ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and related notes appearing elsewhere in this Annual Report. The discussion in this section regarding the Company’s business and operations includes “forward-looking statements”. See “Special Note Regarding Forward-Looking Statements” at the beginning of this Annual Report.

Overview

Nuo is a regenerative therapies company developing and marketing products primarily within the U.S. We commercialize innovative cell-based technologies that harness the regenerative capacity of the human body to trigger natural healing. The use of autologous (i.e., from self or the patient’s own) biological therapies for tissue repair and regeneration is part of a transformative clinical strategy designed to improve long term recovery in complex chronic conditions with significant unmet medical needs.

Our only current commercial offering consists of a point of care technology for the safe and effective separation of autologous blood to produce a platelet-based therapy for the chronic wound care market (the "Aurix System"). The Company ceased normal operating activities effective May 1, 2019 as it awaited developments concerning Medicare coverage of the Aurix System under its National Coverage Decision (“NCD”) reconsideration request. Product sales are anticipated to be reinitiated by May 2022 after the favorable NCD determination was issued in April 2021, the Aurix System supply chain was re-established and equity capital was accessed in December 2021 via the early exercise of warrants under a warrant modification agreement.

The revenue amounts presented in these comparison sections are rounded to the nearest thousand.

Comparison of the Years Ended December 31, 2021 and 2020

Revenue and Gross Profit

There were no revenues in the years ended December 31, 2021 and December 31, 2020 as the Company ceased ongoing operational activities effective May 1, 2019 and no longer treated subjects under the previous CED program with related product sales while selling its remaining Aurix inventory over the remainder of 2019.

Operating Expenses

Year Ended December 31 Variance

Sales and marketing $ - $ - $ - NA

Research and development - - - NA

Total operating expenses decreased approximately $287,000 in the year ended December 31, 2021 as compared to the year ended December 31, 2020 as the Company continued throughout the year in a non-operational state until late in the fourth quarter 2021 when we began to reinitiate some activities in advance of an expectation of a return to availability of the Aurix System by May 2022. A discussion of the various components of operating expenses follows below.

Sales and Marketing and Research and Development

Expenses in both categories remained at zero in the year ended December 31, 2021 as a result of the cessation of normal operational activities effective May 1, 2019.

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General and Administrative

Interest Expense, net

Interest expense was zero for the year ended December 31, 2021 as the Company had no debt outstanding during the year due to the conversion of the senior secured notes in October 2020.

Other income (expense)

Other income (expense) was zero for the year ended December 31, 2021 and decreased approximately $336,000 as a result of the two gains on debt extinguishments recognized in the year ended December 31, 2020.

Comparison of the Years Ended December 31, 2020 and 2019

Revenue and Gross Profit

The following table presents the profitability of sales for the periods presented:

Product cost of sales - 115,000

Gross profit (loss) $ - $ 31,000

Gross margin % NA % 21 %

Revenues and gross margin both declined to zero in the year ended December 31, 2020 compared to the prior year ended December 31, 2019 as product revenues ceased in 2019 due to the non-operational status of the Company effective April 2019 and the conclusion of treating subjects in the CED studies.

Operating Expenses

Year Ended December 31 Variance

Total operating expenses decreased approximately $623,000 in the year ended December 31, 2020 as compared to the year ended December 31, 2019 due primarily to the Company’s decision to cease normal operational activities effective May 1, 2019. A discussion of the various components of operating expenses follows below.

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Sales and Marketing and Research and Development

Expenses in both categories decreased to zero in the year ended December 31, 2020 as compared to the year ended December 31, 2019 as a result of the cessation of normal operational activities effective May 1, 2019.

General and Administrative

General and administrative expenses decreased approximately $411,000 (52%) to approximately $378,000 in the year ended December 31, 2020 as compared to the year ended December 31, 2019. General and administrative expenses in 2020 beyond nominal cash costs to sustain minimum corporate viability was composed primarily of approximately $334,000 of non-cash compensation expense recognized in the fourth quarter 2020. The non-cash compensation expense represents the fair value of shares of common stock and warrants issued to three individuals comprising senior management, Company director, and third party counsel as compensation for past services rendered in connection with continued efforts of the Company since its cessation of regular operational status in May 2019, continued engagement with staff of CMS and various consultants concerning reimbursement coverage for Aurix under the long-standing national non-coverage decision, and various other activities and efforts to sustain the Company as a viable entity. The common stock and warrants were fully expensed on the date of issuance at their respective fair values of approximately $123,000 for the shares and approximately $211,000 for the warrants.

Interest Expense, net

Interest expense decreased approximately $173,000 to approximately $48,000 for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The decrease was primarily due to the completed settlement of the convertible notes in February 2020 which in the year ended December 31, 2019 had incurred interest expense charges totaling approximately $170,000 for debt discount amortization, note amendment fees paid in cash, and increases in the principal balance of the notes in conjunction with the amendments. During 2020, interest expense was primarily recognized on the senior notes prior to their conversion into shares of common stock in October 2020.

Other income (expense)

Other income for the year ended December 31, 2020 consisted of the separate gains on debt extinguishment of approximately $246,000 and $90,000 in the first and fourth quarters of 2020, respectively. The first quarter 2020 gain resulted from the concluded settlement of the 2018 Convertible Notes and the fourth quarter gain represents the calculated difference between the $305,000 carrying value of the 2019 senior secured notes and the fair value of the reacquistion price of the assets transferred and equity securities issued.

Comparison of the Years Ended December 31, 2019 and 2018

Revenue and Gross Profit

The following table presents the profitability of sales for the periods presented:

Gross margin % 21 % 88 %

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Revenues decreased $1,255,000 (89%) to $146,000, comparing the year ended December 31, 2019 to the year ended December 31, 2018. This was primarily due to (i) $750,000 in licensing revenue recognized in 2018 attributable to the two Rohto transactions (ii) $288,000 of royalty revenues in 2018 attributable to the one-time royalty monetization payment on Aldeflour revenues and (iii) a decrease in Aurix product sales of $197,000 resulting from the 2019 cessation of CED study activity including the related product sales for patients treated.

Overall gross profit decreased $1,178,000 to a gross profit of $31,000 while overall gross margin increased to 21% from 88%, comparing the year ended December 31, 2019 to the year ended December 31, 2018. The decrease in gross profit was primarily attributable to (i) $750,000 of Rohto related licensing revenue and $288,000 royalty monetization payment with no associated costs and (ii) a $139,000 decrease in gross profit on product sales. The decrease in gross margin on product sales only from 51% in 2018 to 21% in 2019 was primarily due to decreased absorption of depreciation expense charged to cost of product sales on a reduced amount of product sales.

Operating Expenses

Year Ended December 31 Variance

Total operating expenses decreased approximately $1,712,000 (63%) to approximately $1,001,000 comparing the year ended December 31, 2019 to the year ended December 31, 2018. The decrease was primarily due to approximately $1.2 and $0.4 million decreases in general and administrative and research and development expenses, respectively. A discussion of the various components of operating expenses follows below.

Sales and Marketing

Sales and marketing expenses decreased approximately $84,000 (73%) to approximately $30,000 comparing the year ended December 31, 2019 to the year ended December 31, 2018. The decrease was primarily due to the elimination of the remaining direct sales personnel during the first quarter 2018.

Research and Development

Research and development expenses decreased approximately $395,000 (69%) to approximately $181,000 comparing the year ended December 31, 2019 to the year ended December 31, 2018. The decrease was primarily due to (i) reduced headcount in the Clinical Affairs area and corresponding lower compensation expenses, and (ii) decreased clinical affairs costs reduced CED activity.

General and Administrative

General and administrative expenses decreased approximately $1,232,000 (61%) to approximately $789,000 comparing the year ended December 31, 2019 to the year ended December 31, 2018. The decrease was primarily due (i) a decrease of approximately $1.5 million in gross general and administrative expenses offset by a $240,000 bad debt recovery in 2018. The gross G&A decrease of approximately $1.5 million was realized in the amounts of approximately $0.4 million and $1.1 million during the first and second halves of 2019, respectively. General and administrative expenses were modestly negative during the second half of 2019 due to nominal costs resulting from the effective ceasing of normal business operations during the period which were more than fully offset by expense credits for revised accounts payable balances. By expense type, the aggregate $1.5 million expense decrease was comprised primarily of decreases in (i) compensation and benefits costs of approximately $800,000 resulting from the May 1, 2019 furlough of company employees, (ii) rental expense of approximately $150,000, (iii) board fees of approximately $120,000, (iv) insurance costs of approximately $100,000, and (v) aggregate costs of approximately $300,000 in various other expense categories including investor services, IT services, office expenses, and dues and fees.

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Interest Expense, net

Interest expense, net increased approximately $183,000 to approximately $221,000 comparing the year ended December 31, 2019 to the year ended December 31, 2018. The increase was primarily due to (i) increased increase expense of approximately $37,000 on the convertible notes for the full year 2019 and the senior secured notes which were funded in late 2019, (ii) $69,000 of cash fees for convertible note amendments treated as interest expense, (iii) $60,000 aggregate increase in the convertible note balances resulting from the note amendments which were also treated as interest expense, and (iv) approximately $15,000 increase in debt discount amortization in the 2019 period as compared to 2018.

Comparison of the Three Months Ended March 31, 2021 and 2020

Revenue and Gross Profit

There were no revenues in any period during the years ended December 31, 2021 and December 31, 2020 as the Company ceased ongoing operational activities in April 2019 and no longer treated subjects under the previous CED program with related product sales.

Operating Expenses

Three Months Ending March Variance

Sales and marketing $ - $ - $ - NA

Research and development - - - NA

Comparison of the Three and Six Months Ended March 31, 2021 and 2020

Revenue and Gross Profit

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Operating Expenses

Three Months Ending June Variance Six Months Ending June Variance

Sales and marketing $ - $ - $ - NA $ - $ - $ - NA

Research and development - - - NA - - - NA

Comparison of the Three and Nine Months Ended March 31, 2021 and 2020

Revenue and Gross Profit

Operating Expenses

Three Months Ending September Variance Nine Months Ending September Variance

Sales and marketing $ - $ - $ - NA $ - $ - $ - NA

Research and development - - - NA - - - NA

Comparison of the Three Months Ended March 31, 2020 and 2019

Revenue and Gross Profit

Three Months Ended March 31, 2020 Three Months Ended March 31, 2019

Product sales $ - $ 39,000

Product cost of sales - 28,000

Total cost of sales - 28,000

Gross profit (loss) $ - $ 11,000

Gross margin % NA % 28 %

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Revenue and gross profit decreased to zero in the three months ended March 31, 2020 compared to the prior year period as the Company ceased normal operational activities effective May 1, 2019 and proceeded to sell its remaining product inventory over the remainder of 2019.

Operating Expenses

Three Months Ending March Variance

Comparison of the Three and Six Months Ended June 30, 2020 and 2019

Revenue and Gross Profit

Three and Six Months Ended June 30, 2020 Three Months Ended June 30, 2019

Product sales $ - $ 44,000

Product cost of sales - 33,000

Total cost of sales - 28,000

Gross profit (loss) $ - $ 11,000

Gross margin % NA % 25 %

Revenue and gross profit decreased to zero in the three and six months ended June 30, 2020 compared to the prior year periods as the Company ceased normal operational activities effective May 1, 2019 and proceeded to sell its remaining product inventory over the remainder of 2019.

Operating Expenses

Three Months Ending June Variance Six Months Ending June Variance

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Comparison of the Three and Nine Months Ended September 30, 2020 and 2019

Revenue and Gross Profit

Product sales $ - $ 58,000

Product cost of sales - 35,000

Total cost of sales - 35,000

Gross profit (loss) $ - $ 23,000

Gross margin % NA % 40 %

Revenue and gross profit decreased to zero in the three and nine months ended September 30, 2020 compared to the prior year periods as the Company ceased normal operational activities effective May 1, 2019 and proceeded to sell its remaining product inventory over the remainder of 2019.

Operating Expenses

Three Months Ending September Variance Nine Months Ending September Variance

Sales and marketing $ - $ - $ - NA $ - $ - $ - NA

Liquidity and Capital Resources

Overview

As of December 31, 2021, we had cash and cash equivalents of approximately $1.4 million resulting from the Warrant Modification Agreement and Early Exercisedescribed below, total current assets of approximately $1.5 million and total current liabilities of approximately $0.7 million. As of March 31, 2022, we had cash and cash equivalents of approximately $0.6 million. As an operational business, we have a history of losses and are not currently profitable. For the years ended December 31, 2021, 2020, and 2019, we incurred net losses of approximately $0.1 million, $0.1 million, and $1.2 million, respectively. As a consequence of deemed dividends (contributions) in 2020 and 2021, we had net income available for common stockholders of approximately $7.7 million in 2020 and a net loss available for common stockholders of approximately $0.9 million in 2021. As of December 31, 2021, our accumulated deficit was approximately $23.6 million and our stockholders’ equity was approximately $0.8 million.

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Our continuing losses and limited cash resources raise substantial doubt about our ability to continue as a going concern, and we need to raise substantial additional funds in order to continue to conduct our business. If we are unable to secure sufficient capital to fund our operating activities, we may be forced to delay further the completion of, or significantly reduce the scope of, our current business plan, delay the pursuit of commercial insurance reimbursement for our wound treatment technologies, and postpone the hiring of new personnel. It is uncertain whether we will be able to obtain such financing on satisfactory terms or at all.

We may not be able to obtain additional capital as required to finance our efforts, through equity or debt financings or any combination thereof, on satisfactory terms or at all. Additionally, any such financing, if at all obtained, may not be adequate to meet our capital needs and to support our operations.

Financing and Related Developments in 2018, 2019, 2020, and 2021

Spring 2019 Cessation of Normal Operating Activities

In April 2019, the Company made the decision to cease normal operational activities and we furloughed the Company’s remaining employees effective May 1, 2019. This decision was necessitated by the depletion of the Company’s resources during the conduct of the CED studies being undertaken to pursue Medicare reimbursement coverage for the Aurix System. In the spring of 2019, we had collected clinical outcomes and analyzed the data from the subjects involved in the CED studies and were engaged in discussions with CMS concerning the adequacy of the results and a NCD reconsideration request.

2018 Monetization Transactions

During the year ended December 31, 2018, the Company was able to monetize several of its remaining assets, including through agreements with Rohto, as described in "Business - Aurix Licensing and Collaboration Agreement," and with STEMCELL, as described in "Business - Patents, Licenses, and Property Rights." While the sale of those assets provided critical inflow of funds to alleviate the Company's ongoing liquidity concerns, the Company now has no further assets left to monetize and is facing immediate cessation of operations and liquidation.

On May 28, 2018, we entered into a pair of agreements with Rohto Pharmaceutical Co., Ltd. (“Rohto”). Pursuant to a securities purchase agreement, dated as of May 28, 2018, the Company issued to Rohto, and Rohto agreed to purchase from the Company, 1,000,000 shares of the Company’s common stock at a price of $0.50 per share on June 11, 2018.

Convertible Notes Issuance and Amendments

On September 17, 2018, we entered into two separate financing transactions with two separate investors, Auctus Fund, LLC (“Auctus”) and EMA Financial, LLC (“EMA” and, collectively with Auctus, the “Investors”). Pursuant to separate securities purchase agreements, the Company issued and sold to the Investors 12% convertible promissory notes, each in the principal amount of $175,000, for an aggregate purchase price of $315,800 (reflecting a combined $34,200 in original issue discount and transaction fees) (the “2018 Convertible Notes” or the “notes”). On September 17, 2018, the Company issued the notes to the Investors. Pursuant to the purchase agreements, the Company also issued to each Investor a warrant exercisable to purchase 233,333 shares of the Company’s common stock, for an aggregate of 466,666 shares of common stock, subject to adjustment as referenced below.

The 2018 Convertible Notes matured nine months from the date of issuance (June 17, 2019) and, in addition to any original issue discount, accrued interest at a rate of 12% per year. The maturity date of the note issued to EMA was extendable up to one year beyond the original maturity date at the option of EMA.

Under the original terms of the notes, the Company could prepay the notes, in whole or in part, for 130% of outstanding principal and interest ending on the date that is 90 days following the date of issuance, and for 145% of outstanding principal and interest at any time commencing on the date that is 91 days following the date of issuance and ending on the date that is 180 days following the date of issuance, to the extent that it was not then in default under the notes. Under the original terms of the notes, beginning on the date that is 181 days following the date of issuance, the Company could no longer prepay the notes. Under the original terms of the notes, after six months from the date of issuance, the Investors could convert the notes, at any time, in whole or in part, into shares of the Company’s common stock, at a conversion price corresponding to a 40% discount to the average of the two lowest trading prices of the common stock during the 25 trading days prior to the conversion, subject to certain adjustments and price-protection provisions contained in the notes, including full-ratchet anti-dilution protection in the case of dilutive issuance of securities that do not meet the requirements of “exempt issuance” as defined in the notes.

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On March 19, 2019, May 3, 2019, June 10, 2019, and August 6, 2019, the Company entered into amendments to the 2018 Convertible Notes. The amendments extended the date when the Company could prepay the notes and deferred the date upon which the Convertible Note Investors could initiate conversion of the notes into common shares of the Company pursuant to the notes’ terms until September 17, 2019 in the case of the fourth amendment. The Company paid the Convertible Note Investors cumulative amendment fees totaling $69,000 representing approximately 20% of the face value of the 2018 Convertible Notes and agreed to an increase in the principal balance of each note to $205,000 or $30,000. The maturity date of the Auctus note was also extended until September 17, 2019.

On December 10, 2019, the Company entered into fifth and final amendments to the 2018 Convertible Notes pursuant to which the Company’s obligations under such notes were to be extinguished in their entirety upon receipt by each Convertible Note Investor of (i) a cash payment of $110,000 and (ii) 175,000 unrestricted shares of the Company’s common stock no later than February 10, 2020. The Company made the required cash payments totaling $220,000 on December 10, 2019 and issued the common shares as of February 5, 2020 in final settlement of the 2018 Convertible Notes.

The Company was required to maintain authorized and unissued shares of its common stock equal to seven times the number issuable upon conversion of the notes. Each note contained potential additional discounts to the conversion price upon the occurrence of an event of default or specified other events related to the trading status of the Company’s common stock (which would result in a higher number of shares being issued if converted).

The notes included certain event of default provisions, a default interest rate of 24% per year and certain penalties for specified breaches that would be added to the principal amount of such note. Upon the occurrence of an event of default, the Investors could require the Company to redeem the note (or convert it into shares of common stock) at 150% of the outstanding principal balance plus accrued and unpaid interest. The notes also restricted the Company’s ability to make distributions to its shareholders, repurchase its shares, borrow funds, or sell its assets (with limited exceptions).

The warrants are exercisable at any time, at an exercise price per share equal to $0.15, subject to certain adjustments and price protection provisions (including full ratchet anti-dilution protection) contained in the warrants. The warrants have five-year terms.

The transaction documents also included most favored nations provisions and limitations on the Company’s ability to offer additional securities (unless the use of proceeds was to repay the notes).

Senior Secured Note Issuance

On November 15, 2019 and December 6, 2019, the Company entered into note purchase agreements with certain individual accredited investors (the “Senior Note Investors”) for the issuance and sale to the Investors of 12% senior secured promissory notes (the “Senor Notes”), in the aggregate principal amount of $305,000 with an overall $500,000 cap under the note purchase agreements. Pursuant to the purchase agreements, the Company also issued to the Senior Note Investors warrants exercisable to purchase an aggregate 457,500 shares of the Company’s common stock, subject to adjustment as referenced below.

In conjunction with the note issuance, the Company granted a first-priority security interest in all the assets of the Company but fundamentally consisting of the Aurix System asset including all regulatory files and approvals and relevant intellectual property. The purchase agreements contained certain representations, warranties and covenants by, among and for the benefit of the respective parties. The purchase agreements also provided for customary indemnification of the Senior Note Investors by the Company.

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The notes had a maturity date of June 30, 2020 and accrued interest at a rate of 12% per year. The Company could prepay the Senior Notes, in whole or in part, at any time. The warrants were exercisable at any time, at an exercise price per share equal to $0.40, subject to certain adjustments and price protection provisions (including full ratchet anti-dilution protection) contained in the warrants. The warrants had five-year terms.

The use of proceeds from the Notes beyond the initial $50,000 and up to an estimated aggregate amount of $270,000 (for the sake of clarity, such aggregate amount is not deemed to include the initial $50,000)was specifically dedicated to payment to the Convertible Note Investors, in a final amount to be agreed between the Company and the Convertible Note Investors such that the 2018 Convertible Notes were considered retired and no longer in effect.

Series A Preferred Stock Exchange Agreement

By letter dated September 1, 2020, the Senior Note Investors notified the Company of its default under the Senior Notes and submitted a forbearance and recapitalization proposal to the Company.

By letter dated September 10, 2020, the Senior Note Investors notified the Company pursuant to Del. UCC Sections 9-620 and 9-621 of their unconditional alternative proposals to accept from the Company, on October 1, 2020, a transfer of all collateral securing the Senior Notes in full satisfaction of the indebtedness due under the related loan documents. On September 21, 2020, the Senior Note Investors proposed to the Company an alternative restructuring proposal, which formed the basis for the Recapitalization Agreement described below.

On October 5, 2020 (the “Effective Date”), the Company entered into a Recapitalization Agreement (the “Recap Agreement) with Deerfield Private Design Fund II, L.P. (“DPDF”) and Deerfield PDI Financing II, L.P. (“DPF” and, together with DPDF, the “Deerfield Investors”) and the Noteholders, whereby the shares of Series A preferred stock held by the Deerfield Investors were exchanged for 2,700,000 shares of common stock (the “Exchange Shares”) of the Company. The Senior Note Investors agreed to the conversion of the $305,000 principal balance of the Notes plus accrued interest through September 30, 2020 of approximately $30,400 into an aggregate 838,487 shares of common stock (the “Conversion Shares”) of the Company at a conversion price of $0.40 per share, plus the purchase, for cash, of 487,500 shares of common stock (the “Purchase Shares”) at $0.40 per share, or $195,000 in total. On the Effective Date, all shares of Series A preferred stock and Senior Notes were cancelled in full. Lawrence S. Atinsky, the Deerfield Investors’ representative on the Company’s board, resigned as of the Effective Date, and the number of Company directors was reduced to four. Outstanding options to purchase common stock held by Mr. Atinsky as of the Effective Date were canceled.

Pursuant to the Agreement, the Company also issued to the Senior Note Investors warrants to purchase an aggregate of 3,977,961 shares of the Company’s common stock, subject to adjustment as referenced below. The warrants were exercisable at any time, at an exercise price per share equal to $0.40, subject to certain adjustments and price protection provisions (including full ratchet anti-dilution protection) contained in the warrants. The warrants had five-year terms. The warrants to purchase 457,500 shares of common stock issued to the Noteholders upon the original 2019 issuance of the Notes were canceled.

Series A Preferred Stock

Under our 2016 Plan of Reorganization, the Company issued 29,038 shares of Series A Preferred Stock to the Deerfield lenders. The Series A Preferred Stock had no stated maturity date, was not convertible or redeemable and carried a liquidation preference of $29,038,000, which was required to be paid to holders of such Series A Preferred Stock before any payments were made with respect to shares of common stock (and other capital stock that was not issued on parity or senior to the Series A Preferred Stock) upon a liquidation or change in control transaction. For so long as Series A Preferred Stock was outstanding, the holders of Series A Preferred Stock had the right to nominate and elect one member of the Board of Directors. Lawrence S. Atinsky served on our Board as the designee of the holders of Series A Preferred Stock, which are all currently affiliates of Deerfield Management Company, L.P., of which Mr. Atinsky is a Partner. The Series A Preferred Stock had voting rights, voting with the common stock as a single class, representing approximately one percent (1%) of the voting rights of the capital stock of the Company, and the holders of Series A Preferred Stock had the right to approve certain transactions. Among other restrictions, the Certificate of Designations for our Series A Preferred Stock limited the Company’s ability to (i) issue securities that were senior or pari passu with the Series A Preferred Stock, (ii) incur debt other than for working capital purposes not in excess of $3.0 million, (iii) issue securities that were junior to the Series A Preferred Stock and that provided certain consent rights to the holders of such junior securities in connection with a liquidation or contain certain liquidation preferences, (iv) pay dividends on or purchase shares of its capital stock, and (v) change the authorized number of members of its Board of Directors to a number other than five, in each case without the consent of holders representing at least two-thirds of the outstanding shares Series A Preferred Stock.

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As described above, the Series A Preferred Stock was extinguished in conjunction with the Recap Agreement effective October 5, 2020.

Warrant Modification Agreement and Early Warrant Exercise

Effective as of December 1, 2021, the Company entered into a Warrant Modification Agreement (the “WMA”) with the holders of an aggregate 6,865,461 Warrants (the “Warrant Investors”) whereby the Warrants were modified to adjust the warrant exercise price from $0.40 per share to $0.20 per share provided the Investor exercised the warrant prior to January 31, 2022. All Warrants not exercised prior to January 31, 2022 were to be forfeited and deemed expired or otherwise cancelled.

As of December 31, 2021, all Warrants had been exercised for total consideration of $1,373,092 and the resulting issuance of 6,865,461 shares of common stock.

Cash Flows

Net cash provided by (used in) operating, investing, and financing activities for the periods presented were as follows (in millions):

Cash flows used in operating activities $ (0.1 ) $ (0.1 ) $ (0.9 )

Cash flows provided by (used in) investing activities $ - $ - $ -

Cash flow provided by financing activities $ 1.4 $ 0.2 $ 0.3

Operating Activities

Cash used in operating activities for the year ended December 31, 2021 of $0.1 million primarily reflects our net loss of $0.1 million.

Cash used in operating activities for the year ended December 31, 2020 of $0.1 million primarily reflects our net loss of $0.1 million adjusted by (i) approximately $0.3 million of equity based compensation expense which was fully offset by approximately $0.3 million gain on the extinguishment of debt.

Cash used in operating activities for the year ended December 31, 2019 of $0.9 million primarily reflects our net loss of $1.2 million adjusted by (i) approximately $0.1 million of depreciation expense, and (ii) approximately $0.1 million of debt discount amortization.

Investing Activities

We had no material investing activities in the years ended December 31, 2021, 2020, and 2019.

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Financing Activities

Cash provided by financing activities for the year ended December 31, 2021 of $1.4 million represents proceeds from the early exercise of warrants in December 2021.

Cash provided by financing activities for the year ended December 31, 2020 of $0.2 million of net proceeds represents the purchase of shares of common stock for proceeds of $195,000 in October 2020 in conjunction with the Series A Preferred Stock exchange agreement.

Cash provided by financing activities for the year ended December 31, 2019 of $0.3 million of net proceeds represents the proceeds from the issuance of senior secured notes in November and December 2019.

Inflation

The Company believes that the rates of inflation in recent years have not had a significant impact on its operations.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Critical Accounting Policies

This Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. A summary of our significant accounting policies is included in Note 3 to the accompanying consolidated financial statements.

A “critical accounting policy” is one that is both important to the portrayal of our financial condition and results of operations and that requires management’s most difficult, subjective, or complex judgments. Such judgments are often the result of a need to make estimates about the effect of matters that are inherently uncertain. We have identified the following accounting policies as critical:

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but not limited to stock-based compensation, the fair value of common stock and equity-linked and derivative financial instruments, recoverability and depreciable lives of long-lived assets, deferred taxes and associated valuation allowance, the valuation and classification of debt instruments, and allowances for inventory obsolescence and doubtful accounts. Actual results could differ from those estimates.

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Basic and Diluted Earnings (Loss) per Share

In periods of net loss, basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. In periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all potential dilutive common shares is anti-dilutive.

For periods of net income, diluted earnings per share is computed using the more dilutive of the “treasury method” or “two class method.” Dilutive earnings per share under the “treasury method” is calculated by dividing net income available to common stockholders by the weighted- average number of shares outstanding plus the dilutive impact of all potential dilutive common shares, consisting primarily of common shares underlying common stock options and stock purchase warrants using the treasury stock method, and convertible notes using the if-converted method. Because none of the Company’s equity-linked financial instruments contain non-forfeitable rights to dividends, the “two class” method results in the same diluted earnings per share as the “treasury method.”

Fair Value Measurements

Our consolidated balance sheets include certain financial instruments that are carried at fair value. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. These tiers include:

An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, we perform a detailed analysis of our assets and liabilities that are measured at fair value. All assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.

Recent Accounting Pronouncements Not Yet Adopted

The Company does not believe that any recently issued effective standards, or standards issued but not yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

ITEM 8. Financial Statements and Supplementary Data

The information required pursuant to this Item 8 is incorporated by reference herein to our consolidated financial statements beginning on page F-1 of this Form 10-K.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

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ITEM 9A. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision of and with the participation of our management, including our Chief Executive Officer, who is our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the periods covered by this Form 10-K. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Based on the evaluation of our disclosure controls and procedures as of the end of the periods covered by this Form 10-K, we concluded that, as of such dates, our disclosure controls and procedures were not effective due to the existence of the material weaknesses in the Company’s internal control over financial reporting described below under “Material Weaknesses” and “Remediation Plan.”

Notwithstanding the conclusion that our disclosure controls and procedures as of the end of the periods covered by this Form 10-K were not effective, and notwithstanding the material weaknesses in our internal control over financial reporting described below, management believes that the consolidated financial statements and related financial information included in this Form 10-K fairly present in all material respects our financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with GAAP.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Our management conducted an assessment of our internal control over financial reporting as set forth in Item 308(a) of Regulation S-K promulgated under the Exchange Act and Section 404 of the Sarbanes-Oxley Act as of the end of the end of the periods covered by this Form 10-K. Based on this assessment, our management concluded that our internal control over financial reporting was ineffective due to the material weakness in our internal control over financial reporting described below under “Material Weaknesses” and “Remediation Plan.”

Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of this Form 10-K and the consolidated financial statements and related disclosures herein, management identified the following material weaknesses.

Beginning in mid-2019, we ceased ongoing operational activities and terminated all our financial accounting and reporting resources as we worked to reach a favorable outcome to Medicare reimbursement coverage for the Aurix System. While we re-started operations in late 2021, as of December 31, 2021, and through the date this Annual Report was filed, the Company had not hired and did not maintain a sufficient complement of accounting and financial reporting resources. The lack of sufficient accounting and financial reporting resources also prevented the Company from maintaining appropriately designed, and monitoring the effectiveness of, internal control over financial reporting.

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As a result of these material weaknesses in internal control over financial reporting, the Company was unable to prepare and file its consolidated financial statements as of and for the years ended December 31, 2020, and 2019, and as of and for the quarters ended March 30, 2021 and 2020, June 30, 2021 and 2020, and September 30, 2021 and 2020 within the timelines prescribed by the SEC. As such, the Company did not maintain adequate disclosure controls and internal control over financial reporting necessary to provide for the timely reporting of accurate financial information.

Remediation Plan

As additional financial resources are obtained, management, under the oversight of the Audit Committee of the Board of Directors, will begin to implement measures designed to improve our internal control over financial reporting to remediate the identified material weaknesses, namely, to identify and engage a sufficient complement of accounting and financial reporting resources and to periodically assess the design and operating effectiveness of our internal controls. The Company engaged outside consultants to assist with various accounting and financial reporting matters in the first quarter of 2022 and has begun assessing the need for hiring of internal accounting and financial reporting resources.

While we believe that these efforts will improve our internal control over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. We cannot assure you that the measures we have taken to date, or that we may take in the future, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses.

Changes in Internal Control over Financial Reporting

Other than as described above, there were no changes in our internal control over financial reporting that occurred during the quarters ended December 31, 2019 through December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. Other Information

On March 4, 2022, the Board of Directors of the Company granted options to purchase a total of 206,666 shares of common stock to its executive officers and directors as follows:

Each of the options was granted under the Company’s 2016 Omnibus Incentive Compensation Plan, as amended, has an exercise price of $0.50 per share, a ten-year term and vested immediately. The options were granted in satisfaction of approximately $55,000 of deferred salary (with respect to Mr. Jorden and Dr. Clausen) and approximately $48,333 of deferred Board compensation (with respect to the non-management directors).

Also on March 4, 2022, the Board of Directors of the Company granted incentive options to purchase common stock to its executive officers and directors as follows:

Each of the options was granted under the Company’s 2016 Omnibus Incentive Compensation Plan, as amended, has an exercise price of $0.75 per share, a ten-year term and vested immediately. In addition, the Board of Directors resolved to issue options to purchase 275,000 shares of common stock to Peter A. Clausen at an exercise price of $0.75 per share, a ten-year term and with 1/3rd to vest immediately and the remainder vesting quarterly over three years; however, the issuance of options to Dr. Clausen is subject to approval by stockholders of an increase in the number of shares authorized under the Company’s 2016 Omnibus Incentive Compensation Plan, as amended.

ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

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PART III

ITEM 10. Directors, Executive Officers and Corporate Governance

Set forth below is information regarding the directors and executive officers of the Company since 2019 and currently. Officers are appointed by, and serve at the pleasure of, the Board of Directors.

Name Age Position

David E. Jorden 59 Chief Executive and Chief Financial Officer; Director

C. Eric Winzer 65 Independent Director

Scott M. Pittman 63 Independent Director

Paul D. Mintz, MD 73 Independent Director

Lawrence S. Atinsky(1) 53 Independent Director

Peter A. Clausen(2) 56 Chief Scientific Officer and Chief Operating Officer

(1) Mr. Atinksy resigned from the Board of Directors effective October 5, 2020 upon the cancellation of the Series A Preferred Stock of the company held by the Deerfield Investors.

(2) Dr. Clausen served as our Chief Scientific Officer until December 31, 2019 and was reappointed as our Chief Scientific Officer as well as our Chief Operating Officer effective January 1, 2022.

David E. Jorden has been Chief Executive Officer and Chief Financial Officer of the Company since July 1, 2016 after serving as Acting CEO effective January 8, 2016 and Acting CFO effective May 2015. Mr. Jorden also serves as Acting Secretary of the Company. He served as our Acting CEO and Acting CFO during the Company’s bankruptcy reorganization proceedings, as disclosed under “Item 1. Business – Bankruptcy and Emergence from Bankruptcy,” has served on the Board of Directors since October 2008 and was Executive Chairman from February 2012 to May 2015. Mr. Jorden is also presently serving since June 2013 as CEO for Nanospectra Biosciences, Inc., a private company developing nanoparticle directed focal photothermal ablation technology of solid tumors. From 2003 to 2008, he was with Morgan Stanley’s Private Wealth Management group where he was responsible for equity portfolio management. Prior to Morgan Stanley, Mr. Jorden served as CFO for Genometrix, Inc., a private genomics/life sciences company focused on high-throughput microarray applications. Mr. Jorden was previously a principal with Fayez Sarofim & Co. Mr. Jorden has a MBA from Northwestern University’s Kellogg School and a B.B.A. from University of Texas at Austin. He is a Chartered Financial Analyst and previously held a Certified Public Accountant designation. Mr. Jorden previously served on the board of Opexa Therapeutics, Inc. (OPXA) from August 2008 through November 2013. Mr. Jorden was chosen to serve on the Board in part because of his extensive financial experience, particularly in the life sciences industry. As our current Chief Executive Officer and Chief Financial Officer, he provides the Board with critical insight into the day-to-day operations of the Company.

C. Eric Winzer has served as Director since January 30, 2009. Mr. Winzer has over 30 years of experience in addressing diverse financial issues including raising capital, financial reporting, investor relations, banking, taxation, mergers and acquisitions, financial planning and analysis, and accounting operations. Mr. Winzer has been the Chief Financial Officer at Immunomic Therapeutics, Inc., a privately-held clinical stage biotechnology company, since May 2015. From June 2009 to April 2015 Mr. Winzer served as the Principal Accounting Officer, Senior Vice President of Finance, and Chief Financial Officer for OpGen Inc. (OPGN), a precision medicine company that went public in May 2015. Before his tenure with OpGen Inc., Mr. Winzer held multiple executive positions at Avalon Pharmaceuticals, Inc. (AVRX) including serving as its Chief Financial Officer and Executive Vice President, Principal Accounting Officer, and Secretary. Before joining Avalon Pharmaceuticals, Mr. Winzer held numerous senior financial positions over twenty years at Life Technologies Corporation (LIFE) (now part of Thermo Fisher Scientific (TMO)) and its predecessor companies, Invitrogen (IVGN) and Life Technologies, Inc. (LTEK). From 1980 to 1986, Mr. Winzer held various financial positions at Genex Corporation. Mr. Winzer holds a B.A. in Economics and Business Administration from Western Maryland College (now McDaniel College) and an M.B.A. from Mount Saint Mary's University. Mr. Winzer was chosen to serve as a director of the Company in part because of his executive experience in the life sciences industry and his substantial financial knowledge and expertise.

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Scott M. Pittman has served as a director since May 5, 2016. Mr. Pittman has over 30 years in Hospital Executive management. He is a Chief Operating & Business Development Officer for Buchanan General Hospital, a Registered Representative with Calton & Associates, and a Principal of Hospital CEO Associates. He has served as CEO of Florida Hospital Zephyrhills, FL, in senior executive positions with Adventist Health Systems, and in various hospital executive positions in southern West Virginia. Mr. Pittman has developed several multi-million dollar hospital and program service expansions, and healthcare entity acquisitions and mergers, and has served on numerous state and regional health planning organizations. He is a magna cum laude graduate of Southwestern Adventist University with B.S. and B.A. Degrees in Business and Religion, and a Masters of Hospital Administration from Medical College of Virginia. Mr. Pittman was chosen to serve as a director of the Company in part because of his extensive experience as a hospital administration executive.

Paul D. Mintz, MD has served as a director since April 7, 2017. Dr. Mintz is the Senior Vice President and Chief Medical Officer of Verax Biomedical, Inc., or Verax Biomedical. Prior to joining Verax Biomedical in early 2016, Dr. Mintz served as Director, Division of Hematology Clinical Review, Office of Blood Research and Review, Center for Biologics Evaluation and Research of the U.S. Food and Drug Administration between 2011 until 2016. Prior to that, for more than 30 years, Dr. Mintz was a member of the faculty of the University of Virginia, School of Medicine, where he was a tenured Professor of Pathology and Internal Medicine. He also served as Vice-Chair of Pathology and Chief of the Division of Clinical Pathology, and as Medical Director of the Clinical Laboratories and Transfusion Medicine Services at the University of Virginia Health System. In addition, Dr. Mintz served as Co-Medical Director of Virginia Blood Services. He served as a director of Immucor, Inc. (BLUD) in 2010 and 2011. Dr. Mintz is a former President of the American Association of Blood Banks (now the Association for the Advancement of Blood and Biotherapies), or AABB, served on AABB’s Board of Directors for nine years, and chaired and was a member of numerous AABB committees. He has also served as a member of the Board of Trustees of the National Blood Foundation. A recipient of a Transfusion Medicine Academic Award from the National Heart, Lung and Blood Institute, Dr. Mintz was an inaugural inductee into the National Blood Foundation Hall of Fame. He has served as a member of the Medicare Coverage Advisory Committee of CMS. Dr. Mintz is author or co-author of more than 100 articles and editorials spanning clinical practice, blood safety and the evaluation of new transfusion medicine technologies and has designed and served as principal investigator for numerous clinical trials. He is the sole editor of all three editions of Transfusion Therapy: Clinical Principles and Practice (AABB Press) and has served on several journal editorial boards. Dr. Mintz earned his BA with High Distinction in Philosophy from the University of Rochester and received his MD with Honors from the University of Rochester, School of Medicine. Dr. Mintz served as the medical monitor for the Company’s clinical trial and received a monthly fee of $2,500 in this role. Dr. Mintz was chosen to serve as a director of the Company based in part on his recognized expertise in clinical practice, his extensive involvement in transfusion medicine, transfusion-related clinical trials, and regulatory leadership experience.

Lawrence S. Atinsky served as a director between May 5, 2016 and October 5, 2020. While he served as a director, Mr. Atinsky was a Partner at Deerfield Management Company, LP (“Deerfield Management”), a healthcare investment firm focused on advancing healthcare through investment, information, and philanthropy. He primarily focused on the firm’s structured transactions and private equity investments. Prior to joining Deerfield Management, Mr. Atinsky was a partner of Ascent Biomedical Ventures, a healthcare focused private equity firm investing in early-stage biomedical and medical device companies. Investor affiliated with Deerfield Management were the sole holders of our Series A Preferred Stock and Mr. Atinsky served as their designee to our Board of Directors under the Certificate of Designations for our Series A Preferred Stock.

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Peter A. Clausen was appointed as the Chief Scientific Officer on March 30, 2014 and served in that position until December 31, 2019. He subsequently was reappointed as our Chief Scientific Officer as well as our Chief Operating Officer effective January 1, 2022. He joined the Company in September 2008 and has more than 20 years of experience in the biotechnology industry. Prior to joining the Company, Dr. Clausen was a founding member and Vice President of Research and Development at Marligen Bioscience, where he developed and commercialized innovative genomic and protein analysis products for the life sciences market. Dr. Clausen was the Manager of New Purification Technologies at Life Technologies and the Invitrogen Corporation. He also has significant experience within the commercial biotechnology industry developing peptide and small molecule therapeutics for application in the areas of inflammatory mediated disease and stem cell transplantation. He completed his post-doctoral training at the Laboratory of Molecular Oncology at the National Cancer Institute where his research efforts focused in the areas of oncology, hematopoiesis, and gene therapy. Dr. Clausen earned Ph.D. in Biochemistry from Rush University in Chicago and a Bachelor of Science degree in Biochemistry from Beloit College.

There are no family relationships between any of the Company’s executive officers or directors and, other than as disclosed above, there are no arrangements or understandings between a director and any other person pursuant to which such person was elected as director.

Corporate Governance

Each director holds office for the term for which he or she is elected or until his or her successor is duly elected. However, the Company has not held an annual meeting of stockholders since 2014. The Company did not make any material changes to the procedures by which stockholders may recommend nominees to the Board of Directors of the Company since 2016.

Audit Committee Financial Expert

The Board has established an Audit Committee in accordance with section 3(a)(58)(A) of the Exchange Act. The Audit Committee currently is comprised of Mr. Winzer, Dr. Mintz, and Mr. Pittman. The Board has determined that Mr. Winzer is independent and is an audit committee financial expert as defined by Item 407(d)(5) of Regulation S-K. The Company applies Nasdaq Stock Market corporate governance requirements and standards in determining director and Audit Committee independence.

Code of Conduct and Ethics

The Board has adopted a Code of Conduct and Ethics applicable to all directors, officers and employees in accordance with Item 406 of Regulation S-K. A copy of this Code of Conduct and Ethics is included as an exhibit to this Form 10-K.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act, requires officers, directors and persons who own more than ten percent of a registered class of equity securities to, within specified time periods, file certain reports of ownership and changes in ownership with the SEC.

Based solely on a review of the Section 16 reports filed electronically with the SEC and written representations from certain reporting persons, the Company believes that, during the fiscal year ended December 31, 2019, all Section 16(a) reports required to be filed by its officers, directors, and greater than ten percent beneficial owners were timely filed, except that a report covering a total two transactions on two dates will be filed late by Mr. Jorden, and a report covering a total of two transactions on two dates will be filed late by Mr. Pittman.

Based solely on a review of the Section 16 reports filed electronically with the SEC and written representations from certain reporting persons, the Company believes that, during the fiscal year ended December 31, 2020, all Section 16(a) reports required to be filed by its officers, directors, and greater than ten percent beneficial owners were timely filed, except that a report covering six transactions on one date will be filed late by Mr. Jorden, and a report covering six transactions on one date will be filed late by Mr. Pittman.

Based solely on a review of the Section 16 reports filed electronically with the SEC and written representations from certain reporting persons, the Company believes that, during the fiscal year ended December 31, 2021, all Section 16(a) reports required to be filed by its officers, directors, and greater than ten percent beneficial owners were timely filed, except that a report covering a total of six transactions on three dates will be filed late by Mr. Jorden, and a report covering a total of six transactions on three dates will be filed late by Mr. Pittman.

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ITEM 11. Executive Compensation

This following table presents information regarding compensation paid to our named executive officers during the years 2018 through 2021.

Summary Compensation Table

David E. Jorden 2021 $ - $ - $ - $ - $ -

(6) Represents life insurance premiums paid by the Company in 2018.

Outstanding Equity Awards

The following table sets forth the outstanding equity awards held by our named executive officers as of December 31, 2019.

Outstanding Equity Awards at December 31, 2019

Name Exercisable (1) Unexercisable Price Date

The following table sets forth the outstanding equity awards held by our named executive officers as of December 31, 2020.

Outstanding Equity Awards at December 31, 2020

Name Exercisable (1) Unexercisable Price Date

The following table sets forth the outstanding equity awards held by our named executive officers as of December 31, 2021.

Outstanding Equity Awards at December 31, 2021

Name Exercisable (1) Unexercisable Price Date

The Company does not provide any pension plans/benefits or nonqualified deferred compensation.

Director Compensation in 2021, 2020 and 2019

The following table sets forth, for the fiscal years ended December 31, 2021, 2020, and 2019, the cash and non-cash compensation of our non-executive directors during those years.

Fees Earned or Paid in Cash (1) (2) Option and Equity Awards Total

C. Eric Winzer $ - $ - $ 18,333 $ - $ - $ - $ - $ - $ 18,333

Lawrence S. Atinsky (3) $ - $ - $ - $ - $ - $ - $ - $ - $ -

Paul D. Mintz, MD $ - $ - $ 13,333 $ - $ - $ - $ - $ - $ 13,333

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Beneficial Ownership Table

The following tables set forth information regarding the beneficial ownership of shares of our common stock as of date indicated by (i) each director; (ii) each of the named executive officers, as identified under “Summary Compensation Table” in Item 11 above; (iii) all directors and executive officers as a group and (iv) principal stockholders known by the Company to be beneficial owners of more than five percent of our common stock.

Beneficial ownership is determined in accordance with the rules of the SEC. Except as otherwise noted, below, each named beneficial owner known to the Company has sole voting and investment power with respect to the shares listed. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of our common stock that could be issued upon the exercise of outstanding options or warrants held by that person that are exercisable at the date indicated or within 60 days thereof are considered outstanding; however, these shares are not considered outstanding when computing the percentage ownership of any other person.

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Except as otherwise noted below, the address for each person or entity listed in the table is c/o Nuo Therapeutics, Inc., 8285 El Rio, Suite 190, Houston, TX 77054.

As of March 15, 2020

Beneficial Ownership(1)

Beneficial Owner Number of Shares Percent of Class

Directors and Named Executive Officers

All Directors and Executive Officers as a Group (6 persons)(8) 6,309,497 23.3 %

Principal Stockholders

* Less than 1%

(1) Based on 24,247,400 shares of common stock outstanding.

(3) Includes 229,063 shares issuable upon exercise of options.

(5) Represents shares issuable upon exercise of options.

(7) Includes 265,103 shares issuable upon exercise of options.

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As of March 15, 2021

Beneficial Ownership(1)

Beneficial Owner Number of Shares Percent of Class

Directors and Named Executive Officers

All Directors and Executive Officers as a Group (5 persons)(7) 9,367,982 26.6 %

Principal Stockholders

* Less than 1%

(1) Based on 30,258,744 shares of common stock outstanding.

(3) Includes 229,063 shares issuable upon exercise of options.

(5) Represents shares issuable upon exercise of options.

(6) Includes 265,103 shares issuable upon exercise of options.

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As of March 15, 2022

Beneficial Ownership(1)

Beneficial Owner Number of Shares Percent of Class

Directors and Named Executive Officers

All Directors and Executive Officers as a Group (5 persons)(7) 8,837,013 22.6 %

Principal Stockholders

* Less than 1%

(1) Based on 37,124,205 shares of common stock outstanding.

(2) Includes 671,882 shares issuable upon exercise of options.

(3) Includes 340,729 shares issuable upon exercise of options.

(4) Includes 357,699 shares issuable upon exercise of options.

(5) Represents shares issuable upon exercise of options.

(6) Includes 308,431 shares issuable upon exercise of options.

(7) Includes 1,936,667 shares issuable upon the exercise of options.

Securities Authorized for Issuance under Equity Compensation Plans

During the periods covered by this Form 10-K and currently, the sole equity compensation plan of the Company has been the Nuo Therapeutics, Inc. 2016 Omnibus Incentive Compensation Plan (the “Omnibus Plan”). As originally adopted, under its evergreen provision, the maximum number of shares issuable under the Omnibus Plan on the first day of each fiscal year (starting on January 1, 2017) was increased by an amount equal to six percent (6%) of the shares reserved as of the last day of the preceding fiscal year, provided that the aggregate number of all such increases may not exceed 1,000,000 shares. As of March 4, 2022, the Board of Directors amended the Omnibus Plan, subject to stockholder approval, to eliminate the evergreen provision and increase the number of shares authorized under the Omnibus Plan to 4,250,000 shares. Refer to Note 8 Common Stock, Preferred Stock and Stock-Based Compensation in the Notes to the Consolidated Financial Statements in this Form 10-K for additional information about our equity compensation plans and arrangements.

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The following table sets forth information regarding the Omnibus Plan as of December 31, 2019.

Equity compensation plans not approved by security holders — $ — —

The following table sets forth information regarding the Omnibus Plan as of December 31, 2020.

Equity compensation plans not approved by security holders — $ — —

The following table sets forth information regarding the Omnibus Plan as of December 31, 2021.

Equity compensation plans not approved by security holders — $ — —

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ITEM 13. Certain Relationships and Related Transactions, and Director Independence

Transactions with Related Persons

Except as set forth below, we were not involved in any related person transactions since the beginning of 2019, and we are not involved in any related person transaction currently, that is required to be disclosed under Item 404(d) of Regulation S-K.

Note Purchase Agreement

On November 15, 2019 and December 6, 2019, the Company entered into note purchase agreements (each a “Note Purchase Agreement”) with certain individual accredited investors (the “Investors”) for the issuance and sale to the Investors of 12% senior secured promissory notes (each, a “Senior Secured Promissory Note”, or together, the “Notes”), in the aggregate principal amount of $305,000 with an overall $500,000 cap under the Note Purchase Agreements. The Notes had a maturity date of June 30, 2020 and interest accrued at a rate of 12% per year. In conjunction with the issuance of the Notes, the Company granted a first priority security interest (each, a “Security Agreement”) in all the assets of the Company but fundamentally consisting of the Aurix asset including all regulatory files and approvals and relevant intellectual property. The Company also issued to the Investors warrants exercisable to purchase an aggregate 457,500 shares of the Company’s common stock. The warrants were exercisable at any time, at an exercise price per share equal to $0.40, subject to certain adjustments and price protection provisions (including full ratchet anti-dilution protection) contained in the warrants. The warrants had five-year terms.

The Investors included Charles E. Sheedy, a more than five percent beneficial owner of shares of our common stock, who invested $110,000 and received Notes in such principal amounts and received warrants to purchase 165,000 shares of common stock. The Investors also included David E. Jorden, the Chief Executive and Financial Officer and a director of the Company, and Scott M. Pittman, a director of the Company. Mr. Jorden and Mr. Pittman invested $30,000 each and received Notes in such principal amounts and received warrants to purchase 45,000 shares of common stock each.

The summaries of the Note Purchase Agreement, Notes, Security Agreement, and the warrants described above are qualified in their entirety by reference to the actual Note Purchase Agreement, form of Senior Secured Promissory Note, form of Security Agreement, and form of Warrant, which are included as exhibits incorporated by reference in this Form 10-K.

Recapitalization Agreement

On October 5, 2020 (the “Effective Date”), the Company entered into a Recapitalization Agreement (the “Recapitalization Agreement) with Deerfield Private Design Fund II, L.P. (“DPDF”) and Deerfield PDI Financing II, L.P. (“DPF” and, together with DPDF, “Deerfield Management”) and the Investors in the Note Purchase Agreement described above (such Investors hereinafter referred to as “Noteholders”).

Pursuant to the Recapitalization Agreement, the shares of Series A Preferred Stock held by Deerfield Management were exchanged for 2,700,000 shares of common stock (the “Exchange Shares”) of the Company. On the Effective Date, all shares of Series A Preferred Stock were cancelled in full.

Lawrence S. Atinsky, Deerfield Management's representative on the Company’s board, resigned as of the Effective Date. Outstanding options to purchase common stock held by Mr. Atinsky as of the Effective Date were canceled. As a result of the Recapitalization Agreement, entities affiliated with Deerfield Management became more than five percent beneficial owners of shares of our common stock.

Pursuant to the Recapitalization Agreement, the Noteholders agreed to the conversion of the $305,000 principal balance of the Notes plus accrued interest through September 30, 2020 of approximately $30,400 into an aggregate 838,487 shares of common stock (the “Conversion Shares”) of the Company at a conversion price of $0.40 per share, plus the purchase, for cash, of 487,500 shares of common stock (the “Purchase Shares”) at $0.40 per share, or $195,000 in total. On the Effective Date, the Notes were cancelled in full. Pursuant to the Recapitalization Agreement, the Company also issued to the Noteholders warrants (the “Replacement Warrants") to purchase an aggregate of 3,977,961 shares of common stock of the Company. The Replacement Warrants were exercisable at any time, at an exercise price per share equal to $0.40, subject to certain adjustments and price protection provisions (including full ratchet anti-dilution protection). The Replacement Warrants had five-year terms. The warrants to purchase 457,500 shares of common stock issued to the Noteholders upon the original issuance of the Notes were canceled.

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As described above, the investors in the Note Purchase Agreement, and thereby included among the Noteholders were Charles E. Sheedy, a more than five percent beneficial owner of shares of our common stock, David E. Jorden, the Chief Executive and Financial Officer and a director of the Company, and Scott M. Pittman, a director of the Company. Pursuant to the Recapitalization Agreement, Mr. Sheedy recieved 302,205 of the Conversion Shares and paid $70,000 as a purchase price for 175,000 of the Purchase Shares. Pursuant to the Recapitalization Agreement, Mr. Jorden and Mr. Pittman received 82,545 of the Conversion Shares each and paid $20,000 and $10,000, respectively as a purchase price for the 50,000 and 25,000 of the Purchase Shares. In addition, pursuant to the Recapitalization Agreement, Mr. Jorden and Mr. Pittman received Replacement Warrants exercisable for 397,635 and 322,635 shares, respectively.

The summary of the Recapitalization Agreement described above is qualified in its entirety by reference to the actual agreement, which is included as an exhibit incorporated by reference in this Form 10-K.

Warrant Modification Agreement

Effective as of December 1, 2021 (the “Modification Effective Date”), the Company entered into a Warrant Modification Agreement (the “Warrant Modification Agreement") with the holders of an aggregate 6,865,461 warrants whereby such warrants were modified to adjust the warrant exercise price from $0.40 per share to $0.20 per share provided a holder exercised the warrant prior to January 31, 2022. All such modified warrants not exercised prior to such date were to be forfeited and deemed expired or otherwise cancelled.

Charles E. Sheedy, a more than five percent beneficial owner of shares of our common stock, exercised modified warrants for 1,431,615 shares at an exercise purchase price of $286,323. David E. Jorden, the Chief Executive and Financial Officer and a director of the Company, and Scott M. Pittman, a director of the Company, exercised modified warrants for 1,137,635 and 900,000 shares, respectively, at exercise purchase prices of $227,527 and $180,000, respectively.

Director Independence

The Company’s current directors are David Jorden, Eric Winzer, Scott Pittman, and Paul D. Mintz. The Board has chosen to apply Nasdaq Stock Market corporate governance requirements and standards in determining director independence. The Board has determined that all of the Company’s current directors meet such independence requirements with the exception of Mr. Jorden, who serves as the Chief Executive and Financial Officer of the Company.

ITEM 14. Principal Accounting Fees and Services

Since August 9, 2018, Marcum LLP (“Marcum”) has been our independent registered public accounting firm. GBH CPAs, PC (“GBH”) previously was our independent registered public accounting firm since September 27, 2017 until GBH combined its practice with Marcum effective July 1, 2018. The following table presents fees for professional services rendered by our principal accountants for the fiscal years 2018 through 2021:

Audit-Related Fees – – –

Tax Fees – – –

All Other Fees – – –

Pursuant to its charter, the Audit Committee must pre-approve audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditors. The Audit Committee may, when appropriate, form and delegate authority to subcommittees consisting of one or more members of the Audit Committee, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.

All audit services and permitted non-audit services were pre-approved by the Audit Committee.

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PART IV

ITEM 15. Exhibits and Financial Statement Schedules

(a)(3) Exhibits

Number Exhibit Table

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10.22 2016 Omnibus Incentive Compensation Plan, as amended and restated *

14 Code of Conduct and Ethics

21 Subsidiaries of the Company

99.1 Audit Committee Charter

99.2 Compensation Committee Charter

99.3 Nominating and Governance Committee Charter

101.INS Inline XBRL Instance Document

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

* Indicates a management contract or compensatory plan or arrangement.

ITEM 16. Form 10-K Summary

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NUO THERAPEUTICS, INC.

Date: April 15, 2022 By: /s/ David E. Jorden

David E. Jorden

Chief Executive and Chief Financial Officer and Director

(Principal Executive Officer and Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: April 15, 2022 /s/ David E. Jorden

David E. Jorden

Chief Executive and Chief Financial Officer and Director

(Principal Executive Officer and Principal Financial and Accounting Officer)

Date: April 15, 2022 /s/ Paul D. Mintz

Paul D. Mintz

Director

Date: April 15, 2022 /s/ C. Eric Winzer

C. Eric Winzer

Director

Date: April 15, 2022 /s/ Scott M. Pittman

Scott M. Pittman

Director

NUO THERAPEUTICS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Financial Statements

Consolidated Balance Sheets F-3

Consolidated Statements of Operations F-4

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) F-5

Consolidated Statements of Cash Flows F-6

Notes to Consolidated Financial Statements F-7

Unaudited Financial Statements

Consolidated Balance Sheets F-23

Consolidated Statements of Operations F-25

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) F-27

Consolidated Statements of Cash Flows F-28

Notes to Consolidated Financial Statements F-30

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

Nuo Therapeutics, Inc.

Houston, Texas

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Nuo Therapeutics, Inc. (the “Company”) as of December 31, 2021, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, 2020 and 2019, 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.

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 3 to the financial statements, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material 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. As part of our audit we are required to obtain an understanding of internal control over financial reporting 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.

Our audit included performing procedures to assess the risks of material misstatement of the 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 regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides 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 financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation and accounting for stock-based transactions

Description of the Matter

As described in Notes 2 and 7, the Company entered into a Warrant Modification Agreement in December 2021 with the employee holders and investor holders of 6,865,461 warrants whereby the warrants were modified to decrease the exercise price provided the holders exercised the warrant prior to January 31, 2022. All warrants were exercised as of December 31, 2021. The modification was accounted for at fair value; as such, additional stock-based compensation expense of $13,936 was recognized with respect to the employee warrants and a deemed dividend of $795,592 was recognized for the investor warrants.

Auditing management’s valuation and accounting for stock-based transactions required subjective judgement to analyze the terms within the stock-based agreements to determine that we concurred with management’s valuation and calculations.

How We Addressed the Matter in Our Audit

Our audit procedures included, amongst others:

/s/ Marcum LLP

We have served as the Company’s auditor since 2017.

Marcum LLP

Houston, Texas

April 15, 2022

F-2

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Nuo Therapeutics, Inc.

Consolidated Balance Sheets

December 31,

Assets

Current assets

Deposit for convertible notes - - 220,000

Prepaid expenses and other current assets 51,349 - 36,295

Property and equipment, net - - -

Liabilities and Stockholders' Equity (Deficit)

Current liabilities

Accrued interest payable - - 61,053

Senior secured promissory notes - - 288,971

Convertible notes, net - - 410,000

Derivative liabilities - - 13,784

Non-current liabilities - - -

Commitments and contingencies (Note 11)

Stockholders' Equity (Deficit)

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Nuo Therapeutics, Inc.

Consolidated Statements of Operations

Year ended December 31,

Revenue

Product sales $ - $ - $ 146,177

Operating expenses

Sales and marketing - - 30,457

Research and development - - 181,185

Gain on extinguishment of debt - 335,579 -

Provision (benefit) for income taxes - - -

Deemed dividends (contributions):

Gain on exchange of preferred stock - 7,958,075 -

Warrant modification (795,592 ) - -

Reset of pricing on cashless exercise of warrant - (158,381 ) -

Net income (loss) per share - basic $ (0.03 ) $ 0.30 $ (0.05 )

Net income (loss) per share - diluted $ (0.03 ) $ 0.27 $ (0.05 )

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Nuo Therapeutics, Inc.

Consolidated Statements of Changes in Stockholders' Equity (Deficit)

Preferred Stock Common Stock

Share-based compensation expense - - - - 50,000 - 50,000

Share-based compensation expense - - - - 13,936 - 13,936

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Nuo Therapeutics, Inc.

Consolidated Statements of Cash Flows

Year ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization - - 89,859

Vendor expense settled in shares - 10,501 -

Amortization of debt discounts and issuance costs - 16,029 102,724

Loss on abandonment of property and equipment - - 15,620

Gain on extinguishment of debt - (335,579 ) -

Changes in operating assets and liabilities

Deposits for convertible notes - - (220,000 )

Accounts receivable, net - - 22,170

Deferred costs and other assets - - 3,330

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment - - -

Net cash provided by investing activities - - -

CASH FLOWS FROM FINANCING ACTIVITIES

Net proceeds from issuance of senior secured debt - - 305,000

Net proceeds from issuance of common stock - 195,000 -

Net proceeds from exercise of warrants 1,373,092 - -

SUPPLEMENTAL INFORMATION

Cash paid during the period for:

Income taxes $ - $ - $ -

NON-CASH INVESTING AND FINANCING TRANSACTIONS

Resetting of warrant exercise price $ - $ 158,381 $ -

Common stock issued to vendors for services $ - $ 10,501 $ -

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NUO THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1– Description of Business

Description of Business

Nuo Therapeutics, Inc. (“Nuo Therapeutics,” the “Company,” “we,” “us,” or “our”) is a Delaware corporation organized in 1998 under the name Informatix Holdings, Inc. In 1999, Autologous Wound Therapy, Inc., an Arkansas Corporation, merged with and into Informatix Holdings, Inc. and the name of the surviving corporation was changed to Autologous Wound Therapy, Inc. In 2000, Autologous Wound Therapy, Inc. changed its name to Cytomedix, Inc. (“Cytomedix”). In 2001, Cytomedix, filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code, after which Cytomedix was authorized to continue to conduct its business as a debtor and debtor-in-possession. Cytomedix emerged from bankruptcy in 2002 under a Plan of Reorganization. In September 2007, Cytomedix received 510(k) clearance for the Aurix System (“Aurix”), formerly known as the AutoloGelTM System, from the U. S. Food and Drug Administration (“FDA”). In April 2010, Cytomedix acquired the Angel Whole Blood Separation System (“Angel”) and the Angel Business, from Sorin Group USA, Inc. In February 2012, Cytomedix, acquired Aldagen, Inc. (“Aldagen”), a privately held developmental cell-therapy company located in Durham, NC. In 2014, Cytomedix changed its name to Nuo Therapeutics, Inc. In 2016, Nuo filed for and emerged from bankruptcy under Chapter 11 as described previously under “Item 1. Business – 2016Bankruptcy and Emergence from Bankruptcy.” Effective May 1, 2019, we furloughed our remaining employees and ceased standard operational activities as we awaited developments concerning our reconsideration request with the Centers for Medicare & Medicaid Services (“CMS”) regarding Medicare coverage for Aurix. Based on a favorable National Coverage Determination issued in April 2021, we initiated restart activities for the business beginning in October 2021 with an expectation that the Aurix product will be available for commercial sale by May 2022. Aldagen is a non-operational, wholly owned subsidiary of Nuo.

Impact of COVID-19 Pandemic on Financial Statements

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a “pandemic,” or a worldwide spread of anew disease. Many countries imposed and continue to enforce quarantines and restrictions on travel and mass gatherings to slow the spread of the virus and have closed non-essential businesses.

In response to COVID- 19, the Company has not experienced a significant disruption or delay in the development, manufacturing or sale of its products and has not otherwise experienced any significant negative impact on its financial condition, results of operations or cash flows. However, the extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the pandemic. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company has not experienced any significant negative impact on the December 31, 2021 audited consolidated financial statements related to COVID-19.

Note 2–Recapitalization

In anticipation of returning to operational status, the Company undertook several financing transactions in 2021,2020 and 2019 to stabilize its financial condition, as follows:

2018 Convertible Notes

In September 2018, the Company issued two separate convertible notes (the “2018 Convertible Notes”) with detachable stock purchase warrants (the “Warrants”) to two separate investors, Auctus Fund, LLC (“Auctus”) and EMA Financial, LLC (“EMA” and, collectively with Auctus, the “Investors”). Pursuant to separate securities purchase agreements, the Company issued and sold to the Investors 12% convertible promissory notes, each in the principal amount of $175,000, for an aggregate purchase price of $315,800 (reflecting a combined $34,200 in original issue discount and transaction fees). Pursuant to the purchase agreements, the Company also issued to each Investor a warrant exercisable to purchase 233,333 shares of the Company’s common stock, for an aggregate of 466,666 shares of common stock, subject to adjustment.

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The notes had an original maturity date nine months from the date of issuance ( June 17, 2019). Under the original terms of the 2018 Convertible Notes, after six months from the date of issuance, the Investors may convert the notes, at any time, in whole or in part, into shares of the Company’s common stock, at a conversion price corresponding to a 40% discount to the average of the two lowest trading prices of the common stock during the 25 trading days prior to the conversion, subject to certain adjustments and price-protection provisions contained in the notes, including full-ratchet anti-dilution protection in the case of dilutive issuances of securities that do not meet the requirements of “exempt issuances” as defined in the notes.

Throughout the firstthree quarters of 2019, the Company entered into various amendments to the 2018 Convertible Notes. The amendments extended the date when the Company may prepay the notes and deferred the date upon which the Investors can initiate conversion of the notes into common shares of the Company pursuant to the notes’ terms until September 17, 2019 in the case of the most recent amendment. The Company paid the Investors amendment fees totaling $69,000 representing approximately 20% of the face value of the 2018 Convertible Notes and agreed to an increase in the principal balance of each note by $30,000 to $205,000. The maturity date of the Auctus note was also extended until July 31, 2019.

In December 2019, the Company further amended the 2018 Convertible Notes to provide for the settlement and extinguishment of all obligations under the 2018 Convertible Notes upon the (i) payment of an aggregate $220,000 to the Investors and (ii) issuance of an aggregate 350,000 shares of common stock to the Investors on or before February 10, 2020. The Company paid $220,000 to the Investors on December 10, 2019 and issued 350,000 shares of common stock on February 5, 2020 in full settlement of all obligations including accrued interest, and recognized a gain on debt extinguishment of approximately $246,000 in 2020 upon issuance of the common shares.

2019 Senior Secured Notes

In November and December 2019, the Company entered into note purchase agreements with certain investors providing for the issuance of $305,000 principal amount of 12% senior secured promissory notes (the “2019 Senior Secured Notes”) and warrants to acquire 457,500 shares of the Company’s common stock. The $220,000 of the proceeds were used primarily to partially repay the Company’s obligations under the 2018 Convertible Notes as discussed above.

On September 1, 2020, the Noteholders notified the Company of its default under the 2019 Senior Secured Notes and submitted a forbearance and recapitalization proposal to the Company. The 2019 Senior Secured Notes were settled in full in October 2020 (see 2020 Recapitalization below).

2020 Recapitalization

In October 2020 and in response to the declared default under the 2019 Senior Secured Notes, the Company entered into a Recapitalization Agreement (the “Recapitalization”) with its existing Deerfield Investors (“Deerfield”) and holders of its 2019 Senior Secured Notes (“Noteholders”) pursuant to which:

The settlement of the Series A Preferred Stock was accounted for at fair value. The Company recognized a deemed dividend (contribution) resulting from the gain on the cancellation of its equity classified preferred stock, calculated as the difference between the fair value of the consideration transferred and the carrying value of the preferred stock. In addition, Lawrence S. Atinsky, the Deerfield Investors’ representative on the Company’s board, resigned and the number of Company directors was reduced to four. Outstanding options to purchase common stock held by Mr. Atinsky as of the Effective Date were forfeited.

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The settlement of the 2019 Senior Secured Notes resulted in the conversion of the $305,000 principal balance of the Notes plus accrued interest of approximately $30,400 into an aggregate 838,487 shares of common stock (the “Conversion Shares”) of the Company at a conversion price of $0.40 per share, plus the purchase by the Noteholders, for cash, of 487,500 shares of common stock (the “Purchase Shares”) at $0.40 per share, or $195,000 in total. The settlement of the 2019 Senior Secured Notes was accounted for at fair value. The Company recognized a gain on extinguishment of the 2019 Senior Secured Notes of $89,776 calculated as the excess of the carrying amount of the debt (including the accrued interest) over the fair value of the reacquisition price (consisting of the fair value of the common stock and warrants issued net of the fair value of the warrants forfeited and cash received).

As part of the Recapitalization, the Company granted to each of three (3) individuals an aggregate of (i) 962,500 shares of common stock (the “Compensation Shares”) and (ii) fully vested warrants to purchase 2,887,500 shares of common stock of the Company (the “Compensation Warrants”) in consideration of past performance and service provided to the Company. The fair value of the Compensatory Shares and Compensatory Warrants was $333,628 which was recognized as stock-based compensation expense upon issuance.

2021 Warrant Modification

In December 2021, the Company entered into a Warrant Modification Agreement (the “Agreement”) with the employee holders and Investor holders of 6,865,461 Warrants whereby the Warrants were modified to decrease the exercise price from $0.40 to $0.20 per share provided the holders exercised the Warrant prior to January 31, 2022 (the “Modification”). All Warrants were exercised as of December 30, 2021. The Modification was accounted for at fair value; as such, additional stock-based compensation expense of $13,936 was recognized with respect to the employee warrants and a deemed dividend of $795,592 was recognized for the Investor warrants.

See Notes 6 and 7 for further discussion.

Note 3–Liquidity and Summary of Significant Accounting Principles

Liquidity

Since our inception, we have financed our operations by raising debt, issuing equity and equity-linked instruments, and executing licensing arrangements, and to a lesser extent by generating royalties and product revenues. In mid-2019, we ceased ongoing operational activities as we worked to reach a favorable outcome to Medicare reimbursement coverage for the Aurix System. In April 2021 CMS issued an NCD establishing national reimbursement coverage for Aurix when used in chronic non-healing wounds where a diabetes clinical diagnosis exists for the patient. During 2021,2020 and 2019, the Company raised net cash proceeds of $1,873,092 from the issuance of senior secured debt, common stock and from the exercise or stock purchase warrants. In conjunction with the warrant exercises, the Company initiated efforts to return to operational status as a commercial business.

We have incurred, and continue to incur, recurring losses and negative cash flows. As of December 31, 2021, we have an accumulated deficit of $23.6 million and cash and cash equivalents on hand of approximately $1.4 million.

The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations, and potential other funding sources, including cash on hand, to meet our obligations as they become due.

We believe based on the operating cash requirements and capital expenditures expected for the next twelve months that our current resources and projected revenue from sales of Aurix are insufficient to support our operations for the next 12 months. As such, we believe that substantial doubt about our ability to continue as a going concern exists.

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Even assuming we succeed in raising sufficient additional funds in the near future to avoid a cessation of business operations, we require additional capital and will seek to continue financing our operations with external capital for the foreseeable future. Any equity financings may cause further substantial dilution to our stockholders and could involve the issuance of securities with rights senior to the common stock. Any debt financings may require us to comply with additional onerous financial covenants and restrict our business operations. Our ability to complete additional financings is dependent on, among other things, market reception of the Company and perceived likelihood of success of our business model, the state of the capital markets at the time of any proposed equity or debt offering, state of the credit markets at the time of any proposed loan financing, and on the relevant transaction terms, among other things. We may not be able to obtain additional capital as required to finance our efforts, through equity or debt financings, other transactions or any combination thereof, on satisfactory terms or at all. Additionally, any such financing, if at all obtained, may not be adequate to meet our capital needs and to support our operations.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its wholly-owned, controlled, and inactive subsidiary Aldagen, Inc. (“Aldagen”). All significant inter-company accounts and transactions are eliminated in consolidation.

Use of Estimates

Credit Concentration

One customer generated 26% of our revenue in 2019. All our revenue in 2019 was generated within the U.S. We had no trade receivables as of December 31, 2021, 2020, and 2019 given our April 2019 decision to cease operational activities.

Historically, we used single suppliers for several components of the AurixTM product line. We outsource the manufacturing of various product components to contract manufacturers. While we believe these manufacturers demonstrate competency, reliability and stability, there is no assurance that one or more of them will not experience an interruption or inability to provide us with the products needed to satisfy customer demand. Additionally, while most of the components of AurixTM are generally readily available on the open market, a reagent, bovine thrombin, is available exclusively through Pfizer, with whom we have an established vendor relationship.

Cash Equivalents

AURX US Equity

AURX · 10-K · period ended 2021-12-31

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

ITEM 8. Financial Statements and Supplementary Data

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

ITEM 9A. Controls and Procedures

ITEM 9B. Other Information

ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

ITEM 10. Directors, Executive Officers and Corporate Governance

ITEM 11. Executive Compensation

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

ITEM 14. Principal Accounting Fees and Services

ITEM 15. Exhibits and Financial Statement Schedules

ITEM 16. Form 10-K Summary

AURX US Equity☆

AURX · 10-K · period ended 2021-12-31

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

ITEM 8. Financial Statements and Supplementary Data

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

ITEM 9A. Controls and Procedures

ITEM 9B. Other Information

ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

ITEM 10. Directors, Executive Officers and Corporate Governance

ITEM 11. Executive Compensation

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

ITEM 13. Certain Relationships and Related Transactions, and Director Independence

ITEM 14. Principal Accounting Fees and Services

ITEM 15. Exhibits and Financial Statement Schedules

ITEM 16. Form 10-K Summary

AURX US Equity