of debt obligations to warrants | — | 74,063 | ||||||
Issuance of warrants pursuant to note payable, related party | — | 56,378 | ||||||
Conversion of Series B Convertible Preferred Stock and accrued dividends to Common Stock | 153,097 | — | ||||||
Conversion of Short-term convertible notes payable, related party | 448,401 | — | ||||||
Conversion of April Advance notes-related parties | 2,778,155 | — | ||||||
Conversion of Short-term convertible notes to Preferred Stock | 1,257,061 | — | ||||||
Issuance of warrants pursuant to conversion of short-term convertible notes | 1,004,252 | — | ||||||
Dividends accrued on Series B Convertible Preferred Stock | 44,456 | 65,512 | ||||||
Adjustment of exercise price on certain warrants | 438,913 | — | ||||||
Issuance of Common Stock in connection with extinguishment of short-term notes, related party | 218,414 | — | ||||||
Issuance of warrants pursuant to private placement of Series D Convertible Preferred Stock | 31,902 | 1,893,006 | ||||||
Right-of-use asset additions | — | 1,165,785 | ||||||
Right-of-use liability | — | 1,187,991 |
The accompanying notes are an integral part of these financial statements.
F-24 |
H-Cyte, Inc
Notes to date. AsConsolidated Financial Statements
Note 1 – Description of the Company
H-CYTE, Inc is a result,hybrid-biopharmaceutical company dedicated to developing and delivering new treatments for patients with chronic respiratory and pulmonary disorders. During the last 18 months, the Company has suffered losses sinceevolved into two separate verticals under its inception.Healthcare Medical Biosciences Division with its entrance into the biologics development space (“Biologics Vertical”). This raises substantial doubt aboutnew vertical is complementary to the Company’s abilitycurrent Lung Health Institute (LHI) autologous infusion therapy business (“Infusion Vertical”) and is focused on underserved disease states.
On July 11, 2019, MedoveX Corp. (“MedoveX”) changed its name to continue asH-CYTE, Inc. (“H-CYTE” or the “Company”) by filing a going concern. Management’s plans in regardCertificate of Amendment (the “Amendment”) to these matters are also described in Note 14.the Company’s Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) with the Secretary of the State of Nevada. The consolidated financial statements do not include any adjustments that might result fromname change and the outcome of this uncertainty.
MEDOVEX CORP. AND SUBSIDIARY | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
December 31, 2015 | December 31, 2014 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | 1,570,167 | $ | 6,684,576 | ||||
Accounts receivable, Net | 33,045 | -- | ||||||
Prepaid expenses | 169,839 | 156,730 | ||||||
Inventory | 1,878 | -- | ||||||
Total Current Assets | 1,774,929 | 6,841,306 | ||||||
Property and Equipment, net of accumulated depreciation | 24,838 | 24,450 | ||||||
Deposits | 2,751 | -- | ||||||
Developed Technology, net | 2,678,571 | -- | ||||||
Trademark, net | 595,000 | -- | ||||||
Goodwill | 6,455,645 | -- | ||||||
Total Assets | $ | 11,531,734 | $ | 6,865,756 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 278,309 | $ | -- | ||||
Accrued liabilities | 100,317 | 140,678 | ||||||
Interest payable | 76,712 | 219,429 | ||||||
Notes payable | 134,540 | -- | ||||||
Total Current Liabilities | 589,878 | 360,107 | ||||||
Long-Term Liabilities | ||||||||
Convertible debt, net of debt discount | 753,914 | -- | ||||||
Notes payable, net of current portion | 164,726 | -- | ||||||
Deferred rent | 491 | -- | ||||||
Total Long-Term Liabilities | 919,131 | -- | ||||||
Total Liabilities | 1,509,009 | 360,107 | ||||||
Stockholders' Equity | ||||||||
Preferred stock - $.001 par value: 500,000 shares authorized, no shares outstanding | -- | -- | ||||||
Common stock - $.001 par value: 49,500,000 shares authorized, 11,256,175 and 9,172,480 shares issued at December 31, 2015 and December 31, 2014, respectively, 11,048,203 and 9,172,480 shares outstanding at December 31, 2015 and December 31, 2014, respectively | 11,256 | 9,173 | ||||||
Additional paid-in capital | 20,144,911 | 10,106,841 | ||||||
Accumulated deficit | (10,133,442 | ) | (3,610,365 | ) | ||||
Total Stockholders' Equity | 10,022,725 | 6,505,649 | ||||||
Total Liabilities and Stockholders' Equity | $ | 11,531,734 | $ | 6,865,756 |
For the year ended December 31, | ||||||||
2015 | 2014 | |||||||
Revenues | $ | 33,045 | $ | -- | ||||
Cost of Goods Sold | (25,383 | ) | -- | |||||
Gross Profit | 7,662 | -- | ||||||
Operating Expenses | ||||||||
General and administrative | 5,000,727 | 1,913,648 | ||||||
Sales & Marketing | 102,436 | -- | ||||||
Research and development | 940,179 | 1,020,703 | ||||||
Depreciation and amortization | 433,098 | 2,681 | ||||||
Total Operating Expenses | 6,476,440 | 2,937,032 | ||||||
Operating Loss | (6,468,778 | ) | (2,937,032 | ) | ||||
Other Expenses | ||||||||
Interest expense | 54,299 | -- | ||||||
Total Other Expenses | 54,299 | -- | ||||||
Net Loss | $ | (6,523,077 | ) | $ | (2,937,032 | ) | ||
Basic and diluted net loss per common share | $ | (0.60 | ) | $ | (0.37 | ) | ||
Shares used in computing basic and diluted net loss per share | 10,943,675 | 7,897,117 |
Total | ||||||||||||||||||||||||
Common Stock | Common Stock | Additional | Accumulated | Stockholders' | ||||||||||||||||||||
Shares | Amount | Subscriptions | Paid-in Capital | Deficit | Equity | |||||||||||||||||||
Balance - December 31, 2013 | 7,781,175 | $ | 7,782 | $ | (100,000 | ) | $ | 3,341,991 | $ | (673,333 | ) | $ | 2,576,440 | |||||||||||
Collection of subscription receivable | -- | -- | 100,000 | -- | -- | 100,000 | ||||||||||||||||||
Issuance of common stock in public offering at $5.75 per unit, completed on December 19,2014, net offering costs | 1,391,305 | 1,391 | -- | 6,730,878 | -- | 6,732,269 | ||||||||||||||||||
Stock based compensation | -- | -- | -- | 33,972 | -- | 33,972 | ||||||||||||||||||
Net loss | -- | -- | -- | -- | (2,937,032 | ) | (2,937,032 | ) | ||||||||||||||||
Balance – December 31, 2014 | 9,172,480 | $ | 9,173 | -- | $ | 10,106,841 | $ | (3,610,365 | ) | $ | 6,505,649 | |||||||||||||
Issuance of common stock to underwriters in January 2015 | 208,695 | 208 | -- | 1,083,928 | -- | 1,084,136 | ||||||||||||||||||
Value of common stock to acquire Streamline on date of closing at $4.50 per share | 1,875,000 | 1,875 | -- | 8,435,625 | -- | 8,437,500 | ||||||||||||||||||
Stock based compensation | -- | -- | -- | 253,659 | -- | 253,659 | ||||||||||||||||||
Issuance of warrant to Steve | ||||||||||||||||||||||||
Gorlin on November 9 2015 | -- | -- | -- | 284,858 | -- | 284,858 | ||||||||||||||||||
Due from shareholder | ||||||||||||||||||||||||
for issuance of convertible debt | -- | -- | -- | (20,000 | ) | -- | (20,000 | ) | ||||||||||||||||
Net loss | -- | -- | -- | -- | (6,523,077 | ) | (6,523,077 | ) | ||||||||||||||||
Balance – December 31, 2015 | 11,256,175 | $ | 11,256 | -- | $ | 20,144,911 | $ | (10,133,442 | ) | $ | 10,022,725 |
For the year ended December 31, | ||||||||
2015 | 2014 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (6,523,077 | ) | $ | (2,937,032 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 6,669 | 2,681 | ||||||
Amortization of intangibles | 426,429 | -- | ||||||
Amortization of debt discount | 38,770 | |||||||
Stock based compensation | 253,659 | 33,972 | ||||||
Straight-line rent adjustment | 491 | -- | ||||||
Changes in operating assets and liabilities, net of effects of acquisition: | ||||||||
Deposits | (2,751 | ) | -- | |||||
Accounts receivable | (33,045 | ) | -- | |||||
Prepaid expenses | 63,473 | (157,478 | ) | |||||
Interest payable | 76,712 | -- | ||||||
Accounts payable | (164,144 | ) | 104,553 | |||||
Accrued liabilities | (125,130 | ) | 189,429 | |||||
Net Cash Used in Operating Activities | (5,981,944 | ) | (2,759,875 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Acquisition of Streamline, Inc., net of cash received | (1,152,291 | ) | -- | |||||
Expenditures for property and equipment | (7,059 | ) | (23,668 | ) | ||||
Net Cash Used in Investing Activities | (1,159,350 | ) | (23,668 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Principal payments under note payable obligation | (37,251 | ) | -- | |||||
Deferred initial public offering costs | -- | 29,775 | ||||||
Collection of subscription receivable | -- | 100,000 | ||||||
Proceeds from issuance of warrant | 284,858 | -- | ||||||
Proceeds from issuance of convertible debt | 695,142 | -- | ||||||
Proceeds from issuance of common stock from underwriter’s overallotment | 1,084,136 | -- | ||||||
Proceeds from issuance of common stock in public offering | -- | 6,732,269 | ||||||
Net Cash Provided by Financing Activities | 2,026,885 | 6,862,044 | ||||||
Net Increase/(Decrease) in Cash | (5,114,409 | ) | 4,078,501 | |||||
Cash - Beginning of period | 6,684,576 | 2,606,075 | ||||||
Cash - End of period | $ | 1,570,167 | $ | 6,684,576 | ||||
Non-cash investing and financing activities | ||||||||
Financing agreement for insurance policy | $ | 76,581 | $ | -- | ||||
Due from shareholder for issuance of convertible debt | 20,000 | |||||||
Issuance of common stock for acquisition of Streamline | 8,437,500 | -- | ||||||
Net Non-Cash Investing and Financing Activities | $ | 8,534,081 | $ | -- |
On October 1, 2012.
As of the merger, the consolidated results for H-CYTE include the following wholly-owned subsidiaries: H-CYTE Management, LLC (formerly Blue Zone Health Management, LLC), MedoveX Corp, Cognitive Health Institute, LLC, and recapitalizationLung Institute Tampa, LLC (formerly Blue Zone Lung Tampa, LLC) and the results 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 Variable Interest Entities (“VIEs”). H-CYTE Management, LLC is the operator and manager of Debride into SpineZ.the various Lung Health Institute (LHI) clinics: LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale.
On September 11, 2020, with the closing of the Rights Offering, FWHC, LLC, FWHC, Bridge, LLC, and FWHC Bridge Friends, LLC (collectively known as “FWHC”) gained control of the Company by subsequently owning approximately 61% of the fully diluted shares of the Company (see Notes 8 and 9).
Company’s Two Operating Divisions
The Company has two divisions: the Healthcare Medical Biosciences Division (“which includes the Infusion Vertical and the Biologics Vertical”) and the DenerveX medical device division (“DenerveX”). The Company has decided to focus its available resources on the Medical Biosciences Division as it represents a significantly greater opportunity than the DenerveX division. The Company is a development stage enterpriseno longer manufacturing or selling the DenerveX device but continues to explore possible opportunities to monetize such technology.
Healthcare Medical Biosciences Division (Biosciences Division)
Autologous Infusion Therapy (“Infusion Vertical”)
The Company’s Biosciences includes the Infusion Business that has acquired a patent, patent applicationsdevelops and other intellectual property rights relatingimplements innovative treatment options in autologous cellular therapy (PRP-PBMC) to treat chronic lung disorders. Committed to an individualized patient-centric approach, this division consistently provides oversight and management of the highest quality care to the use,LHI clinics located in Tampa, Nashville, and Scottsdale, while producing positive medical outcomes following the strictest CDC guidelines.
Biotech Development Division (“Biologics Vertical”)
On June 21, 2019, H-CYTE entered into an exclusive product supply agreement with Rion, LLC (“Rion”) to develop and distribute (post FDA approval) a biologic for chronic obstructive pulmonary disease (“COPD”), the fourth leading cause of death in the U.S. Rion has established a novel biologics technology to harness the healing power of the body. Rion’s innovative 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. This agreement provides for a 10-year exclusive and extendable supply agreement with Rion to enable H-CYTE to develop proprietary biologics.
On October 9, 2019, the Company entered into a services agreement with Rion which provides the Company the benefit of Rion’s resources and expertise for the limited purpose of (i) consulting with and assisting H-CYTE in the further research and development for the generation of a new biologic and (ii) subsequently assisting H-CYTE in seeking and obtaining FDA Phase 1 IND clearance for this biologic as necessary. Rion also agrees to consult with H-CYTE in its arrangement for services from third parties unaffiliated with Rion to support research, development, regulatory approval, and commercialization of the DenerveX™ System which consistsbiologic.
With these agreements, Rion will serve as the product supplier and contracted preclinical development arm of the DenerveX Devicebiologic. H-CYTE will control the commercial development and the clinical trial investigation. After conducting the clinical efficacy trials of this biologic, H-CYTE intends to pursue submission of a Biologics License Application (“BLA”) for review by the FDA for treatment of COPD.
F-25 |
Proprietary Medical Device Business (DenerveX division)
In the first quarter of 2020, the Company made the decision to stop any further efforts to source alternative manufacturing and distributor options or other product relationships for the DenerveX Pro-40 power generator (“DenerveX”).product. Although the Company believes the DenerveX is a device that is intended to be usedtechnology has value, the Company did not believe it would realize value in the treatmentforeseeable future. The Company recorded an impairment charge for intangibles associated with the DenerveX intellectual property and wrote off related inventory balances as of conditions resulting fromDecember 31, 2019. The Company is no longer manufacturing or selling the degeneration of joints in the spine that cause back pain.
Note 2 -– Basis Of Presentation and Summary of Significant Accounting Policies
Basis of Presentationpresentation
Based on the terms of the APA, the former RMS members had voting control of the combined company as of the closing of the Merger. 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 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 H-CYTE are recorded as of the Merger closing date at their estimated fair values.
The consolidated balance sheets, consolidated statements of operations, consolidated statements of stockholders’ deficit, and the consolidated statements of cash flows do not reflect the historical financial information related to H-CYTE prior to the Merger as they only reflect the historical financial information related to RMS. For the consolidated statements of stockholders’ 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 at the beginning of the periods presented.
Principles of Consolidation
U.S. GAAP requires that a related entity be consolidated with a company when certain conditions exist. An entity is considered to be a 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 Parent 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.
The accompanying audited consolidated financial statements include the accounts of Medovex Corp.the Parent, its wholly owned subsidiaries, and its wholly-owned subsidiary, Streamline.VIEs. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
In preparing the financial statements, generally accepted accounting principles in the United States (“U.S. GAAP”)GAAP requires disclosure regarding estimates and assumptions used by management that affect the amounts reported in financial statements and accompanying notes. The Company’s significantSignificant estimates currently includewere made around the fair value, useful life andvaluation of embedded derivatives, which impacts gains or losses on such derivatives, the carrying amount of its patented technology, 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, actualdebt, interest expense, and deemed dividends. Actual results could differ from those estimates.
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Cash
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s cash balances at December 31, 20152020 and 20142019 consists of funds deposited in checking accounts with commercial banks.
Accounts Receivable & Allowance for Doubtful Accounts
Accounts receivable 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.
Impairment of Long-Lived Assets
The Company reviews the values assigned to long-lived assets, including property and equipment and certain intangible assets, to determine whether events and circumstances have occurred which indicate that the remaining estimated useful lives may warrant revision or that the remaining balances may not be recoverable. The evaluation of asset impairment requires management to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment, and actual results may differ from estimated amounts. In such reviews, undiscounted cash flows associated with these assets are compared with their carrying value to determine if a write-down to fair value is required (see Note 7).
Goodwill
Goodwill represents the excess of purchase price over fair value of net identified tangible and intangible assets and liabilities acquired. The Company does not accrue interestamortize goodwill; it tests goodwill for impairment on past due accounts receivable.
Leases
In February 2016, the implied fair valueFinancial Accounting Standard Board (“FASB”) established Topic 842, Leases, by issuing Accounting Standards Update (ASU) No. 2016-02 (as amended), which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of goodwillexpense recognition in the statement of operations.
The Company has not entered into significant lease agreements in which it is less than the carrying value of goodwill,lessor. For the lease agreements in which the Company wouldis the lessee, under Topic 842, lessees are required to recognize a lease liability and right-of-use asset for all leases (except for 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 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.
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Other Receivables
Other receivables totaling approximately $22,000 and $19,000 at December 31, 2020 and 2019, respectively include receivables from the non-acquired Lung Institute, LLC due to Lung Institute Tampa, LLC for approximately $3,000 and $10,000. Other receivables totaling approximately $19,000 and $9,000 include reimbursement receivables for expenses from RMS at December 31, 2020 and 2019, respectively.
Revenue Recognition
The Company recognizes revenue in accordance with U.S. GAAP as outlined in the FASB ASC 606, Revenue From Contracts with Customers, which requires that five steps be completed 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 satisfies a performance obligation. The Company records revenue under ASC 606 as services are performed for the customer.
The Company 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 the Company for consented procedures and is recorded as revenue. The Company recognizes revenue when the terms of a contract with a patient are satisfied.
The Company offers two types of cellular therapy treatments to their patients.
1) | The first type of treatment includes medical services rendered typically over a two-day period in which the patient receives cellular therapy. For this treatment type, revenue is recognized in full at time of service. | |
2) | The Company also offers a four-day treatment in which medical services are rendered typically over 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. Revenue is recognized when services are performed based on the estimated standalone selling price of each service. The Company has deferred recognition of revenue amounting to approximately $634,000 and $1,046,000 at December 31, 2020 and 2019, respectively. |
The Company’s policy is to not offer refunds to patients. However, in limited instances the Company may make exceptions to this policy for extenuating circumstances. These instances are evaluated on a case-by-case basis and may result in a patient refund. Management performed an impairment loss,analysis of its customer refund history for refunds issued related to prior year’s revenue. Management used the results of this historical refund analysis to record a reserve for anticipated future refunds related to recognized revenue. At December 31, 2020 and 2019, the estimated allowance for refunds was approximately $77,000 and $63,000, respectively and is recorded in a contra revenue account.
Research and development costs
Research and development expenses are recorded in operating expenses in the period identified, equal toin which they are incurred.
Advertising
Advertising costs are recorded in operating expenses in the difference. period in which they are incurred.
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.
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Income Taxes
The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC Topic 740, “Income Taxes”. Under the liability method, deferred taxes are determined based on temporary differences between the financial statement and tax bases of assets and liabilities using tax rates expected to be in effect during the years in which the difference turns around. The Company accounts for interest and penalties on income taxes as income tax expense. A valuation allowance is recorded when it is more likely than not that a tax benefit will not be realized. In determining the need for valuation allowances the Company considers projected future taxable income and the availability of tax planning strategies.
From inception to December 31, 2020, the Company has concluded thatincurred net losses and, therefore, has no impairment of goodwill existedcurrent income tax liability. The net deferred tax asset generated by these losses is fully offset by a valuation allowance as of December 31, 2015,2020 and 2019 since it is currently likely that the year of acquisition,benefit will not be realized in future periods.
There are 0 uncertain tax positions at December 31, 2020 and thus did not conduct an impairment analysis as of that date.2019. The Company will commence impairment testing of goodwill in 2016.
Basic loss per share is computed on the intangibles is provided on a straight-line basis over the estimated useful lives of the assets as follows:
Fair Value Measurements
The Company measures certain non-financial assets, liabilities, and equity issuances at fair value on a non-recurring basis. These non-recurring valuations include evaluating assets such as long-lived assets and non-amortizing intangible assets for impairment; allocating value to assets in an acquired asset group; and applying accounting for business combinations. We use
The Company classifies its stock warrants as either liability or equity instruments in accordance with ASC 480, “Distinguishing Liabilities from Equity” (ASC 480) and ASC 815, “Derivatives and Hedging” (ASC 815), depending on the specific terms of the warrant agreement.
The Company uses the fair value measurement framework to value these assets and report the fair values in the periods in which they are recorded, adjusted above, or written down.
The fair value measurement framework includes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair values in their broad levels. These levels from highest to lowest priority are as follows:
● | Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities; |
● | Level 2: Quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted on active markets, but corroborated by market data; and |
● | Level 3: Unobservable inputs or valuation techniques that are used when little or no market data is available. |
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The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include:include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. WeThe Company may also engage external advisors to assist us in determining fair value, as appropriate.
The Company evaluates its financial liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. Although we believethe Company believes that the recorded fair value of our non-financial assetsfinancial instruments is appropriate at December 31, 2015,2020, these fair values may not be indicative of net realizable value or reflective of future fair values.
Note 3 - Liquidity, Going Concern and Equipment
The Company recognizes rent expense on a straight-line basis overincurred net losses of approximately $6,459,000 for the lease term.year ending December 31, 2020. The lease term commences onCompany used approximately $7,258,000 in net cash from operating activities for the date thatyear ending December 31, 2020 and has historically incurred losses from operations and expects to continue to generate negative cash flows as the Company takes possession of or controls the physical use of the property. Deferred rent is included in non-current liabilities on theimplements its business plan. The consolidated balance sheet.
COVID-19 has adversely affected the Company’s financial condition and results of operations. The impact of the outbreak of COVID-19 on the economy in the U.S. and the rest of the world is expected to continue to be significant. The extent to which the COVID-19 outbreak will continue to impact the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which its financial condition and results of operations will be affected.
The Company has updated its business model to decrease corporate overhead and marketing expense to significantly reduce expenses. The Company believes that as COVID-19 begins to dissipate due to vaccinations being administered nationwide, patients will again feel comfortable traveling to one of the LHI clinics for treatment. The Company’s Biologics Vertical has commenced preclinical work in support of filing an Investigational New Drug Application (“ASC”IND”) 605-10-S99, Revenue Recognition, which requires that four basic criteria be met before revenuewith the U.S. Food and Drug Administration (“FDA”). The Company is anticipating an initial submission during the second half of 2021.
The Company had cash on hand of approximately $1,641,000 as of December 31, 2020 and approximately $436,000, as of March 24, 2021. 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.
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There can be recognized: (i) persuasive evidenceno assurance that the Company will be able to raise additional funds or that the terms and conditions of an arrangement exists; (ii) the price is fixedany future financings will be workable or determinable; (iii) collectability is reasonably assured; and (iv) product delivery has occurred or services have been rendered. The Company sells its products primarily through direct sales. The Company recognizes revenue when titleacceptable to the goods and risk of loss transfers to customers, provided there are no material remaining performance obligations required of 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 discontinue 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.
Note 4– Business Acquisition
On January 8, 2019, MedoveX completed its business combination with RMS under which MedoveX purchased certain assets and assumed certain liabilities of RMS, otherwise referred to as the Merger. Pursuant to the terms of the APA, MedoveX issued to the shareholders of RMS 2 million of new securities) for a total of shares of Series C Preferred Stock where each share of Series C Preferred stock automatically converted into shares of common stock and represent approximately 55% of the outstanding voting shares of the Company. shares plus additional Exchange Shares (based on closing the sale of $
Under the terms of the APA, 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 MedoveX raised an additional $5.65 million via the issuance of new securities. On the date of closing the Company issued additional Exchange Shares to RMS Shareholders as a result of the issuance of additional securities, which are included in the shares above. Subsequent to the closing of the purchase transaction, an incremental additional Exchange Shares were issued, for a total of additional Exchange Shares. All additional Exchange Shares have been issued to the shareholders of RMS and these Series C Preferred shares converted to shares of common stock; no additional equity will be issued to RMS.
Because RMS shareholders owned approximately 55% of the voting stock of MedoveX after the transaction, RMS was 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 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 MedoveX (the “Acquiree”) are recorded as of the Merger closing date at their estimated fair values.
Under the terms of the APA, MedoveX purchased certain assets and assumed certain liabilities of RMS. The assets of RMS reported on the MedoveX consolidated balance sheet as of December 31, 2018 that were excluded in the Merger on January 8, 2019 included the following: cash of approximately $70,000 convertible debt to a related party of approximately $4,300,000, interest payable of approximately $158,000, short-term notes, related party of approximately $180,000, accounts payable of approximately $398,000 and other current liabilities of approximately $285,000. Additionally, there were certain on-going litigation matters that were not assumed as part of customer acceptance.the January 8, 2019 Merger.
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 fair values.
The acquisition-date fair value of the consideration transferred is as follows:
Schedule of Fair Value of Consideration Transferred
1 | ||||
Common shares issued and outstanding | 24,717,270 | |||
Common shares reserved for issuance upon conversion of the outstanding Series B Preferred Stock | 2,312,500 | |||
Total Common shares | 27,029,770 | |||
Closing price per share of MedoveX Common stock on January 8, 2019 | $ | 0.40 | ||
10,811,908 | ||||
Fair value of outstanding warrants and options | 2,220,000 | |||
Cash consideration to RMS | (350,000 | ) | ||
Total consideration | $ | 12,681,908 |
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Prior to the transaction, MedoveX had 9.8 million. The estimated fair value of the net assets of MedoveX 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 MedoveX common stock is above the fair value of its net assets. The MedoveX net asset value is primarily comprised of definite-lived 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 MedoveX 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. million shares of common stock outstanding at a market capitalization of $
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition on January 8, 2019:
Schedule of Estimated Fair Values of Assets Acquired and Liabilities Assumed
1 | ||||
Cash | $ | (302,710 | ) | |
Accounts receivable | 145,757 | |||
Inventory | 131,455 | |||
Prepaid expenses | 46,153 | |||
Property and equipment | 30,393 | |||
Other | 2,751 | |||
Intangibles | 3,680,000 | |||
Goodwill | 12,564,401 | |||
Total assets acquired | $ | 16,298,200 | ||
Accounts payable and other accrued liabilities | 1,645,399 | |||
Derivative liability | 1,215,677 | |||
Interest-bearing liabilities and other | 755,216 | |||
Net assets acquired | $ | 12,681,908 |
Intangible assets are recorded as definite-lived assets and amortized over the estimated period of economic benefit. Intangible assets represent the fair value of patents and related proprietary technology for the DenerveX System. During the fourth quarter of 2019 the Company recorded an impairment charge of $2,944,000 related to the carrying value of its intangible assets (see Note 7).
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. During the fourth quarter of 2019 the Company recorded an impairment charge of approximately $12,564,000 related to the carrying value of goodwill (see Note 7).
The derivative liability relates to the liability associated with warrants issued with the securities purchase agreements executed in May 2018, which liability was assumed in the Merger (see Note 12).
Total interest-bearing liabilities and other liabilities assumed are as follows:
Schedule of Interest Bearing and Other Liabilities Assumed
1 | ||||
Notes payable | $ | 99,017 | ||
Short-term convertible notes payable | 598,119 | |||
Dividend payable | 57,813 | |||
Deferred rent | 267 | |||
Total interest-bearing and other liabilities | $ | 755,216 |
Notes payable relate to promissory notes assumed by Acquiree in a 2015 acquisition, which was later divested in 2016, with the assumed promissory notes being retained by Acquiree. The Company records estimated sales returns, discountsfinalized an eighteen-month extension on the notes extending the maturity date to March 1, 2021. Payments on both notes are due in aggregate monthly installments of approximately $5,800 and allowances ascarry an interest rate of 5%. The promissory notes had outstanding balances of approximately $99,000 plus accrued interest of approximately $3,000 at January 8, 2019 (see Note 11) and promissory notes had outstanding balances of approximately $67,000 and $78,000 at December 31, 2020 and 2019. The Company has not made payments on this note since February 10, 2020, due to COVID-19, resulting in accrued interest of approximately $1,900.
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In the third quarter of 2018, convertible notes were issued pursuant to a reductionsecurities purchase agreement with select accredited investors, whereby the Acquiree offered up to units (the “Units”) at a purchase price of net sales$ per Unit. Each Unit consisted of (i) a 12% senior secured convertible note, initially convertible into shares of the Company’s common stock, par value $ 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 of Units, 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.
In the offering, the Acquiree sold 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 sameoffering are convertible into an aggregate of 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. Due to the notes maturing in 2019, the warrants have fully accreted as of December 31, 2019. Units and issued to investors an aggregate of $
The convertible notes had maturity dates between August and September 2019 and were renegotiated or repaid during the third and fourth quarters of 2019 (see Note 11).
The following schedule represents the amount of revenue is recognized.
Schedule of Revenue and development costs are expensed as incurred.
For the Year Ended | ||||
December 31, 2019 | ||||
Revenues | $ | 67,631 | ||
Net loss attributable to MedoveX | $ | (4,754,680 | ) |
Note 5 – Right-of-use Asset And Lease Liability
Upon adoption of ASU No. 2016-02 (as amended), additional current liabilities of approximately $475,000 and long-term liabilities of approximately $713,000 with corresponding ROU assets of approximately $1,167,000 were recognized, based on the present value of the remaining minimum rental payments under the new leasing standard for existing operating leases.
The Company expenses all advertising costs as incurred. Forconsolidated balance sheet at December 31, 2020 reflects current lease liabilities of approximately $139,000 and long-term liabilities of $157,000, with corresponding ROU assets of $279,000.
The components of lease expense, included in other general and administrative expense, for the years ended December 31, 20152020 and 2014, advertising costs were approximately $83,000 and $0, respectively.2019, respectively, are as follows:
Schedule of Components of Lease Expense
December 31, 2020 | December 31, 2019 | |||||||
Operating lease expense | $ | 548,622 | $ | 579,770 |
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Cash paid for income taxes under ASC 740, Income Taxes (“ASC 740”), which requires recognitionamounts included in the measurement of deferred tax assets andlease liabilities for the expected future tax consequencesyears ended December 31, 2020 and 2019, respectively, are as follows:
Schedule of events that have beenCash Paid for Amounts Included the Measurement of Lease Liabilities
December 31, 2020 | December 31, 2019 | |||||||
Operating cash flows from operating leases | $ | 548,622 | $ | 579,770 |
Supplemental balance sheet and other information related to operating leases are as follows:
Schedule of Supplemental Balance Sheet and Other Information
December 31, 2020 | December 31, 2019 | |||||||
Operating leases: | ||||||||
Operating leases right-of-use assets | $ | 278,552 | $ | 738,453 | ||||
Lease liability, current | 139,189 | 453,734 | ||||||
Lease liability, net of current portion | 157,050 | 302,175 | ||||||
Total operating lease liabilities | $ | 296,239 | 755,909 | |||||
Weighted average remaining lease term | 2.32 years | 2.2 years | ||||||
Weighted average discount rate | 10.31 | % | 7.75 | % |
Maturities of operating lease liabilities as of December 31, 2020 are as follows:
Schedule of Maturities of Lease Liabilities
December 31, 2020 | ||||
Due in one year or less | $ | 154,559 | ||
Due after one year through two years | 102,891 | |||
Due after two years through three years | 69,333 | |||
Total lease payments | 326,783 | |||
Less interest | (30,544 | ) | ||
Total | $ | 296,239 |
Operating lease expense and cash flows from operating leases and short-term leases for years ended December 31, 2020 and 2019 totaled approximately $570,000 and $580,000, respectively, and are included in the financial statements“Other general and administrative” section of the consolidated statement of operations. Additionally, the Company entered into a short-term lease for its Nashville location beginning November 1, 2020 totaling $73,750 a with maturity date of October 31, 2021, and will be entering into a short-term lease for its Tampa location beginning April 1, 2021 totaling $71,775 with a maturity date of March 31, 2022.
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 tax returns.
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Note 6 - Property and Equipment
Property And Equipment
Property and equipment, net, consists of the following:
Schedule of Property and Equipment
Useful Life | December 31, 2020 | December 31, 2019 | ||||||||
Furniture and fixtures | 5-7 years | $ | 231,222 | $ | 231,222 | |||||
Computers and software | 3-7 years | 246,323 | 244,039 | |||||||
Leasehold improvements | 15 years | 155,583 | 157,107 | |||||||
633,128 | 632,368 | |||||||||
Less accumulated depreciation | (493,953 | ) | (412,665 | ) | ||||||
Total | $ | 139,175 | $ | 219,703 |
Depreciation expense was approximately $81,000 and $98,000, respectively, for the years ended December 31, 2020 and 2019. The Company uses the straight-line depreciation method to reverse. Deferred taxcalculate depreciation expense.
Note 7 - Intangible Assets and Goodwill
The Company’s intangible assets are reduced by a valuation allowancepatents and related proprietary technology for the DenerveX System. For the year ended December 31, 2019, total amortization expense related to acquisition-related intangible assets was $736,000 and included in operating expense in the accompanying consolidated statement of operations.
The Company decided to suspend the manufacturing and sale of the DenerveX product as it has been unsuccessful in its attempts to source cost effective alternative manufacturing and distributor options for the product. The Company has no future plans to commit any additional resources related to the extent management concludesfuture development or sales efforts for the product, as it has determined that the cost to relaunch the product back to market to be significant and indeterminable due to issues with the manufacturing and sterilization of the product. The DenerveX System no longer represents part of the Company’s core strategic plans for the future. The Company believes that it is more likely than not, that the assetcarrying value will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expectedrecoverable. As a result, during the fourth quarter of 2019 the Company recorded a charge of $2,944,000 to apply to taxable incomeimpair the carrying value of the technology related intangible. This charge was recorded within the caption, “Loss on impairment” in the accompanying consolidated statements of operations.
The Company’s goodwill balance was determined to be impaired as of the balance sheet date due to the adverse financial results for 2019, the negative projected cash results for 2020 and a significant decline in its market capitalization. The Company concluded that the fair value of the reporting unit was less than the carrying amount in excess of goodwill. As a result, during the fourth quarter of 2019 the Company recorded a $12,564,000 impairment charge, which is presented within the caption, “Loss on impairment” in the accompanying consolidated statements of operations. The Company is no longer manufacturing or selling the DenerveX device but continues to explore possible opportunities to monetize such technology.
Note 8 – Related Party Transactions
Consulting Expense
The Company entered into an oral consulting arrangement with St. Louis Family Office, LLC, controlled by Jimmy St. Louis, former CEO of RMS, in January 2019 in the amount of $10,000 per month plus benefits reimbursement for advisory services. The Company terminated this agreement effective June 30, 2019. For the year ended December 31, 2020 and December 31, 2019, the Company expensed approximately $0 and $68,000 respectively in consulting fees to St. Louis Family Office.
The Company entered into a consulting agreement with Strategos Public Affairs, LLC (Strategos) on February 15, 2019 for a period of twelve months, unless otherwise terminated by giving thirty days prior written notice. A close family member of the Company’s prior CEO is a partner in Strategos. The monthly fee started at $4,500 and increased to approximately $7,500 per month. Strategos provided information to key policymakers in the legislature and executive branches of government on the benefits of the cellular therapies offered by LHI, advocated for legislation that supports policies beneficial to patient access and opposed 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. The Company terminated this agreement in March 2020. For years ended December 31, 2020 and December 31, 2019 the Company expensed approximately $15,000 and $71,000, respectively.
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Officers and Board Members and Related Expenses
On July 29, 2019, the Board appointed Dr. Andre Terzic to the Board. Dr. Andre Terzic served as a director at the Center for Regenerative Medicine of Mayo Clinic in Rochester, Minnesota for the last five years. Dr. Andre Terzic is the Chair of the Pharmaceutical Science and Clinical Pharmacology Advisory Committee of Food and Drug Administration, the President of the American Society for Clinical Pharmacology & Therapeutics, and one of the co-founders of Rion. Rion is a Minnesota Bio-tech Company focused on cutting-edge regenerative technologies. Dr. Terzic received his M.D. at University of Belgrade in Paris, France in 1985 and his Ph.D. from the Department of Pharmacology of University of Illinois in 1991.
On July 30, 2019, the Board appointed Dr. Atta Behfar as a member of the Board. Dr. Atta Behfar has worked as a cardiologist at the Department of Cardiovascular Medicine of Mayo Clinic for the last five years. Dr. Atta Behfar is a Director of the Van Cleve Cardiac Regenerative Medicine program at Mayo Clinic and one of the founders of Rion. Dr. Behfar received a Bachelor of Science degree in Biochemistry from Marquette University in 1998 and a M.D. and Ph.D. from Mayo Clinic College of Medicine, Mayo Graduate School in 2006.
On November 18, 2019, Dr. Andre Terzic and Dr. Atta Behfar resigned from the Company’s Board of Directors to avoid any potential conflicts that could arise from the Company’s Service Agreement with Rion, pursuant to which Rion will supply exosomes to and support FDA-regulated clinical research for the Company. Drs. Terzic and Behfar are co-founders of Rion.
In connection with the April Offering, the Company’s former CEO, William Horne, entered into an amendment letter to his employment agreement which provides that his salary will be reduced to $0 per month. This agreement was amended on July 29, 2020 to provide that Mr. Horne will receive a monthly base salary of $12,500 effective on June 1, 2020 and that his base salary will increase to $20,833 per month upon the first day of the month when the Company completes a Qualified Financing. Mr. Horne agreed to continue to defer the $108,000 in base salary deferred by him in 2018 (the “Deferred Salary”) 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. On September 29, 2020, Mr. William Horne resigned as the Company’s CEO and President but will remain on the Board of Directors.
Effective February 1, 2019, the Company entered into an oral consulting agreement with Mr. Raymond Monteleone, Board Member and Chairman of the Audit Committee, in which those temporary differencesMr. Monteleone received $10,000 per month for advisory services and $5,000 per quarter as Audit Committee Chair in addition to regular quarterly board meeting fees. Effective March 25, 2020, the Company reduced the advisory services to $5,000 per month and the fees per quarter as the Audit Committee Chair and the Compensation Committee Chair to $2,500. For the year ended December 31, 2020 and December 31, 2019, the Company expensed approximately $93,000 and $125,000 in compensation and Board of Director fees to Mr. Monteleone, respectively.
For the year ended December 31, 2020 and December 31, 2019, the Company expensed $12,500 and $5,000 for Board of Director fees to Michael Yurkowsky, respectively. Mr. Yurkowsky entered into an oral agreement with the Company on October 1, 2020 in which Mr. Yurkowsky will receive $4,167 per month to serve on the Board of Directors.
Debt and Other Obligations
The short-term related party notes as of December 31, 2019 of $1,635,000 is comprised of four loans made to the Company during 2019, by Horne Management, LLC, controlled by former CEO, William E. Horne. These were advanced for working capital purposes and had the terms as indicated below.
A loan for $900,000 was made on July 25, 2019. This loan accrues interest at 5.5% and is due and payable upon demand of the creditor.
A loan for $350,000 was made on September 26, 2019 with the following terms:
● | 12% interest rate with a maturity date of March 26, 2020. | |
● | The Company was unable to pay back the principal and interest by November 26, 2019; therefore, it issued to Lender a three-year warrant to purchase 400,000 shares of the Company’s common stock with a purchase price of $0.75 per share in accordance with the terms of the note. | |
● | The Company was unable to pay back the loan on March 26, 2020, therefore, the interest rate increased to 15%. |
A loan for $150,000 was made on October 28, 2019 with the following terms:
● | 12% interest rate with a maturity date of April 28, 2020. | |
● | The Company was unable to pay back the principal and interest by December 28, 2019; therefore, it issued to Lender a three-year warrant to purchase 171,429 shares of the Company’s common stock with a purchase price of $0.75 per share in accordance with the terms of the note. | |
● | If the Company is unable to pay the loan as of April 28, 2020, the interest rate increases to 15%. |
A loan for $235,000 was made on November 13, 2019 with the following terms:
● | 12% interest rate with a maturity date of May 13, 2020. | |
● | The Company was unable to pay back the principal and interest by January 13, 2020; therefore in January 2020 it issued to Lender a three-year warrant to purchase 268,571 shares of the Company’s common stock with a purchase price of $0.75 per share in accordance with the terms of the note. | |
● | If the Company is unable to pay the loan as of May 13, 2020, the interest rate increases to 15%. |
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In connection with the April Offering, Mr. Horne’s notes were extinguished for 1,300,000. common shares and warrants resulting in a gain on extinguishment of approximately $
Change in Control
On September 11, 2020, with the closing of the Rights Offering, FWHC, LLC, FWHC, Bridge, LLC, and FWHC Bridge Friends, LLC (collectively known as “FWHC”) gained control of the Company by subsequently owning approximately 273,356,67610-year warrants at $0.014 upon the closing of the Rights Offering. % of the fully diluted shares of the Company. On July 28, 2020, the Company issued an aggregate of shares of its common stock to FWHC upon the conversion of its issued Series D Convertible Preferred Stock. The Preferred Stock was converted pursuant to a mandatory conversion triggered by the majority holder of the Series D Convertible Preferred Stock as set forth in the Certificate of Designations for the Series D Convertible Preferred Stock. On September 11, 2020, with the closing of the Rights Offering, FWHC was issued shares of Preferred A for conversion of the outstanding promissory notes from April 2020, shares of Preferred A Stock for conversion of the April Secured Note, shares of Preferred A Stock for conversion of the Hawes Notes, and shares of Preferred A Stock issued at upon the closing Rights Offering. FWHC was also issued
Note 9 - Equity Transactions
For the consolidated statement of stockholders’ deficit as of January 1, 2019, 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 that date and the historical accumulated deficit of RMS. As of the closing of the Merger, before the contingent additional exchange shares impact from the sale of new securities, the stock received by RMS was 3,566,000. The historical accumulated deficit and non-controlling interest of RMS as of the closing was approximately $9,296,000 and $370,000, respectively. shares of Series C Preferred Stock, which was later converted into approximately shares of common stock, with common stock par value of approximately $ and additional paid-in capital of approximately $
Rights Offering
The Company established July 28, 2020 as the Record Date for purposes of establishing a date for the Company’s Rights Offering whereby each holder of the Company’s Common stock on the Record Date will be entitled to three subscription rights, each to purchase one share of Series A Preferred Stock.
As mentioned below, the Company entered into a standby purchase agreement with certain creditors who had previously purchased secured convertible notes and warrants, pursuant to which such creditors agreed (a) not to exercise any subscription rights they may receive as stockholders of the Company in the registered rights offering (described below) and (b) instead to purchase any Series A Preferred Stock corresponding to the unexercised rights in the rights offering up to an aggregate amount of approximately $2.8 million at the same subscription price. The amounts due under the standby purchase agreements became calculable and payable upon the expiration of the rights offering as set forth below.
On September 11, 2020, the registered rights offering (Registration No. 333-239629) of the Company expired. Pursuant to the Rights Offering, on September 24, 2020, the Company issued (i) 3,055,985 excluding issuance costs of approximately $320,000. While the Rights Offering expired on September 11, 2020, it was not consummated until September 24, 2020 while logistical closing conditions including the calculation and clearance of funds were being processed. shares of its Series A Preferred Stock at a price of $ per share to holders of its common stock who validly exercised their subscription rights prior to the expiration time and (ii) shares of its Series A Preferred Stock to the standby purchasers as part of the standby commitment. A total of shares of Series A Preferred Stock were issued during the Rights Offering. The Rights Offering, including the standby component, resulted in gross proceeds to the Company of $
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 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 at a purchase price of $ per share. For further discussion of the SPA, refer to Note 9 - “Equity Transactions” to the consolidated financial statements in the Company’s 2019 Annual Report on Form 10-K is incorporated by reference herein.
The Company entered into other SPA’s with additional purchasers, which brought the aggregate amount of capital raised in all these offerings to $7,000,000, as of April 5, 2019, excluding the shares issued for conversion of short-term debt, discussed below.
As a result of the sales of new securities of at least $5,650,000, the Company issued an additional Series C Preferred Stock to RMS members in accordance with the provisions of the APA in the first quarter of 2019. These shares automatically converted to 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 at closing on January 8, 2019.
In February 2019, 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 52,033. In August 2019, the Company issued shares of common stock to consultants in consideration of consulting services rendered to the Company. At the time of issuance, the fair market value of the shares was $ , and, as a result, $43,500 was expensed for the year ending December 31, 2019. shares of common stock at $ per share for consulting fees in an amount equivalent to $
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On April 25, 2019, the Company issued 4,225,634 shares of common stock valued at $ per share to Mr. William E. Horne, the Company’s former CEO, in a restricted stock award which was % vested when issued. The Company recognized approximately $ of compensation expense during the year ended December 31, 2019 related to the restricted stock award. 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 Merger. 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 and was calculated based on 7% of the Company’s issued and outstanding common stock as of the closing of the Merger.
During the year ended December 31, 2019, 2,650 shares of Series B Convertible Preferred Stock and shares for accrued dividends thereunder. shares were issued pursuant to conversions of
In conjunction with the Series D Preferred financing (See Note 14), the Company offered the Series B warrant holders the option to exchange their warrants on the basis of 1 warrant for 1,007,813 warrants with a fair value of approximately $75,000 for shares of common stock in 2019. The Series B Warrants were adjusted to fair value on the date of the exchange with the change in fair value being recorded in earnings. The fair value of the common stock issued was $73,000 which approximated the fair value of the Series B Warrants exchanged. common shares. Warrant holders chose to exchange
In February 2020, the Company issued LilyCon Investments $35,000 in shares of the Company’s common stock at a weighted average share price of $ per share for a total of shares per the terms of the consulting agreement executed in February 2019.
On April 23, 2020, Horne Management, LLC agreed to convert its notes plus accrued interest into (i) 0.014, and is exercisable beginning on the day immediately following the closing of the Rights Offering. shares of common stock of the Company and (ii) a ten-year warrant to purchase up to an equivalent number of shares of the Company’s common stock with such conversion to be effective as of April 17, 2020. This warrant will have an exercise price equal to the price per share at which securities were offered to investors for purchase at the Rights Offering, which was $
On July 28, 2020, the Company issued an aggregate of shares of its common stock upon the conversion of all of its issued and outstanding Series B and Series D Convertible Preferred Stock. The Series B and D Convertible Preferred Stock was converted pursuant to a mandatory conversion triggered by the majority holder of the Series D Convertible Preferred Stock as set forth in the Certificate of Designations for the Series D Convertible Preferred Stock.
On July 29, 2020, t
On September 11, 2020, 1,000,000 warrants were converted to common stock upon the closing of the Rights Offering for a certain warrant holder.
For the year ended December 31, 2020, Series A Preferred Stock were converted to common stock at the request of certain Rights Offering participants.
Series A Preferred Stock
On September 11, 2020, the registered Rights Offering (Registration No. 333-239629) of the Company expired. Pursuant to the Rights Offering, on September 24, 2020, the Company issued (i) 3,055,985. While the rights offering expired on September 11, 2020, it was not consummated until September 24, 2020 while logistical closing conditions including the calculation and clearance of funds were being processed. shares of its Series A preferred stock at a price of $ per share to holders of its common stock who validly exercised their subscription rights prior to the expiration time and (ii) shares of its Series A preferred stock to the standby purchasers as part of the standby commitment. The rights offering, including the standby component, resulted in gross proceeds to the Company of $
F-38 |
Additionally, on September 24, 2020, the Company issued an aggregate of 4,483,617. Included in this issuance, FWHC was issued shares of Preferred A for conversion of the outstanding promissory notes from April 2020, shares of Preferred A Stock for conversion of the April Secured Note and shares of Preferred A Stock for conversion of the Hawes Notes (see Note 11). The notes were converted pursuant to a mandatory conversion triggered by the completion of the rights offering. Such shares were issued under an exemption from registration in reliance on Section 3(a)(9) of the Securities Act. The original notes were issued in reliance on Section 4(a)(2) of the Securities Act.
shares of its Series A Preferred Stock to the holders of outstanding promissory notes, issued in April 2020, in the aggregate principal amount and accrued interest of $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 or Series A Preferred Stock and to vote upon any matter submitted to a vote of the holders of common stock or Series A Preferred Stock. Each Series A Holder shall vote on each matter submitted to them with the holders of common stock.
Conversion
Series A Preferred Stock converts to common stock at a 1:1 ratio immediately upon request of the Series A Holder.
Liquidation
Series A Preferred Stock does not have preferential treatment over common stock shareholders if the Company liquidates or dissolves.
Series B Convertible Preferred Stock
Voting Rights
Holders of Series B Convertible Preferred Stock (“Series B Holders”) 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 Series B Holder shall vote on each matter submitted to them with the holders of common stock.
Liquidation
Upon the liquidation or dissolution of the business of the Company, whether voluntary or involuntary, each Series B Holder shall be entitled to receive, for each share thereof, out of assets of the Company legally available therefore, a preferential amount in cash equal to the stated value plus all accrued and unpaid dividends. All preferential amounts to be paid to the Series B Holders 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 to the holders of the Company’s common stock but after the Series D Holders receive their respective liquidation value. The Company accrues these dividends as they are earned each period.
On January 8, 2019, the Company completed the issuance of Convertible Notes with a conversion price of $0.40. As a result, the exercise price on all of the warrants issued with the Series B Convertible Preferred Stock was adjusted downward to $0.36.
In the first quarter of 2019, the Company recognized a beneficial conversion feature related to the Series B Preferred Stock of approximately $33,000, which was credited to additional paid-in capital, and reduced the income available to common shareholders. Since the Series B Preferred Stock can immediately be converted by the holder, the beneficial conversion feature was immediately accreted and recognized as a deemed dividend to the preferred shareholders.
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Series B and Series D Convertible Preferred Stock Conversions and Repurchase
During the year ended December 31, 2019, shares of Series B Convertible Preferred Stock, par value $ , and accrued dividends were assumed with the Merger and an aggregate of shares of Series B Convertible Preferred Stock, and accrued dividends, were subsequently converted into an aggregate of shares of the Company’s common stock.
On July 28, 2020, the Company issued an aggregate of
shares of its common stock upon the conversion of all of its issued and outstanding Series B and Series D Convertible Preferred Stock (the “Preferred Stock”). The Preferred Stock was converted pursuant to a mandatory conversion triggered by the majority holder of the Series D Convertible Preferred Stock as set forth in the Certificate of Designations for the Series D Convertible Preferred Stock. As of December 31, 2020, the Company does t have any Series B or Series D Convertible Preferred Stock outstanding.Debt Conversion
Convertible Notes and Promissory Note to Related Party
The $750,000 convertible notes payable assumed in the Merger 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 shares of common stock, eliminating $100,000 of the Company’s debt obligation. The debt was converted into shares of common stock at $0.40 per share, in accordance with the SPA (see Note 11).
On September 24, 2020, the Company issued an aggregate of 4,483,617. Included in this issuance, FWHC was issued shares of Preferred A for conversion of the outstanding promissory notes from April 2020, shares of Preferred A Stock for conversion of the April Secured Note and shares of Preferred A Stock for conversion of the Hawes Notes (see Note 11). The notes were converted pursuant to a mandatory conversion triggered by the completion of the Rights Offering. shares of its Series A Preferred Stock to the holders of outstanding promissory notes, issued in April 2020, in the aggregate principal amount and accrued interest of $
Stock-Based Compensation Plan
The Company utilizes the Black-Scholes valuation method to recognize stock-based compensation expense over the vesting period. The expected life represents the period that the stock-based compensation awards are expected to be recovered or settled.
Stock Option Activity
For the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.
As of December 31, 2015, the Company does not have2020, all outstanding stock options were fully vested, and related compensation expense recognized.
Summary of Stock Option Activity
Shares | Weighted Average Exercise Price | Weighted Average Remaining Term (Years) | ||||||||||
Outstanding at December 31, 2018 | — | — | ||||||||||
Assumed with the RMS merger transaction | 557,282 | $ | 2.78 | 6.06 | ||||||||
Granted | 250,000 | 0.40 | ||||||||||
Expired/Cancelled | (382,282 | ) | 2.86 | — | ||||||||
Outstanding at December 31, 2019 | 425,000 | $ | 1.38 | 7.71 | ||||||||
Granted | — | — | ||||||||||
Expired/Cancelled | (15,000 | ) | 1.35 | — | ||||||||
Outstanding and exercisable at December 31, 2020 | 410,000 | $ | 1.39 | 6.72 |
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Non-Controlling Interest
For the years ended December 31, 2015.2020 and 2019, the Company consolidated the results for LI Dallas, LI Nashville, LI Pittsburgh and LI Scottsdale as VIEs. The Company does not haveowns no portion of any tax years that are no longer subject to U.S. federal, state, and local, or non-US income tax examinations.
Net Loss perPer 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 method. Any potentially dilutive securities are anti- dilutiveantidilutive due to the Company’s net losses. For
As of December 31, 2020, the years presented, thereCompany had shares outstanding of Series A Preferred Stock which converts on a 1:1 ratio to common stock and would be considered dilutive upon conversion. There is no difference between the basic and diluted net loss per share when including warrants (exercise price of $0.016 and higher) and common stock options that are outstanding as they are considered anti-dilutive and excluded for the year ended December 31, 2020 due to the net loss. This does not consider 387,126,145 warrants outstanding at December 31, 2020 as their exercise price is below the current stock price. For the year ended December 31, 2019, there was no difference between the basic and diluted net loss per share: 1,974,783 warrants and 380,000 common stock options outstanding were considered anti-dilutive and excluded for the years presented.
Note 10 – Commitments & Contingencies
Consulting Agreements
The Company completedentered into an acquisition on March 25, 2015. This transaction was recorded using guidelines provided by ASC 805, Business Combinations. Following these guidelines, the consideration paid by Medovex for Streamline was measured on the date of acquisition. An independent valuation of Streamline was performed using the discounted cash flow method. Based on the estimated value of Streamline, the consideration paid by Medovexagreement with Jesse Crowne, a former Director and the tangible assets of Streamline, Management determined the intangible portionCo-Chairman of the purchase price should be assigned between developed technology, trademark, and goodwill. For the quarterly periods ended June 30, 2015 and September 30, 2015,Board of the Company, had assigned the entire intangible portion strictly to the technology based intangible asset called “Patent Acquired from Streamline.” For the quarterly periods ended June 30, 2015 and September 30, 2015 the Company assigned no value to the trademark or to goodwill. Refer to Note 5provide business development consulting services for the summarya fee of the purchase price allocation based on the completion of the valuation of the assets and liabilities assumed.
Useful Life | December 31, 2015 | December 31, 2014 | |||||||
Furniture and fixtures | 5 years | $ | 18,385 | $ | 16,016 | ||||
Computers and software | 3 years | 16,275 | 11,587 | ||||||
34,660 | 27,603 | ||||||||
Less accumulated depreciation | (9,822 | ) | (3,153 | ) | |||||
Total | $ | 24,838 | $ | 24,450 |
Assets acquired | ||||
Cash | $ | 245,174 | ||
Inventory | 1,878 | |||
Other assets | 165 | |||
Developed technology | 3,000,000 | |||
Trademark | 700,000 | |||
Goodwill | 6,455,645 | |||
Total assets acquired | 10,402,862 | |||
Liabilities assumed | ||||
Accounts payable | 301,940 | |||
Accrued liabilities | 6,018 | |||
Notes Payable | 259,938 | |||
Total | 567,896 | |||
Net assets acquired | $ | 9,834,966 |
For the year ended December 31, 2015 | For the year ended December 31, 2014 | |||||||
Pro Forma Revenues | $ | 33,045 | $ | 19,250 | ||||
Pro Forma Net Loss | $ | (6,896,189 | ) | $ | (3,818,501 | ) | ||
Loss per Share | $ | (0.63 | ) | $ | (0.39 | ) |
Grant Date | Options Granted | Exercise Price | Fair Value of Underlying Stock | Intrinsic Value | |||||||||
1/27/2015 | 125,000 | 5.99 | 5.99 | None | |||||||||
5/8/2015 | 50,000 | 3.61 | 3.61 | None | |||||||||
8/11/2015 | 145,000 | 2.91 | 2.91 | None |
Grant date | January 27 | May 8 | August 11 | |||||||||
Weighted Fair value of options granted | $ | 3.97 | $ | 2.31 | $ | 1.94 | ||||||
Expected term (years) | 6 | 6 | 6 | |||||||||
Risk-free interest rate | 1.48 | % | 1.70 | % | 1.71 | % | ||||||
Volatility | 76 | % | 72 | % | 76 | % | ||||||
Dividend yield | None | None | None |
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at 12/31/2013 | 60,000 | $ | 2.50 | 9.8 | $ | -- | ||||||||||
Exercisable at 12/31/2013 | 15,000 | $ | 2.50 | 9.8 | $ | -- | ||||||||||
Granted | -- | -- | -- | $ | -- | |||||||||||
Exercised | -- | -- | -- | -- | ||||||||||||
Cancelled | -- | -- | -- | -- | ||||||||||||
Outstanding at 12/31/2014 | 60,000 | $ | 2.50 | 8.8 | $ | -- | ||||||||||
Exercisable at 12/31/2014 | 30,000 | $ | 2.50 | 8.8 | $ | -- | ||||||||||
Granted | 320,000 | $ | 4.22 | 9.3 | $ | -- | ||||||||||
Exercised | -- | -- | -- | -- | ||||||||||||
Cancelled | -- | -- | -- | -- | ||||||||||||
Outstanding at 12/31/2015 | 380,000 | $ | 3.95 | 9.1 | $ | -- | ||||||||||
Exercisable at 12/31/2015 | 125,000 | $ | 3.95 | 9.1 | $ | -- |
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December 31, 2016 | $ | 34,000 | ||
December 31, 2017 | 35,000 | |||
December 31, 2018 | 21,000 | |||
$ | 90,000 |
The Company entered into a non-cancelable 36consulting agreement with LilyCon Investments, LLC effective February 1, 2019 for services related to evaluation and negotiation of future acquisitions, joint ventures, and site evaluations/lease considerations. The duration of the consulting agreement is for a period of twelve months in the amount of $12,500 per month operating leasewith a $15,000 signing bonus. Either party may terminate this agreement for equipment on April 22, 2015. with or without cause upon 30 days written notice. The agreement is renewable atalso provides LilyCon Investments with $35,000 in stock (to be calculated using an annual variable weighted average price from February 2019 through January 2020) to be granted on the endone-year anniversary of this agreement, if the term and requires the Companyagreement has not been terminated prior to maintain comprehensive liability insurance.
December 31, 2016 | $ | 2,600 | ||
December 31, 2017 | 2,600 | |||
December 31, 2018 | 800 | |||
$ | 6,000 |
The Company entered into Employment Agreementsa consulting agreement with Goldin Solutions, effective August 4, 2019, for media engagement and related efforts, including both proactive public relations and crisis management services. The agreement has a minimum term of six months, with a $34,650 monthly fee plus expenses payable each month, with the exception of its four executive officers for aggregate compensation amounting to approximately $834,000 per annum, plus customary benefits.
The Company entered into a consulting agreement with Tanya Rhodes of Rhodes & Associates, Inc, effective June 15, 2020, to payserve as the Chief Technology Officer (Research) of the Company. The agreement has a minimum term of six months with an average fee of severance$20,000 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 services rendered.
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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 eventnormal course of (i)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 terminationfinancial 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 legal 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. As of December 31, 2020, the Company had no litigation matters in which the Company believes require any accrual or disclosure.
Guarantee
The Company has guaranteed payments based upon the terms found in the management services agreements to affiliated physicians related to LI Dallas, LI Nashville, LI Pittsburgh, LI Scottsdale, and LI Tampa. For the years ending December 31, 2020 and 2019 payments totaling approximately $36,000 and $141,000, respectively, were made to these physicians’ legal entities. Due to the Company ceasing operations effective March 23, 2020 in LI Dallas, LI Pittsburgh, LI Scottsdale, and LI Tampa, the guaranteed payments for these clinics were suspended due to COVID-19 in March 2020. The Company will resume these guaranteed payments in April 2021.
Rion Agreements
On June 21, 2019, H-CYTE entered into an executive’s employment withoutexclusive product supply agreement with Rion, LLC (“Rion”) to develop and distribute (post FDA approval) a biologic for chronic obstructive pulmonary disease (“COPD”), the fourth leading cause (ii)of death in the resignation by an executive for good reason, (iii)U.S. Rion has established a change in controlnovel biologics technology to harness the healing power of the Company, (iv)body. Rion’s innovative 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. This agreement provides for a material reduction in an executive’s duties, or (v) a requirement that an executive move their primary work location more than 50 miles.
On July 8, 2015,October 9, 2019, the Company entered into a manufacturingservices agreement with ComDel Innovation, Inc. (“ComDel”). The termsRion which provides the Company the benefit of Rion’s resources and expertise for the limited purpose of (i) consulting with and assisting H-CYTE in the further research and development for the generation of a new biologic and (ii) subsequently assisting H-CYTE in seeking and obtaining FDA Phase 1 IND clearance for this biologic as necessary. Rion also agrees to consult with H-CYTE in its arrangement for services from third parties unaffiliated with Rion to support research, development, regulatory approval, and commercialization of the service contract state ComDel is to manufacture, assemblebiologic.
With these agreements, Rion will serve as the product supplier and test the Company’s Streamline IV Suspension System (“IV Poles”), the patented product acquired in the Streamline acquisition, and to develop future product line extensionscontracted preclinical development arm of the IV Suspension System.
An additional $350,000 in expense is expected to further evaluate, test and advise onbe incurred per the development of products incorporating the use of the patented technology. In exchange for these servicesRion agreements. At this time, the Company is obligatednot able to pay Dr. Andrews a royalty of 2% of revenues earned from applicable product sales over a period of 5 years. If Dr. Andrews is listed as inventor of any Improvement Patent on the DenerveX device during the 5 year term, he would continue to receive a 1% royalty after the 2% royalty expires for the duration of the effectiveness of the Improvement Patent.
Note 11 – Debt
Convertible Note
The Convertible Notes payable represents a securities purchase agreement with select accredited investors, which was assumed in the Merger. The debt assumed by the Company paid approximately $181,200 and $105,000, respectively, under this agreement.
2016 | $ | 68,000 | ||
2017 | 68,000 | |||
2018 | 68,000 | |||
2019 | 19,000 | |||
$ | 223,000 |
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The Convertible Notes sold in the offering were initially convertible into an aggregate of 0.36. The Company recognized the down round as a deemed dividend of approximately $288,000 which reduced the income available to common stockholders. shares of common stock. The down round feature was triggered on January 8, 2019, and the conversion price of the Convertible Notes was adjusted to $
On February 6, 2019, $100,000 of the Company’s $750,000 outstanding Convertible Notes, plus accrued interest, was converted into an aggregate of shares of common stock, eliminating $100,000 of the Company’s debt obligation. The debt was converted into shares at $0.36 per share, which was the conversion price per the SPA subsequent to the trigger of the down round feature. In 2019, the Company redeemed $350,000 of convertible notes payable in principal and $52,033 in interest payable for three of the noteholders.
The Company reached an extension with the remaining noteholder, George Hawes, which extended the maturity date of the Hawes Notes for one year, until September 30, 2020. The notes had a principal balance of $300,000 plus penalties of approximately $85,000 and accrued interest of approximately $40,000 for a total adjusted principal balance upon the September 30, 2019 extension of $424,615. In connection with the April Offering, the Company entered into an amendment with the Investor with respect to the outstanding 12% Senior Secured Convertible Note due September 30, 2020. The Hawes Notes were purchased by the Investor from its original holder, George Hawes, on March 27, 2020. The Hawes Notes had a principal balance of $424,615 as of December 31, 2019. The amendment to the Hawes Notes among other things, eliminates the requirement that the Company make monthly payments of accrued interest. The Company determined the proper classification of the amendment based on ASC 470-50, Debt Modifications and Extinguishments. Because the change in the present value of cash flows of the modified debt was less than 10% when compared to the present value of the cash flows of the original debt, extinguishment accounting did not apply. The effective interest rate was reassessed resulting in an effective interest rate of 11.90% and interest expense as of September 30, 2020, of approximately $10,000. The Company converted the Hawes Notes plus accrued interest into 35,860,079 shares of Preferred A shares on September 11, 2020, upon the closing of the Rights Offering.
Notes Payable
Notes payable were assumed in the Merger and are due in aggregate monthly installments of approximately $5,800 and carry an interest rate of 5%. Each note originally had a maturity date of August 1, 2019. The Company finalized an eighteen-month extension to March 1, 2021. The promissory notes have an aggregate outstanding balance of approximately $67,000 and $78,000 at December 31, 2020 and December 31, 2019. The Company has not made payments on this note since February 10, 2020, due to COVID-19, resulting in accrued interest of approximately $1,900.
The short-term notes with related party were issued by the Company during 2019, and as of March 31, 2020 consisted of four loans totaling $1,635,000, made to the Company by Horne Management, LLC, controlled by former CEO, William E. Horne for working capital purposes. The loans bore interest rates ranging from 5.5% to 12%, in some cases increasing to 15% if not paid by the respective maturity date ranging from March 26, 2020 to May 13, 2020. Some of these loans provided for the issuance of warrants at 114% warrant coverage if the loan was not repaid within two months. None of these loans were repaid and 840,000 warrants were issued at an exercise price of $0.75 per share in the fourth quarter of 2019 and the first quarter of 2020. On April 23, 2020, Horne Management, LLC agreed to convert the related notes plus accrued interest into (i) shares of common stock of the Company and (ii) a ten-year warrant to purchase up to an equivalent number of shares of the Company’s common stock with such conversion to be effective as of April 17, 2020. This warrant will have an exercise price equal to the price per share at which securities were offered to investors for purchase at the Rights Offering totaling $0.014 and is exercisable beginning on the day immediately following the earlier to occur of (x) the closing of the Rights Offering and (y) November 1, 2020. The Rights Offering closed on September 11, 2020. On the date of the transaction, the carrying amount of the note and accrued interest was approximately $1,717,000. The fair value of the Common Stock was valued based on the trading market price on the date of the transaction and the warrants were valued using a Lattice model. The fair value of the Common Stock and warrants issued in the transaction was approximately $218,000 and $199,000, respectively. Since the fair value of the common stock and warrants was less than the carrying amount of the note, the Company recorded a gain on extinguishment of the debt of approximately $1,300,000.
F-44 |
On March 27, 2020, the Company issued a demand note (the “Note”) in the principal amount of $500,000 to FWHC Bridge, LLC (the “Investor”) in exchange for a loan made by the Investor in such amount to cover the Company’s working capital needs. Subsequently on April 9, 2020, in exchange for an additional loan of $500,000 made by the Investor to the Company, the Company amended and restated the Note to reflect a new principal amount of $1,000,000 (the “April Secured Note”). The April Secured Note bears simple interest at a rate of 12% per annum. The Investor is an affiliate of FWHC Holdings, LLC, a pre-existing shareholder of the Company, which served as lead investor in the Company’s recent Series D Convertible Preferred Stock Offering.
On September 24, 2020, the Company issued an aggregate of 4,483,618. Included in this issuance, FWHC was issued shares of Preferred A for conversion of the outstanding promissory notes from April 2020, shares of Preferred A Stock for conversion of the April Secured Note and upon exercise shares of Preferred A Stock for conversion of the warrants.Hawes Notes (see Note 11). The notes were converted pursuant to a mandatory conversion triggered by the completion of the Rights Offering. shares of its Series A Preferred Stock to the holders of outstanding promissory notes, issued in April 2020, in the aggregate principal amount and accrued interest of $
All notes payable, except the promissory note having an outstanding balance of $67,000, were extinguished during the year ended December 31, 2020.
Paycheck Protection Program
On April 29, 2020, the Company issued a promissory note in the principal amount of $809,082 to the Bank of Tampa in connection with a loan in such amount made under the Paycheck Protection Program (“PPP Loan”). The PPP Loan bears interest at a rate of 1% per annum and is payable in eighteen monthly payments of $45,533 beginning on approximately August 14, 2021. The Company elected to use a 24-week Covered Period, per the SBA Paycheck Protection Program guidelines, the Covered Period ended on October 14, 2020.
The Company can apply for loan forgiveness in an amount equal to the sum of the following costs incurred by the Company:
1) payroll costs;
2) any payment of interest on covered mortgage obligations;
3) any payment on a covered rent obligation; and
4) any covered utility payment
The amount forgiven will be calculated (and may be reduced) in accordance with the Paycheck Protection Program criteria set by the SBA. Not more than 40% of the amount forgiven can be attributed to non-payroll costs, as listed above. As long as a borrower submits its loan forgiveness application within ten months of the completion of the Covered Period (as defined below), the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by SBA. If the loan is fully forgiven, the borrower is not responsible for any payments. If only a portion of the loan is forgiven, or if the forgiveness application is denied, any remaining balance due on the loan must be repaid by the borrower on or before the maturity date of the loan. Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. The borrower is responsible for paying the accrued interest on any amount of the loan that is not forgiven. The lender is responsible for notifying the borrower of remittance by SBA of the loan forgiveness amount (or that SBA determined that no amount of the loan is eligible for forgiveness) and the date on which the borrower’s first payment is due, if applicable. The Company plans on filing its forgiveness application in early 2021. The Company believes that such termsa majority of the PPP loan will be forgiven.
Note 12 – Derivative Liability – Warrants And Redemption Put
Derivative Liabilities
The Company’s derivative liabilities are classified within Level 3 of the fair value hierarchy because certain unobservable inputs were used in the valuation models. These assumptions included estimated future stock prices, potential down-round financings for the Warrants, and potential redemptions for the Redemption Put Liability.
F-45 |
The following is a reconciliation of the beginning and ending balances for the liability measured at fair value on the Note are no less favorable than it would receive from a third, unrelated party.
Schedule of Fair Value, Liabilitiesn Measured On Recurring Basis
Derivative Liability - Warrants | ||||
Beginning balance as of December 31, 2018 | $ | — | ||
January 8, 2019 – date of dilutive financing | 1,215,678 | |||
Exchange for common stock | (72,563 | ) | ||
Fair value adjustments | (827,260 | ) | ||
Balance at December 31, 2019 | 315,855 | |||
Series D Warrant reclass from equity to liability classification | 509,764 | |||
Warrants issued with modification of Horne Management Notes | 198,994 | |||
Warrants issued with April 17, 2020 financing | 6,148,816 | |||
Fair value adjustments | (2,986,853 | ) | ||
Warrant reclassification from liability to equity classification | (4,186,576 | ) | ||
Balance at December 31, 2020 | $ | — |
Redemption Put Liability | ||||
Beginning balance as of December 31, 2018 | $ | — | ||
November 15, 2019 – date of issuance | 614,095 | |||
Fair value adjustments | (346,696 | ) | ||
Balance at December 31, 2019 | $ | 267,399 | ||
Issuance of Series D Convertible Preferred Stock | 5,305 | |||
Fair value adjustments | (272,704 | ) | ||
Balance at December 31, 2020 | $ | — |
(1) | The Company did not have any assets or liabilities measured at fair value using Level 1 or 2 of the fair value hierarchy as of December 31, 2020 and December 31, 2019. | |
(2) | Upon the closing of the Rights Offering on September 11, 2020, the Derivative Liability- Warrants was no longer applicable, and its fair value was reclassed to stockholder’s equity. | |
(3) | The Series D Convertible Preferred Stock was converted into common stock on July 28, 2020 at which time the Redemption Put Liability was no longer applicable, and its fair value was adjusted to zero and the extinguishment was recorded to income. |
Derivative Liability- Warrants
Series B Warrants
In connection with the securities purchase agreements executed in May 2018 (which the Company assumed in the Merger), whereby 2,312,500 shares of the Company’s common stock (“Series B Warrants”). The Series B Warrants had a three-year term at an exercise price of $0.75. The Series B Warrants contain two features such that in the event of a downward price adjustment the Company is required to reduce the strike price of the existing warrants (first feature or “down round”) and issue additional warrants to the award holders such that the aggregate exercise price after taking into account the adjustment, will equal the aggregate exercise price prior to such adjustment (second feature or “anti-dilution”). shares of the Company’s Series B Convertible Preferred Stock (the “Series B Shares”) and warrants were issued to purchase
On January 8, 2019, the Company issued equity securities which triggered the down round and anti-dilution warrant features. As a result, the exercise price of the warrants was lowered from $0.75 to $0.40 and 2,023,438 additional warrants were issued. The inclusion of the anti-dilution feature caused the warrants to be accounted for as liabilities in accordance with ASC Topic 815. The fair market value of the warrants of approximately $1,200,000 was recorded as a derivative liability as a measurement period adjustment to the purchase price allocation in the third quarter of 2019.
As part of the April 2020 offering, the majority holders of the Series B Warrants agreed to terminate all anti-dilution price protection in their warrants and adjusted the exercise price to equal the price per share at which shares of preferred stock are offered for purchase in the Rights Offering. The Company had unpaid accrued interestissued an additional 296,875 warrants to a certain Series B holder as compensation to terminate their anti-dilution price protection. The Company also issued 1,292,411 warrants to a certain Series B holder who was non-responsive in the amountCompany’s request to terminate their anti-dilution price protection. The modification resulted in an increase of approximately $7,500 at December 31, 2015$71,000 to the fair value of the derivative liability related to the convertible debt.Series B Warrants. In addition, the Company recorded a change in fair market value of approximately $317,000 to the fair value of the derivative liability before the reclass to equity.
F-46 |
Upon the closing of the Rights Offering, which occurred on September 11, 2020, the exercise price of the Series B Warrants became fixed at $0.014 and the warrants then met the conditions for equity classification. Consequently, they were revalued as of the date of the Rights Offering using a Lattice valuation technique with the following assumptions: Trading market price- $ , estimated exercise price- $ , volatility- 222%-260%, risk free rate- 0.12%-0.13% and an estimated remaining term ranging from 0.7 to 1.33 years. The fair value of the Series B Warrants totaling $73,805 was then reclassed from a derivative liability to stockholders’ equity.
Series D Warrants
In conjunction with the Series D Preferred Financing, the Company originally issued Series D warrants to purchase 14,944,753 shares of Common Stock with an exercise price of $0.75 per share. At inception, the Series D warrants met all the criteria to be classified as equity. As part of the April Offering, the exercise price of the Series D Warrants was reduced to the price per share at which shares of preferred stock are offered for purchase in the Offering. The modification of the exercise price resulted in the warrants requiring liability classification. The Series D Warrants were measured at fair value before and after the modification, resulting in a fair market value of approximately $510,000 when the warrants were reclassified to a liability on July 28, 2020.
Upon the closing of the Rights Offering, which occurred on September 11, 2020, the exercise price of the Series D Warrants became fixed at $0.014 and the warrants then met the conditions for equity classification. Consequently, the Series D Warrants were revalued as of the date of the Rights Offering using a Lattice valuation technique with the following assumptions: Trading market price- $ , estimated exercise price- $ , volatility- 111%, risk free rate- 0.67% and an estimated term of 9.2 years. The fair value of the Series D Warrants totaling $337,400 was then reclassed from a derivative liability to stockholders’ equity.
Horne Warrants
On April 23, 2020, Horne Management, LLC agreed to convert the related notes plus accrued interest into (i) ten-year warrant to purchase up to an equivalent number of shares of the Company’s common stock with such conversion to be effective as of April 17, 2020. The warrant will have an exercise price equal to the price per share at which securities are offered to investors for purchase at the Qualified Financing. The revised exercise price caused the warrants to require liability classification at fair value and the warrants were valued using a Lattice model with the following assumptions: Trading market price- $0.05, estimated exercise price- $ , volatility- 101%, risk free rate- 0.65% and an estimated term of 10 years. At inception, the estimated fair value of the Horne Warrants was approximately $199,000. shares of common stock of the Company and (ii) a
Upon the closing of the Rights Offering, which occurred on September 11, 2020, the exercise price of the Horne Warrants became fixed at $0.014 and the warrants then met the conditions for equity classification. Consequently, the Horne Warrants were revalued as of the date of the Qualified Financing using a Lattice valuation technique with the following assumptions: Trading market price- $ , estimated exercise price- $ , volatility- 103%, risk free rate- 0.67% and an estimated term of 10 years. The fair value of the Horne Warrants totaling $107,123 was then reclassed from a derivative liability to stockholders’ equity.
April Bridge Loan and Converted Advance Warrants
The April Offering entitled the investors to warrants with the right to purchase up to 100% of the aggregate number of shares of Common Stock into which the Purchaser’s Note may ultimately be converted. The Company also received a $1,000,000 advance which was converted into the April Secured Note and April Secured Note Warrants in April 2020. The April Secured Note Warrants entitle the holder to purchase up to 200% of the aggregate number of shares of Common Stock into which the April Secured Note may ultimately be converted.
The Company received an aggregate of $2,842,695 in gross proceeds through the April Offering and an advance of $1,000,000 from the April Secured Note. The Company expected the price per share at which securities would be offered for purchase in the Rights Offering to be $0.014 resulting in the assumption there would be approximately 103%, risk free rate- 0.65% and an estimated term of 10 years. At inception, the estimated fair value of the Purchaser Warrants and the April Secured Note Warrants was approximately $3,279,000 and $2,869,000, respectively for a total of approximately $6,149,000. and shares issuable upon exercise of the Purchaser Warrants and the April Secured Note Warrants, respectively. The warrants were valued using a Lattice model with the following assumptions: Trading market price- $ , estimated exercise price- $ , volatility-
F-47 |
Upon the closing of the Rights Offering which occurred on September 11, 2020, the exercise price of the Purchaser and April Secured Note Warrants became fixed at $0.014 and the Company then had sufficient authorized and unissued shares available to satisfy all their commitments under their equity-linked contracts. There are 212,821,929 and 150,324,857 shares issuable upon exercise of the Purchaser and the April Secured Note Warrants, respectively for a total of 363,146,786 warrants. The Warrants were revalued as of the date of the Rights Offering using a Lattice valuation technique with the following assumptions: Trading market price- $ , estimated exercise price- $ , volatility- 107%, risk free rate- 0.67% and an estimated term of 10 years. The fair value of the Warrants of $3,668,247 was then reclassed from a derivative liability to stockholders’ equity.
When the Company entered into the April Offering and revised the exercise price of the warrants to the price per share at which shares of preferred stock are offered for purchase in the Rights Offering, they no longer had sufficient authorized and unissued shares available to satisfy all their commitments to issue shares under their equity-linked contracts. The Company has adopted the sequencing approach based on the earliest issuance date. Therefore, warrants issued before the April Offering did not require liability classification, while Warrants issued with the April financing, or subsequently, will be classified as liabilities until such time the Company has sufficient authorized shares.
The derivative liability - warrants has been remeasured as a change in fair value, of approximately $2,987,000 and $827,000 has been recorded as a component of other income in the Company’s consolidated statement of operations for the years ended December 31, 2020 and 2019, respectively.
The fair value of the derivative liability included on the consolidated balance sheets was approximately $0 and $316,000 as of December 31, 2015,2020 and 2019, respectively.
In conjunction with the Series D Preferred financing in 2019 (See Note is presented net14), the Company offered the Series B warrant holders the option to exchange their warrants on the basis of discount1 warrant for 0.40 common shares. Warrant holders chose to exchange 1,007,813 warrants with a fair value of approximately $246,000, which will acrete over$75,000 for 403,125 shares of common stock with a fair value of approximately $73,000.On the lifedate of the note, based onexchange, the effectiveSeries B Warrants were first adjusted to fair value with the change in fair value being recorded in earnings.
Redemption Put Liability
As described in Note 14, the redemption put provision embedded in the Series D financing required bifurcation and measurement at fair value as a derivative. If the redemption put provision is triggered, it allows either payment in cash or the issuance of “Trigger Event Warrants”. Accordingly, the fair value of the Redemption put liability considered management’s estimate of the probability of cash payment versus payment in Trigger Event Warrants and was valued using a Monte Carlo Simulation which uses randomly generated stock-price paths obtained through a Geometric Brownian Motion stock price simulation. The fair value of the redemption provision was significantly influenced by the fair value of the Company’s stock price, stock price volatility, changes in interest method. Accretion expenserates and management’s assumptions related to the redemption factor. On July 28, 2020, the Series D Preferred Stock was converted into Common Stock, at which time the redemption put was no longer applicable and the fair value of the redemption put was adjusted to $0.
F-48 |
The fair market value of the redemption put liability at inception was approximately $614,000 which was recorded as a liability and remeasured to fair value at the end of each reporting period. The change in fair value of approximately $273,000 and $347,000 was recorded as a component of other income (expense) in the Company’s consolidated statement of operations for the year ended December 31, 20152020 and 2019, respectively. The fair value of the redemption put liability included on the consolidated balance sheet was approximately $39,000.
Note 13 - Common Stock Warrants
A summary of the following at December 31,:
Current Income Tax Expense: | 2015 | 2014 | ||||||
Federal | $ | -- | $ | -- | ||||
State | -- | -- | ||||||
Total Current Income Tax Expense | -- | -- | ||||||
Deferred Income Tax Benefit | ||||||||
Federal | 2,426,744 | 995,402 | ||||||
State | 253,875 | 114,918 | ||||||
Total Deferred Tax Benefit | 2,706,908 | 1,110,320 | ||||||
Valuation Allowance | (2,706,908 | ) | (1,110,320 | ) | ||||
Total | $ | -- | $ | -- |
2015 | 2014 | |||||||
Statutory rate - federal | 34.0 | % | 34.0 | % | ||||
State taxes, net of federal benefit | 4.0 | 4.0 | ||||||
Income tax benefit | 38.0 | % | 38.0 | % | ||||
Less valuation allowance | (38.0 | ) | (38.0 | ) | ||||
Total | 0.0 | % | 0.0 | % |
2015 | 2014 | |||||||
Deferred Tax Assets: | ||||||||
Start-up costs | $ | 3,528,944 | $ | 1,336,486 | ||||
Share-based compensation | 122,834 | 26,633 | ||||||
Total Deferred Tax Assets | 3,651,778 | 1,363,119 | ||||||
Valuation Allowance | (3,651,778 | ) | (1,363,119 | ) | ||||
Net Deferred Tax Asset | $ | -- | $ | -- | ||||
Summary of Warrant Activity
Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | ||||||||||
Assumed as of the January 8, 2019 merger | 12,108,743 | $ | 1.38 | |||||||||
Exchanged | (1,007,813 | ) | 0.40 | — | ||||||||
Expired | (2,183,478 | ) | 2.73 | — | ||||||||
Issued | 35,888,624 | $ | 0.73 | 5.36 | ||||||||
Outstanding and exercisable at December 31, 2019 | 44,806,076 | $ | 0.78 | |||||||||
Issued | 369,617,896 | 0.01 | 10.05 | |||||||||
Exercised | (1,000,000 | ) | 0.01 | — | ||||||||
Total outstanding and exercisable at December 31, 2020 | 413,423,972 | 0.015 |
F-49 |
December 31, | ||||||||||||
Amortization | 2015 | 2014 | ||||||||||
Amortized | Lives | Cost | Cost | |||||||||
Developed Technology | 7 | $ | 3,000,000 | $ | -- | |||||||
Trademark | 5 | 700,000 | -- | |||||||||
Total | 3,700,000 | -- | ||||||||||
Less Accumulated Amortization | (426,429 | ) | -- | |||||||||
Net | 3,273,571 | -- | ||||||||||
Non Amortized | ||||||||||||
Goodwill | 6,455,645 | -- | ||||||||||
Total | $ | 9,729,216 | -- |
Year ending December 31, | Estimated Amortization Expense | |||
2016 | $ | 569,000 | ||
2017 | 569,000 | |||
2018 | 569,000 | |||
2019 | 569,000 | |||
2020 | 464,000 | |||
Thereafter | 534,000 | |||
$ | 3,274,000 |
The fair value of the warrant wasall warrants issued are determined to be approximately $398,000by using the Black-Scholes-MertonLattice and Black-Scholes valuation techniquetechniques (see Note 12) and were assigned based on the relative fair value of both the convertible debtcommon stock and the warrants issued. The inputs used in the Lattice and Black-Scholes valuation techniques (see Note 12) to value each of the warrants as of their respective issue dates are as follows:
Schedule of Assumptions for Warrants
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 (%) | ||||||||||||||||||||
Private placement | 1/8/2019 | 5,000,000 | $ | 0.40 | $ | 0.75 | $ | 0.24 | 3 years | 2.57 | 115.08 | |||||||||||||||||
Antidilution provision(1) | 1/8/2019 | 2,023,438 | $ | 0.40 | $ | 0.40 | $ | 0.28 | 3 years | 2.57 | 115.08 | |||||||||||||||||
Private placement | 1/18/2019 | 6,000,000 | $ | 0.40 | $ | 0.75 | $ | 0.23 | 3 years | 2.60 | 114.07 | |||||||||||||||||
Private placement | 1/25/2019 | 1,250,000 | $ | 0.59 | $ | 0.75 | $ | 0.38 | 3 years | 2.43 | 113.72 | |||||||||||||||||
Private placement | 1/31/2019 | 437,500 | $ | 0.54 | $ | 0.75 | $ | 0.34 | 3 years | 2.43 | 113.47 | |||||||||||||||||
Private placement | 2/7/2019 | 750,000 | $ | 0.57 | $ | 0.75 | $ | 0.36 | 3 years | 2.46 | 113.23 | |||||||||||||||||
Private placement | 2/22/2019 | 375,000 | $ | 0.49 | $ | 0.75 | $ | 0.30 | 3 years | 2.46 | 113.34 | |||||||||||||||||
Private placement | 3/1/2019 | 125,000 | $ | 0.52 | $ | 0.75 | $ | 0.33 | 3 years | 2.54 | 113.42 | |||||||||||||||||
Private placement | 3/8/2019 | 150,000 | $ | 0.59 | $ | 0.75 | $ | 0.38 | 3 years | 2.43 | 113.53 | |||||||||||||||||
Private placement | 3/11/2019 | 2,475,000 | $ | 0.61 | $ | 0.75 | $ | 0.40 | 3 years | 2.45 | 113.62 | |||||||||||||||||
Private placement | 3/26/2019 | 500,000 | $ | 0.51 | $ | 0.75 | $ | 0.32 | 3 years | 2.18 | 113.12 | |||||||||||||||||
Private placement | 3/28/2019 | 375,000 | $ | 0.51 | $ | 0.75 | $ | 0.31 | 3 years | 2.18 | 112.79 | |||||||||||||||||
Private placement | 3/29/2019 | 62,500 | $ | 0.51 | $ | 0.75 | $ | 0.31 | 3 years | 2.21 | 112.79 | |||||||||||||||||
Private placement | 4/4/2019 | 500,000 | $ | 0.48 | $ | 0.75 | $ | 0.29 | 3 years | 2.29 | 112.77 | |||||||||||||||||
Private placement | 7/15/2019 | 200,000 | $ | 0.53 | $ | 1.00 | $ | 0.31 | 3 years | 1.80 | 115.50 | |||||||||||||||||
Convertible debt extension | 9/18/2019 | 424,000 | $ | 0.40 | $ | 0.75 | $ | 0.25 | 3 years | 1.72 | 122.04 | |||||||||||||||||
Private placement of Series D Convertible Preferred Stock | 11/15/2019 | 14,669,757 | $ | 0.28 | $ | 0.75 | $ | 0.19 | 10 years | 1.84 | 89.75 | |||||||||||||||||
Short-term note related party | 11/26/2019 | 400,000 | $ | 0.20 | $ | 0.75 | $ | 0.13 | 3 years | 1.58 | 144.36 | |||||||||||||||||
Short-term note, related party | 12/30/2019 | 171,429 | $ | 0.14 | $ | 0.75 | $ | 0.08 | 3 years | 1.59 | 145.29 | |||||||||||||||||
Short-term note, related party | 1/13/2020 | 268,571 | $ | 0.12 | $ | 0.75 | $ | 0.07 | 3 years | 1.60 | 145.76 | |||||||||||||||||
Private placement of Series D Convertible Preferred Stock | 1/17/2020 | 244,996 | $ | 0.15 | $ | 0.75 | $ | 0.13 | 10 years | 1.84 | 144.30 | |||||||||||||||||
Granted for bridge financing | 4/8/2020 | 296,875 | $ | 0.05 | $ | 0.40 | $ | 0.02 | 3 years | 0.34 | 131.82 | |||||||||||||||||
Short-term note, related party conversion | 4/17/2020 | 4,368,278 | $ | 0.05 | $ | 0.014 | $ | 0.05 | 10 years | 0.65 | 100.64 | |||||||||||||||||
Granted for bridge financing(2) | 9/11/2020 | 364,439,176 | $ | 0.05 | $ | 0.014 | $ | 0.017 | 10 years | 0.65 | 96.97 |
(1) The Company had warrants that triggered the required issuance of an additional 2,023,438 warrants as a result of the Company’s capital raise that gave those new investors a $0.40 per share investment price which required the old warrant holders to receive additional warrants since their price was $0.75 per share.
(2) The Company had estimated on April 17, 2020 that the number of warrants to be granted for the bridge financing would be 8,310,479 warrants were issued above the original estimate for a total of 363,146,765. The fair market value associated with the additional warrants issued was recorded at approximately $715,000 and $285,000, respectively. 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’schange in fair value measurementsof derivative liability – warrants prior to being reclassed to equity. Upon closing of the warrant are designated as Level 1 since allRights Offering on September 11, 2020, the Company issued warrants to one of the significant inputs were observable, and quoted prices were available forSeries B Preferred shareholders of 1,292,411 due to an anti-dilution feature embedded in the four comparative companies in an active market. . The bridge financing closed on September 11, 2020 in which an additional
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, althoughwhile 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.
March 31, 2016 (unaudited) | December 31, 2015 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | 471,224 | $ | 1,570,167 | ||||
Accounts receivable, Net | -- | 33,045 | ||||||
Prepaid expenses | 155,622 | 169,839 | ||||||
Inventory | 1,878 | 1,878 | ||||||
Total Current Assets | 628,724 | 1,774,929 | ||||||
Property and Equipment, Net | 26,023 | 24,838 | ||||||
Deposits | 2,751 | 2,751 | ||||||
Developed Technology, Net | 2,571,429 | 2,678,571 | ||||||
Trademark, Net | 560,000 | 595,000 | ||||||
Goodwill | 6,455,645 | 6,455,645 | ||||||
Total Assets | $ | 10,244,572 | $ | 11,531,734 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 210,812 | $ | 278,309 | ||||
Accrued liabilities | 149,072 | 100,317 | ||||||
Interest payable | 69,222 | 76,712 | ||||||
Notes payable | 109,269 | 134,540 | ||||||
Total Current Liabilities | 538,375 | 589,878 | ||||||
Long-Term Liabilities | ||||||||
Convertible debt | -- | 753,914 | ||||||
Notes Payable, net of current portion | 149,748 | 164,726 | ||||||
Deferred Rent | 786 | 491 | ||||||
Total Long-Term Liabilities | 150,534 | 919,131 | ||||||
Total Liabilities | 688,909 | 1,509,009 | ||||||
Stockholders' Equity | ||||||||
Preferred stock - $.001 par value: 500,000 shares authorized, no shares outstanding | -- | -- | ||||||
Common stock - $.001 par value: 49,500,000 shares authorized, 11,808,216 and 11,256,175 shares issued at March 31, 2016 and December 31, 2015, respectively, 11,606,593 and 11,048,203 shares outstanding at March 31, 2016 (unaudited) and December 31, 2015, respectively | 11,808 | 11,256 | ||||||
Additional paid-in capital | 21,524,583 | 20,164,911 | ||||||
Due from Stockholder | (15,000 | ) | (20,000 | ) | ||||
Accumulated deficit | (11,965,728 | ) | (10,133,442 | ) | ||||
Total Stockholders' Equity | 9,555,663 | 10,022,725 | ||||||
Total Liabilities and Stockholders' Equity | $ | 10,244,572 | $ | 11,531,734 |
Three Months Ended March 31, | ||||||||
2016 | 2015 | |||||||
Revenues | $ | -- | $ | -- | ||||
Operating Expenses | ||||||||
General and administrative | 1,130,711 | 1,149,723 | ||||||
Sales and marketing | 21,272 | -- | ||||||
Research and development | 189,283 | 304,719 | ||||||
Depreciation and amortization | 144,170 | -- | ||||||
Total Operating Expenses | 1,485,436 | 1,454,442 | ||||||
Operating Loss | (1,485,436 | ) | (1,454,442 | ) | ||||
Other Expenses | ||||||||
Interest Expense | 346,850 | -- | ||||||
Total Other Expenses | 346,850 | -- | ||||||
Net Loss | $ | (1,832,286 | ) | $ | (1,454,442 | ) | ||
Basic and diluted net loss per common share | $ | (0.16 | ) | $ | (0.16 | ) | ||
Shares used in computing basic and diluted net loss per share | 11,624,202 | 9,381,175 |
Note 14- Mezzanine Equity and Series D Convertible Preferred Stock
Series D Convertible Preferred Stock
Series D Convertible preferred Stock
On November 15, 2019, the Company entered into a securities purchase agreement with selected accredited investors whereby the Company offered (i) up to consolidated financial statements
Common Stock | Additional Paid-in | Due From | Accumulated | Stockholders' | ||||||||||||||||||||
Shares | Amount | Capital | Stockholder | Deficit | Equity | |||||||||||||||||||
Balance - December 31, 2015 | 11,256,175 | $ | 11,256 | $ | 20,164,911 | $ | (20,000 | ) | $ | (10,133,442 | ) | $ | 10,022,725 | |||||||||||
Conversion of promissory note on January 25, 2016 | 552,041 | 552 | 1,071,961 | -- | -- | 1,072,513 | ||||||||||||||||||
Warrant price modification on January 25, 2016 | -- | -- | 18,050 | -- | -- | 18,050 | ||||||||||||||||||
Warrant price modification on February 16, 2016 | -- | -- | 7,670 | -- | -- | 7,670 | ||||||||||||||||||
Repayment of due from stockholder through forgone director fees | -- | -- | -- | 5,000 | -- | 5,000 | ||||||||||||||||||
Stock based compensation | -- | -- | 261,991 | -- | -- | 261,991 | ||||||||||||||||||
Net loss | -- | -- | -- | -- | (1,832,286 | ) | (1,832,286 | ) | ||||||||||||||||
Balance - March 31, 2016 | 11,808,216 | $ | 11,808 | $ | 21,524,583 | $ | (15,000 | ) | $ | (11,965,728 | ) | $ | 9,555,663 |
Three Months Ended March 31, | ||||||||
2016 | 2015 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (1,832,286 | ) | $ | (1,454,442 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation | 2,028 | 1,485 | ||||||
Amortization of intangible assets | 142,142 | -- | ||||||
Amortization of debt discount | 246,086 | -- | ||||||
Debt conversion expense | 68,694 | -- | ||||||
Stock based compensation | 261,991 | 47,377 | ||||||
Straight-line rent adjustment | 295 | -- | ||||||
Non-cash directors fees | 5,000 | -- | ||||||
Adjustment of fair value of warrant modification | 25,720 | -- | ||||||
Changes in operating assets and liabilities, net of effects of acquisition: | ||||||||
Accounts receivable | 33,045 | -- | ||||||
Prepaid expenses | 14,217 | 34,133 | ||||||
Accounts payable | (67,497 | ) | 118,655 | |||||
Interest payable | (3,671 | ) | -- | |||||
Accrued liabilities | 48,755 | 13,691 | ||||||
Net Cash Used in Operating Activities | (1,055,481 | ) | (1,239,101 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Acquisition of Streamline, Inc., net of cash received | -- | (1,496,478 | ) | |||||
Expenditures for property and equipment | (3,213 | ) | (4,022 | ) | ||||
Net Cash Used in Investing Activities | (3,213 | ) | (1,500,500 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Principal payments under note payable obligation | (40,249 | ) | -- | |||||
Proceeds from issuance of common stock from underwriter’s overallotment | -- | 1,084,136 | ||||||
Net Cash (Used in) Provided by Financing Activities | (40,249 | ) | 1,084,136 | |||||
Net Decrease in Cash | (1,098,943 | ) | (1,655,465 | ) | ||||
Cash - Beginning of period | 1,570,167 | 6,684,576 | ||||||
Cash - End of period | $ | 471,224 | $ | 5,029,111 | ||||
Non-cash investing and financing activities | ||||||||
Issuance of common stock for acquisition of Streamline | $ | -- | $ | 8,437,500 | ||||
Repayment of due from stockholder through forgone director fees | 5,000 | -- | ||||||
Conversion of note and accrued interest to common stock | 1,072,513 | -- | ||||||
Non-cash investing and financing activities | $ | 1,077,513 | $ | 8,437,500 |
On November 21, 2019, the Company entered into a securities purchase agreement with FWHC HOLDINGS, LLC an accredited investor for the purchase of Business
The Company determined that the parent company of Debride Inc. (“Debride”), which was incorporated under the lawsnature of the StateSeries D Shares was more analogous to an equity instrument, and that the economic characteristics and risks of Florida on October 1, 2012.
The Company determined that the economic characteristics and risks of the embedded redemption provision were not clearly and closely related to the Series D Shares. The Company assessed the embedded redemption provision further, and determined it met the definition of a two-step process. In step 1,derivative and required classification as a derivative liability at fair value. On July 28, 2020, the Series D Shares were converted into shares of the Company’s common stock, at which time the redemption put liability was no longer applicable and its fair value was adjusted to $0.
The Company’s approach to the allocation of each reporting unitthe proceeds to the financial instruments was to first allocate basis to the redemption put liability at its fair values and the residual value to the Series D Shares and the Series D Warrants. Based upon the amount allocated to the Series D Shares the Company was required to determine if a beneficial conversion feature (“BCF”) was present. A BCF represents the intrinsic value in the convertible instrument, adjusted for amounts allocated to other financial instruments issued in the financing. The effective conversion price is calculated as the amount allocated to the convertible instrument divided by the number of shares to which it is indexed. However, a BCF is limited to the basis initially allocated. After allocating a portion of the proceeds to the other instruments, the effective conversion price was $ compared to its carrying value, including goodwill. If the fair value exceedsshare price of $ , resulting in a BCF of $ or $ per share for the carrying value, no further work is requiredyear ended December 31, 2019.
F-51 |
Based upon the above accounting conclusions and no impairment loss is recognized. If the carrying value exceedsadditional information provided below, the fair value, the goodwillallocation of the reporting unit is potentially impaired and the Company would then complete step 2 in order to measure the impairment loss. In step 2, the Company would calculate the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets (including unrecognized intangible assets) of the reporting unitproceeds arising from the fair value of the reporting unit. If the implied fair value of goodwillSeries D Preferred financing transaction is less than the carrying value of goodwill, the Company would recognize an impairment loss,summarized in the period identified, equal totable below:
Schedule of Series D Convertible Preferred and Warrant Financing
November 21, 2019 Series D Convertible Preferred and warrant financing: | Proceeds Allocation | Financing Cost Allocation | Total Allocation | |||||||||
Gross proceeds | $ | 6,000,000 | $ | — | $ | 6,000,000 | ||||||
Financing costs paid in cash | — | (111,983 | ) | (111,983 | ) | |||||||
$ | 6,000,000 | $ | (111,983 | ) | $ | 5,888,017 | ||||||
Derivative Liability: | ||||||||||||
Derivative Put Liability | $ | (614,095 | ) | $ | — | $ | (614,095 | ) | ||||
Deferred Financing costs | — | 8,100 | 8,100 | |||||||||
Redeemable preferred stock: | ||||||||||||
Series D Convertible Preferred Stock | (2,869,854 | ) | — | (2,869,854 | ) | |||||||
Financing costs (APIC) | — | 1,106 | 1,106 | |||||||||
Financing costs (Retained Earnings) | — | 66,265 | 66,265 | |||||||||
Beneficial Conversion Feature | (623,045 | ) | — | (623,045 | ) | |||||||
Investor Warrants (equity classified): | ||||||||||||
Proceeds allocation | (1,893,006 | ) | — | (1,893,006 | ) | |||||||
Financing costs (APIC) | — | 36,512 | 36,512 | |||||||||
$ | (6,000,000 | ) | $ | 111,983 | $ | (5,888,017 | ) |
Since the difference.
On January 17, 2020, the Company takes possessionentered into a securities purchase agreement with an accredited investor for the purchase of or controls shares of Series D Convertible Preferred Stock, par value $ per share and a Series D Warrant resulting in $ in gross proceeds to the physical useCompany. The Series D Convertible Preferred Stock and Warrants had the same terms as the FWHC Investment. There was no BCF associated with this financing because the effective conversion price after allocating a portion of the property. Deferred rentproceeds to the other instruments was higher than the share price.
January 17, 2020 Series D Convertible Preferred and warrant financing: | Proceeds Allocation | |||
Gross proceeds | $ | 100,000 | ||
Financing costs paid in cash | — | |||
$ | 100,000 | |||
Derivative Liability: | ||||
Derivative Put Liability | $ | (5,305 | ) | |
Redeemable preferred stock: | ||||
Series D Convertible Preferred Stock | (62,793 | ) | ||
Investor Warrants (equity classified): | ||||
Proceeds allocation | (31,902 | ) | ||
$ | (100,000 | ) |
Since the Series D Convertible Preferred Stock is included in non-current liabilitiesperpetual and convertible at any time, the resulting discount of $ was accreted as a Preferred Stock dividend on the consolidated balance sheet.
For the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) product delivery has occurred or services have been rendered. The Company sells its products primarily through direct sales. 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 ofyear ended December 31, 2020, the Company or any matters of customer acceptance. The Company records estimated sales returns, discounts and allowances as a reduction of net salesrecorded approximately $278,000 in deemed dividends on the same period revenue is recognized.
F-52 |
Schedule of Shares Outstanding
Mezzanine Equity Rollforward (Series D Convertible Preferred Stock) | ||||
Balance at January 8, 2019 | $ | - | ||
Issuance of Series D Convertible Preferred Stock | 2,869,853 | |||
Inception deemed dividend | 3,130,147 | |||
Deemed dividend (8%) | 60,493 | |||
Balance at December 31, 2019 | 6,060,493 | |||
Issuance of Series D Convertible Preferred Stock | 62,793 | |||
Inception deemed dividend | 37,207 | |||
Deemed dividend (8%) | 277,719 | |||
Mandatory conversion of Series D Convertible Preferred Stock to Common Stock | (6,438,212 | ) | ||
Balance at December 31, 2020 | $ | - |
Series D Convertible Preferred Stock Preferences
Voting Rights
Holders of our Series D Convertible Preferred Stock (“Series D Holders”) have the right to receive notice of any meeting of holders of common stock or Series D Convertible Preferred Stock and to vote upon any matter submitted to a vote of the holders of common stock or Series D Convertible Preferred Stock. Each Series D Holder shall vote on each matter submitted to them with the holders of common stock. There are no shares of Series D Convertible Preferred Stock outstanding as of December 31, 2020.
Liquidation
Upon the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, each Series D Holder shall be entitled to receive, for each share thereof, out of assets of the Company legally available therefore, a preferential amount in cash equal to the stated value onplus all accrued and unpaid dividends. All preferential amounts to be paid to the awards’ grant date, based onSeries D Holders in connection with such liquidation, dissolution or winding up shall be paid before the estimated numberpayment or setting apart for payment of awards that are expectedany amount for, or the distribution of any assets of the Company’s to vestthe holders of the Company’s Series B and will result in a charge to operations
Note 15 - Income Taxes
The Company utilizes the liability method of accounting for income taxes underas set forth in FASB ASC Topic 740, Income Taxes, which requires recognition of deferred tax assets and liabilities for“Income Taxes”. Under the expected future tax consequences of events that have been included in the financial statements or tax returns.
The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. As of MarchDecember 31, 2016,2020, the Company has not recorded any uncertain tax positions and, therefore, has not incurred any interest or penalties relating to uncertain tax positions.
A reconciliation of the statutory federal income tax examinations.
Schedule of the weighted average numberComponents of common shares plus dilutive potential common shares outstanding using the treasury stock method. Any potentially dilutive securitiesIncome Tax Expense (Benefit)
2020 | 2019 | |||||||
Statutory rate – federal | 21.0 | % | 21.0 | % | ||||
Effect of: | ||||||||
State income tax, net of federal benefit | 5.1 | 3.0 | ||||||
State NOL true-up | (1.1 | ) | (2.0 | ) | ||||
Goodwill impairment | - | (9.0 | ) | |||||
Prior year true up | 2.7 | - | ||||||
Other permanent differences | 3.0 | (1.0 | ) | |||||
Change in valuation allowances | (30.7 | ) | (13.0 | ) | ||||
Income taxes | 0.0 | % | 0.0 | % |
The Company’s financial statements contain certain deferred tax assets which have arisen primarily as a result of losses incurred that are anti-dilutive dueconsidered start-up costs for tax purposes, as well as net deferred income tax assets resulting from other temporary differences related to the Company’s net losses. There is no differencecertain reserves and differences between the basicbook and diluted net loss per share. 1,974,783 warrantstax depreciation and 594,900 common stock options outstanding were considered anti-dilutive at March 31, 2016. 185,000 stock options were considered anti-dilutive at March 31, 2015.
The Company completed an acquisition on March 25, 2015. This transaction was recorded using guidelines provided by ASC 805, Business Combinations. Following these guidelines,assesses the consideration paid by MedoveX for Streamline was measured on the daterealizability of acquisition. An independent valuation of Streamline was performed using the discounted cash flow method. Based on the estimated value of Streamline, the consideration paid by MedoveX and the tangibledeferred tax assets of Streamline, Management determined the intangible portion of the purchase price should be assigned between developed technology, trademark, and goodwill. Refer to Note 4 for the summary of the purchase price allocation based on the completionavailable evidence, including a history of the valuationtaxable income and estimates of the assets and liabilities assumed.
Useful Life | March 31, 2016 | December 31, 2015 | |||||||
Furniture and fixtures | 5 years | $ | 19,636 | $ | 18,385 | ||||
Computers and software | 3 years | 18,237 | 16,275 | ||||||
37,873 | 34,660 | ||||||||
Less accumulated depreciation | (11,850 | ) | (9,822 | ) | |||||
Total | $ | 26,023 | $ | 24,838 |
Assets acquired | ||||
Cash | $ | 245,174 | ||
Inventory | 1,878 | |||
Other assets | 165 | |||
Developed technology | 3,000,000 | |||
Trademark | 700,000 | |||
Goodwill | 6,455,645 | |||
Total assets acquired | 10,402,862 | |||
Liabilities assumed | ||||
Accounts payable | 301,940 | |||
Accrued liabilities | 6,018 | |||
Notes Payable | 259,938 | |||
Total | 567,896 | |||
Net assets acquired | $ | 9,834,966 |
Grant date | January 6, 2016 | |||
Weighted Fair value of options granted | $ | 0.67 | ||
Expected term (years) | 6 | |||
Risk-free interest rate | 1.82 | % | ||
Volatility | 83 | % | ||
Dividend yield | None |
Shares | Weighted Average Exercise Price | Weighted Average Remaining Term (Years) | Aggregate Intrinsic Value | |||||||||||||
Outstanding at 12/31/2015 | 380,000 | $ | 3.95 | 9.1 | $ | -- | ||||||||||
Granted | 214,900 | $ | 0.95 | 9.8 | $ | -- | ||||||||||
Exercised | -- | -- | -- | $ | -- | |||||||||||
Cancelled | -- | -- | -- | $ | -- | |||||||||||
Outstanding at 3/31/2016 | 594,900 | $ | 2.87 | 9.2 | $ | -- | ||||||||||
Exercisable at 3/31/2016 | 209,975 | $ | 3.28 | 9.2 | $ | -- |
December 31, 2016 | $ | 25,000 | ||
December 31, 2017 | 35,000 | |||
December 31, 2018 | 21,000 | |||
$ | 81,000 |
December 31, 2016 | $ | 2,000 | ||
December 31, 2017 | 2,600 | |||
December 31, 2018 | 800 | |||
$ | 5,400 |
2016 | $ | 53,000 | ||
2017 | 68,000 | |||
2018 | 68,000 | |||
2019 | 19,000 | |||
$ | 208,000 |
Amortized | Amortization Lives | March 31, 2016 Cost | December 31, 2015 Cost | |||||||||
Developed Technology | 7 | $ | 3,000,000 | $ | 3,000,000 | |||||||
Trademark | 5 | 700,000 | 700,000 | |||||||||
Total | 3,700,000 | 3,700,000 | ||||||||||
Less Accumulated Amortization | (568,572 | ) | (426,429 | ) | ||||||||
Net | 3,131,428 | 3,273,571 | ||||||||||
Non Amortized | ||||||||||||
Goodwill | 6,455,645 | 6,455,645 | ||||||||||
Total | $ | 9,587,073 | $ | 9,729,216 |
Year ending December 31, | Estimated Amortization Expense | |||
2016 | $ | 427,000 | ||
2017 | 569,000 | |||
2018 | 569,000 | |||
2019 | 569,000 | |||
2020 | 464,000 | |||
Thereafter | 534,000 | |||
$ | 3,132,000 |
F-53 |
Deferred tax assets and seeking offers to buy shares of our common stock only in jurisdictions where such offers and sales are permitted. You should assume that the information appearing in this prospectus is accurate only asliabilities consist of the date on the front coverfollowing at December 31:
Schedule of this prospectus. Our business, financial condition, results of operationsDeferred Tax Assets and prospects may have changed since that date.
2020 | 2019 | |||||||
Deferred Tax Assets: | ||||||||
Federal and state net operating loss carry forwards | $ | 9,512,596 | $ | 7,302,375 | ||||
Capitalized start-up costs | 2,210,392 | 2,483,736 | ||||||
Capitalized research and development costs | 462,768 | 424,390 | ||||||
Patents | 41,842 | 57,907 | ||||||
Share-based compensation | 241,177 | 242,437 | ||||||
Other | 112,376 | 25,405 | ||||||
Total gross deferred tax assets | 12,581,151 | 10,536,250 | ||||||
Deferred Tax Liabilities | ||||||||
Right-of-use asset | (70,914 | ) | — | |||||
Total gross deferred tax liabilities | (70,914 | ) | — | |||||
Valuation Allowance | (12,510,237 | ) | (10,536,250 | ) | ||||
Net deferred tax assets | $ | — | — |
Utilization of the warrants exercisable for shares of common stock being registered in this offering are exercised, we could receive net proceeds of upoperating loss carryforwards is subject to approximately $1,879,221.90. The holdersa substantial annual limitation due to the “ownership change” limitations provided by Section 382 and 383 of the warrants are not obligated to exercise the warrantsInternal Revenue Code of 1986, as amended, and we can provide no assurance that the holders of the warrants will choose to exercise all or any of the warrants.
Note 16 - Subsequent Events
On January 12, 2021, Mr. William Horne stepped down as Chairman of the Boardboard of Directors, and (iii) 1,211,760 sharesdirectors (the “Board”) of our common stock held by certain selling stockholders.
On January 12, 2021, Mr. Raymond Monteleone was appointed the selling stockholders may offer the shares for resale from time to time pursuant to this prospectus. The selling stockholders may also sell, transfer or otherwise dispose of all or a portion of their shares in transactions exempt from the registration requirementsnew Chairman of the Securities Act or pursuant to another effective registration statement covering those shares. We may from time to time includeBoard. Mr. Monteleone is a current member of the Board.
As of March 24, 2021, an additional selling stockholders in supplements or amendments to this prospectus.
Name of Selling Stockholder | Common Stock Beneficially Owned Prior to the Offering(1) | Common Stock Covered by this Prospectus | Common Stock Beneficially Owned Upon Completion of this Offering(1)(2) | Percentage of Common Stock Owned Upon Completion of this Offering(1)(3) | ||||||||||||
Barry Honig | 1,129,138 | (4) | 130,435 | 1,390,009 | (4) | 9.83 | % | |||||||||
Jarrett S. Gorlin | 557,857 | 64,542 | 622,399 | 4.40 | % | |||||||||||
Gerald De Jonge | - | 21,131 | 21,131 | 0.15 | % | |||||||||||
Andrew Armfelt | - | 65,218 | 65,218 | 0.46 | % | |||||||||||
Bruno Casatelli | - | 16,956 | 16,956 | 0.12 | % | |||||||||||
John R. & Linda L. Harrison | - | 234,783 | 234,783 | 1.66 | % | |||||||||||
Steven J. Henry | - | 62,610 | 62,610 | 0.44 | % | |||||||||||
Harry P. Keenan | - | 15,000 | 15,000 | 0.11 | % | |||||||||||
Justin McKenna | - | 25,800 | 25,800 | 0.18 | % | |||||||||||
Sean Meitner | - | 15,652 | 15,652 | 0.11 | % | |||||||||||
Arthur Pereless | - | 13,043 | 13,043 | 0.09 | % | |||||||||||
Steven Kaye | - | 11,740 | 11,740 | 0.08 | % | |||||||||||
James J. Regan | - | 156,522 | 156,522 | 1.11 | % | |||||||||||
Thomas J. Rutherford | - | 231,522 | 231,522 | 1.64 | % | |||||||||||
Daniel Wallach & Joyce Wallach | - | 39,130 | 39,130 | 0.28 | % | |||||||||||
Alan Barge | - | 30,000 | 30,000 | 0.21 | % | |||||||||||
Sterne Agee &Leach C/F Donald E. Goodin R/O IRA | - | 34,899 | 34,899 | 0.25 | % | |||||||||||
GRQ Consultants Inc. Roth 401K FBO Barry Honig | 1,129,138 | (4) | 130,436 | 1,390,009 | (4) | 9.83 | % |
PART II - 4
Stetson Capital Investments Inc. | 166,250 | (5) | 65,218 | 231,468 | 1.64 | % | ||||
Sterne Agee & Leach Inc. C/F John H. Welsh Roth IRA | - | 30,000 | 30,000 | 0.21 | % | |||||
Richard Cotta | - | 39,130 | 39,130 | 0.28 | % | |||||
Bohdan Chaban | - | 78,261 | 78,261 | 0.55 | % | |||||
Roger Conan | - | 15,000 | 15,000 | 0.11 | % | |||||
Danny Sergeant | - | 29,349 | 29,349 | 0.21 | % | |||||
Charles J. Dehart & Madeleine Dehart | - | 21,914 | 21,914 | 0.15 | % | |||||
Nabil Yazgi MD PA Cash Balance Plan & Trust Nabil Yazgi Ttee | - | 15,000 | 15,000 | 0.11 | % | |||||
Manu Prasad Prikh | - | 32,608 | 32,608 | 0.23 | % | |||||
Frank Scott Rotruck | - | 26,086 | 26,086 | 0.18 | % | |||||
David P. Stein | - | 13,042 | 13,042 | 0.09 | % | |||||
Joseph A. D’Elia | - | 13,044 | 13,044 | 0.09 | % | |||||
DJ Management Investing LLC | - | 139,566 | 139,566 | 0.99 | % | |||||
Steve Gorlin | 461,503 | 500,000 | 961,503 | 6.80 | % | |||||
Buff Trust | 29,118 | 29,118 | 0.21 | % | ||||||
Garnet Trust | 29,118 | 29,118 | 0.21 | % | ||||||
Laidlaw Holdings Ltd. | 9,201 | 9,201 | 0.07 | % | ||||||
Kevin R Wilson | 6,649 | 6,649 | 0.05 | % | ||||||
Stephen Hamilton | 1,671 | 1,671 | 0.01 | % | ||||||
Joseph M Fedorko | 36,514 | 36,514 | 0.26 | % | ||||||
Matthew D Eitner | 25,000 | 25,000 | 0.18 | % | ||||||
James Ahern | 25,000 | 25,000 | 0.18 | % | ||||||
High Regan | 7,500 | 7,500 | 0.05 | % | ||||||
Luke Kottke | 7,500 | 7,500 | 0.05 | % | ||||||
Francis R Smith | 4,721 | 4,721 | 0.03 | % | ||||||
TOTAL | 2,314,748 | 2,499,623 | 4,814,377 | 34.06 | % |
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all expenses to be paid by the costsregistrant in connection with the issuance and expenses,distribution of the securities to be registered, other than underwriting discounts and commissions, if any, payable by us relating to the sale of common stock being registered.commissions. All amounts shown are estimates except for the SEC registration fee.
Expenditure Item | Amount | |||
Legal and Accounting Fees | $ | 25,000 | ||
Transfer Agent Fees | $ | 500 | ||
SEC Registration fees (estimated) | $ | 838.15 | ||
Printing Costs and Miscellaneous Expenses (estimated) | $ | 500 | ||
Total | $ | 26,838.15 |
SEC registration fee | $ | 1,549 | ||
Legal fees and expenses | $ | 25,000 | ||
Accounting fees and expenses | $ | 20,000 | ||
Miscellaneous fees and expenses | $ | 3,451 | ||
Total | $ | 50,000 |
Item 14. Indemnification of Directors and Officers
Neither our amended and restated articles of incorporation nor Bylaws prevent us from indemnifying our officers, directors and agents to the extent permitted under the Nevada Revised StatutesStatute (“NRS”). NRS Section 78.7502 provides that a corporation shall indemnify any director, officer, employee or agent of a corporation against expenses, including attorneys’ fees, actually and reasonably incurred by him in connection with any the defense to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to Section 78.7502(1) or 78.7502(2), or in defense of any claim, issue or matter therein.
NRS 78.7502(1) provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, (except inexcept an action brought by or on behalfin the right of the corporation) ifcorporation, by reason of the fact that personhe is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys'attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by that personhim in connection with suchthe action, suit or proceeding if that personhe: (a) is not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which that personhe reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings,proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, alone, does not create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in, or not opposed to, the best interests of the corporation, and that, with respect to any criminal action or proceeding, the person had reasonable cause to believe his action was unlawful.
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NRS Section 78.7502(2) of the Nevada Revised Statutes provides that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit brought by or on behalfin the right of the corporation to procure a judgment in its favor because the person acted in anyby reason of the capacities set forth above,fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys'attorneys’ fees actually and reasonably incurred by that personhim in connection with the defense or settlement of suchthe action or suit if the personhe: (a) is not liable pursuant to NRS 78.138; or (b) acted in accordance withgood faith and in a manner which he reasonably believed to be in or not opposed to the standard set forth above, except that no indemnificationbest interests of the corporation. Indemnification may not be made in respect offor any claim, issue or matter as to which such a person shall havehas been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefromthere from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which suchthe action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, suchthe person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.
NRS Section 78.7502(3) of the Nevada Revised Statutes further78.747 provides that to the extent aexcept as otherwise provided by specific statute, no director or officer of a corporation has been successful on the meritsis individually liable for a debt or otherwise in the defenseliability of any action, suit or proceeding referred to in subsections 1 and 2 thereof, or in the defense of any claim, issue or matter therein, that person shall be indemnified by the corporation, against expenses (including attorneys' fees) actually and reasonably incurred by that person in connection therewith.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers andor persons controlling persons of the registrantus pursuant to the foregoing provisions, or otherwise, the registrant haswe have been advisedinformed that, in the opinion of the Securities and Exchange CommissionSEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Our amended and restated Bylaws, effective November 15, 2019, provide that the Company may indemnify and advance litigation expenses to its directors, officers, employees and agents to the extent permitted by law, the Company’s articles of incorporation or Bylaws, and shall indemnify and advance litigation expenses to its directors, officers, employees and agents to the extent required by law, the Company’s articles of incorporation or Bylaws. The Company’s obligations of indemnification, if any, shall be conditioned on the Company receiving prompt notice of the claim and the opportunity to settle and defend the claim. The Company may, to the extent permitted by law, purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee or agent of the Company.
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Item 15. Exhibits and Financial Statement Schedules.
* Previously filed.
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Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, (§ 230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
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(5) For the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by the registrant of expenses incurred and paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection with the securities being registered hereby, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that it will:
(1) for determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant under Rule 424(b)(1), or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective.
(2) for determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statementregistration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,Tampa, State of Georgia,Florida, on this [17th] day of June, 2016.
H-Cyte, Inc | |||
By: | /s/ | Michael Yurkowsky | |
Michael Yurkowsky | |||
Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statementregistration statement has been signed by the following persons in the capacities held on the dates indicated.
Title | Date | |||
/s/ Michael Yurkowsky | ||||
Michael Yurkowsky | Chief Executive Officer | February 9, 2022 | ||
/s/ * | ||||
Jeremy Daniel | Chief Financial Officer | February 9, 2022 | ||
/s/ Raymond Monteleone | ||||
Raymond Monteleone | Chairman of the Board of Directors | February 9, 2022 | ||
/s/ William E Horne | ||||
William E Horne | Director | February 9, 2022 | ||
/s/ | ||||
/s/ | ||||
Matthew Anderer | Director | February 9, 2022 |
* Signed by Michael Yurkowsky pursuant to the power of attorney signed by each individual and previously filed with this Registration Statement on February 7, 2022.