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 were reinitiated in mid-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, 2022 and 2021

Revenue and Gross Profit

Product revenues for the year ended December 31, 2022 totaled approximately $112,000 with approximately $93,000 of associated gross profit and a resulting gross margin of approximately 83%. Re-initiation of commercial activity for the Aurix product began in May 2022 as saleable product inventory became available at the Company’s warehouse/distribution facility. There were no revenues in the year ended December 31, 2021.

Operating Expenses

Total operating expenses increased approximately by $3,323,000 to approximately $3,414,000 comparing the year ended December 31, 2022 to the prior full year 2021 period. The increase from the nominal expense level in the prior year was due to expenses associated with the business returning to commercial status as an operating business in 2022 including renewed commercial sales activities that began in May 2022. Expenses for the year ended December 31, 2022 were primarily composed of (i) approximately $1,700,000 of compensation and benefits expense, (ii) approximately $729,000 of external consulting costs and professional fees including accounting and audit, legal fees, and quality management system consulting costs and (iii) approximately $616,000 of various other operating expenses including sales infrastructure, marketing costs, external distributor commissions, and sales/reimbursement consulting expenses of approximately $255,000, insurance expense of approximately $134,000, operating lease costs of approximately $128,000, and travel related expenses of approximately $99,000.

Interest Expense, net

Interest expense, net for the year ended December 31, 2022 of approximately $2,000 represents interest expense from the financing of insurance premiums.

Other Income (Expense)

Other income for the year ended December 31, 2022 primarily represents the gain of approximately $146,000 realized from the negotiated settlement of legacy accounts payable with third-party vendors including the full release of any ongoing payment liability.

Liquidity and Capital Resources

Overview

As of December 31, 2022, we had cash and cash equivalents of approximately $2.1 million, total current assets of approximately $2.6 million and total current liabilities 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, 2022 and 2021, we incurred net losses of approximately $3.2 million and $0.1 million, respectively. As a consequence of a deemed dividend (contribution) in 2021, we had a net loss available for common stockholders of approximately $0.9 million in 2021. As of December 31, 2022, our accumulated deficit was approximately $26.8 million and our stockholders’ equity was approximately $2.2 million.

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We sold 3,957,757 shares of common stock to certain accredited investors pursuant to Security Purchase Agreements in two private placements which closed on April 29 and May 18, 2022 for proceeds of $3,957,757.

On August 24, 2022, we entered into a Common Stock and Warrant Purchase Agreement with Pacific Medical, Inc. (“Pacific Med”) for the sale and issuance of shares of common stock and warrants to purchase shares of common stock. Pursuant to the Common Stock and Warrant Purchase Agreement, Pacific Med purchased 500,000 shares of the Company’s common stock for $500,000 in September 2022. As part of the Common Stock and Warrant Purchase Agreement, we agreed to grant to Pacific Med the right to participate in any future financing through December 31, 2023 (the “Participation Rights”) in connection with a listing of our common stock on a national securities exchange. The Participation Rights entitle Pacific Med to purchase up to 500,000 shares of common stock upon substantially the same terms, conditions, and price provided for in such financing. If such a financing does not occur by December 31, 2023, the Common Stock and Warrant Purchase Agreement provides that we will issue Pacific Med a warrant with a January 1, 2024 issuance date and exercisable until June 30, 2024 to purchase up to 500,000 shares of common stock at a price equal to the lower of $2.00 per share or the 20-day volume weighted average closing price per share ending December 31, 2023.

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. 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 financing 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.

We maintain our cash deposits primarily in financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). We have not experienced any losses related to amounts in excess of FDIC limits.

Financing and Related Developments During the Years 2019 through 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.

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.

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.

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.

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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

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.

Pursuant to the Recap 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.

Warrant Modification Agreement and Early Warrant Exercise

Effective as of December 1, 2021, the Company entered into a Warrant Modification Agreement 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:

Cash flows used in operating activities $ (3,706,126 ) $ (119,955 )

Cash flows used in investing activities $ (59,992 ) $ -

Operating Activities

Cash used in operating activities for the year ended December 31, 2022 of approximately $3.7 million primarily reflects our net loss of approximately $3.2 million adjusted by i) a non-cash gain of approximately $0.1 million from the negotiated settlement of legacy accounts payable obligations, ii) approximately $0.1 million in total amortization of right of use assets, property and equipment depreciation, and stock-based compensation and iii) approximately $0.5 million net change in operating assets and liabilities.

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.

Investing Activities

We had limited investing activities for the year ended December 31, 2022 totaling approximately $60,000. We had no investing activities for the year ended December 31, 2021.

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Financing Activities

Cash flows from financing activities for the year ended December 31, 2022 reflects (i) approximately $4.0 million of proceeds raised from the sale of 3,957,757 shares of common stock in two private placements closed in April and May 2022 and (ii) $0.5 million of proceeds from the Common Stock and Warrant Purchase Agreement with Pacific Medical, Inc. in September 2022.

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.

Inflation

The Company does not believe that inflation has had a material effect 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, recoverability and depreciable lives of long-lived assets, deferred taxes and associated valuation allowance, and allowances for inventory obsolescence and doubtful accounts. Actual results could differ from those estimates.

Revenue Recognition

We analyze our revenue arrangements to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers; (ii) identification of distinct performance obligations in the contract; (iii) determination of contract transaction price; (iv) allocation of contract transaction price to the performance obligations; and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation. We recognizes revenues upon the satisfaction of its performance obligations (upon transfer of control of promised goods or services to customers) in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

Stock-Based Compensation

We recognize expense in the consolidated statements of operations for the fair value of all stock-based compensation to key employees, nonemployee directors and advisors, generally in the form of stock options and stock awards. We use the Black-Scholes option valuation model to estimate the fair value of stock options on the grant date. Compensation cost is amortized on a straight-line basis over the vesting period for each respective award. We account for any forfeitures as they occur.

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:

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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.

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 period 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 period 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 period 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 period 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 continuing material weakness in our internal control over financial reporting described below under “Material Weaknesses” and “Remediation Plan.”

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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. When we re-started commercial operations in 2022 and as disclosed in our prior year Annual Report, 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.

Remediation Plan

In 2022, the Company engaged outside consultants to assist with various accounting and financial reporting matters and will continue assessing the need for hiring of additional internal accounting and and third-party financial reporting resources. As additional financial resources are obtained and we increase our operating activity, 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, through internal hiring and the use of external third parties, a sufficient complement of accounting and financial reporting resources and to periodically assess the design and operating effectiveness of our internal controls.

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 during the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. Other Information

None.

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. Officers are appointed by, and serve at the pleasure of, the Board of Directors.

Name Age Position

David E. Jorden 60 Chief Executive and Chief Financial Officer; Director

C. Eric Winzer 66 Independent Director

Scott M. Pittman 64 Independent Director

Paul D. Mintz, MD 74 Independent Director

Peter A. Clausen 57 Chief Scientific Officer and Chief Operating Officer

David E. Jorden has been Chief Executive Officer and Chief Financial Officer of the Company since July 1, 2016 after serving as Acting Chief Executive Officer effective January 8, 2016 and Acting Chief Financial Officer effective May 2015. Mr. Jorden also serves as Secretary of the Company. He has served as a director since October 2008. Mr. Jorden is also presently serving since June 2013 as Chief Executive Officer for Nanospectra Biosciences, Inc., a private company developing nanoparticle directed 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 Chief Financial Officer 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 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.

Scott M. Pittman has served as a director since May 5, 2016. Mr. Pittman has over 30 years in hospital executive management. Since 2014, he has served in operational and business development roles for, and currently is Senior Vice President of, Buchanan General Hospital. Since 2010, he has been a Registered Representative with Calton & Associates. From 2001 to 2009, he was a hospital CEO with Adventist Health Systems. During 1989 to 2001, he was a hospital executive and system COO for Princeton Community Hospital Assoc. Mr. Pittman has developed several multi-million-dollar hospital and program service expansions, healthcare entity acquisitions and mergers, and served on state and regional health planning organizations. He is a magna cum laude graduate of Southwestern Adventist University with B.A. and B.S. Degrees in Business and Finance, 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.

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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 from 2011 to 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) from 2009 to 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 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.

Peter A. Clausen has been our Chief Scientific Officer as well as our Chief Operating Officer since January 1, 2022. He previously was appointed as the Chief Scientific Officer on March 30, 2014 and served in that position until December 31, 2019. He originally joined the Company in September 2008 and has more than 20 years of experience in the biotechnology industry. Dr. Clausen served as a Senior Product manager within the orthobiologics division at Arthrex Inc. from March 2020 to October 2021 where he was responsible for the development and launch of autologous biologics used to treat inflammatory mediated connective tissue disease. Prior to originally joining the Company, he 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. The Company has not made any material changes to the procedures by which stockholders may recommend nominees to the Board of Directors of the Company since 2022.

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 available on our website at www.nuot.com.

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.

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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, 2022, 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 two transactions on one date was filed late by Mr. Jorden, a report covering two transactions on one date was filed late by Mr. Winzer, a report covering a total of two transactions on one date was filed late by Mr. Pittman, a report covering two transactions on one date was filed late by Dr. Mintz, and the initial statement of beneficial ownership and two reports each covering one transaction was filed late by Dr. Clausen.

ITEM 11. Executive Compensation

This following table presents information regarding compensation paid to our named executive officers during the years 2022 and 2021.

Summary Compensation Table

Chief Executive and Chief Financial Officer 2021 $ - $ - $ - $ - $ -

Employment Agreements

On May 9, 2022, the Company entered into an employment agreement effective April 1, 2022 with David Jorden, the Company’s Chief Executive and Financial Officer. The employment agreement provides for a base salary to Mr. Jorden of Two Hundred Twenty-Five Thousand Dollars ($225,000) per year and, as determined by the Compensation Committee, an annual bonus of up to 50% of such base salary. The employment agreement also provides, upon certain circumstances, for a severance payment to Mr. Jorden of twelve months of his base salary as in effect at the time upon termination of services, including due to a change in control of the Company. The terms of the employment agreement with Mr. Jorden contain other customary provisions.

On May 9, 2022, the Company also entered into an employment agreement effective January 1, 2022 with Peter Clausen, the Company’s Chief Scientific Officer and Chief Operating Officer. The employment agreement provides for a base salary to Mr. Clausen as of May 1, 2022 of Two Hundred Twenty-Five Thousand Dollars ($225,000) per year and, as determined by the Compensation Committee, an annual bonus of up to 50% of such base salary. The employment agreement also provides, upon certain circumstances, for a severance payment to Mr. Clausen of twelve months of his base salary as in effect at the time upon termination of services, including due to a change in control of the Company. The terms of the employment agreement with Mr. Clausen contain other customary provisions.

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The descriptions above of the employment agreements for Mr. Jorden and Mr. Clausen are qualified by reference to the actual employment agreements, copies of which are included as exhibits to this Annual Report.

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

Outstanding Equity Awards

The following table sets forth the outstanding equity awards held by our named executive officers as of December 31, 2022.

Outstanding Equity Awards at December 31, 2022

(5) Fully vested upon the March 4, 2022 date of grant.

Potential Payments Upon Termination or Change of Control

The employment agreements of each of Mr. Jorden and Dr. Clausen provides, upon certain circumstances, for a severance payment of twelve months of his base salary as in effect at the time upon termination of services, including due to a change in control of the Company.

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Director Compensation in 2022

The following table sets forth, for the fiscal year ended December 31, 2022, the cash and non-cash compensation of our non-executive directors during the years.

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

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.

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, 2023

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) 9,125,323 20.8 %

Principal Stockholders

* Less than 1%

(1) Based on 41,799,016 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 357,709 shares issuable upon exercise of options.

(5) Represents shares issuable upon exercise of options.

(6) Includes 445,931 shares issuable upon exercise of options.

(7) Includes 2,074,167 shares issuable upon the exercise of options.

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Securities Authorized for Issuance under Equity Compensation Plans

During the period 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 of March 4, 2022, the Board of Directors amended the Omnibus Plan, which stockholders subsequently approved, to eliminate its evergreen provision and increase the number of shares authorized under the Omnibus Plan to 4,250,000 shares. Refer to Note 7 - Equity andStock-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.

The following table sets forth information regarding the Omnibus Plan as of December 31, 2022.

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

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 2021, 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.

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.

2022 Private Placement

On April 29, 2022, the Company entered into a Securities Purchase Agreement, dated as of April 11, 2022, with certain accredited investors for the sale of 3,550,000 shares of the Company’s common stock at a price of $1.00 per share for proceeds of $3,550,000 (the “Private Placement”). The closing of the Private Placement also occurred on April 29, 2022.

The investors in the Private Placement included David E. Jorden, the Chief Executive and Financial Officer and a member of the Board of Directors of the Company, Scott M. Pittman, a member of the Board of Directors of the Company, Peter A. Clausen, the Chief Scientific Officer and Chief Operating Officer of the Company, and Charles E. Sheedy, a principal stockholder of the Company of the Company. Messrs. Jorden, Pittman, Clausen, and Sheedy invested $10,532, $100,000, $25,000, and $804,868, respectively, in the Private Placement.

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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 2022 and 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)(1) Financial Statements

See the Index to Consolidated Financial Statements at page F-1 of this Form 10-K:

(a)(2) Financial Statement Schedules

Financial statement schedules have been omitted since they either are not required, not applicable, or the information is otherwise included in our consolidated financial statements or the related footnotes.

(a)(3) Exhibits

Number Exhibit Table

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.

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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 14, 2023 By: /s/ David E. Jorden

David E. Jorden

Chief Executive and Chief Financial Officer and Director

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 14, 2022 /s/ David E. Jorden

David E. Jorden

Chief Executive and Chief Financial Officer and Director

Date: April 14, 2022 /s/ Paul D. Mintz

Paul D. Mintz

Director

Date: April 14, 2022 /s/ C. Eric Winzer

C. Eric Winzer

Director

Date: April 14, 2022 /s/ Scott M. Pittman

Scott M. Pittman

Director

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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 F-5

Consolidated Statements of Cash Flows F-6

Notes to Consolidated Financial Statements F-7

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of

Nuo Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Nuo Therapeutics, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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 audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits 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 audits, 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 audits 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 audits 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 audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters 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. We determined that there are no critical audit matters.

/s/ Marcum LLP

Marcum LLP

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

Houston, Texas

April 14, 2023

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Nuo Therapeutics, Inc.

Consolidated Balance Sheets

December 31, December 31,

Assets

Current assets

Accounts receivable, net 92,320 -

Prepaid expenses and other current assets 196,378 51,349

Property and equipment, net 53,165 -

Operating lease right of use assets 359,284 -

Liabilities and Stockholders' Equity

Current liabilities

Current portion of operating lease liabilities 79,453 -

Non-current portion of operating lease liabilities 255,592 -

Commitments and contingencies (Note 10)

Stockholders' Equity

F-3

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Nuo Therapeutics, Inc.

Consolidated Statements of Operations

Year ended December 31,

Revenue

Operating expenses

Other income (expense)

Interest expense, net (2,103 ) -

Gain on settlement of legacy accounts payable obligations 146,438 -

Deemed dividend (contribution):

Warrant modification - (795,592 )

Net loss available for common stockholders $ (3,171,736 ) $ (886,262 )

Net loss per share – basic and diluted $ (0.08 ) $ (0.03 )

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Nuo Therapeutics, Inc.

Consolidated Statements of Changes in Stockholders' Equity

For the Years Ended December 31, 2022 and 2021

Common Stock Total

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

Share-based compensation expense - - 9,145 - 9,145

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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:

Gain on settlement of accounts payable (146,438 ) -

Depreciation of property and equipment 6,827 -

Amortization of operating lease right of use assets 67,255 -

Changes in operating assets and liabilities:

Accounts receivable (92,320 ) -

Prepaid expenses and other current assets (145,029 ) (51,349 )

Accrued liabilities 80,086 -

Operating lease liabilities (91,494 ) -

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment (59,992 ) -

Net cash used in investing activities (59,992 ) -

CASH FLOWS FROM FINANCING ACTIVITIES

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

RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH

Restricted cash - -

SUPPLEMENTAL INFORMATION

Cash paid during the period for:

Income taxes $ - $ -

NON-CASH INVESTING AND FINANCING TRANSACTIONS

Issuance of options to settle accrued compensation liabilities $ 103,333 $ -

ROU assets and lease liabilities established at inception of lease $ 426,538 $ -

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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. 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 a new disease. Many countries imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus and have closed non-essential businesses.

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 unaudited 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 its December 31, 2022 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.

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.

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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.

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.

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See Note 6 -Stock Purchase Warrants and Note 7 – Equity and Stock-Based Compensation 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 CMS National Coverage Determination in April 2021 and the warrant exercises, the Company initiated efforts to return to operational status as a commercial business. During the year ended December 31, 2022, the Company raised proceeds of $4,457,757 from the sale of common stock, participation right, and contingent warrant to certain accredited investors in three separate equity private placements which closed in April, May, and September 2022.

We have incurred, and continue to incur, recurring losses and negative cash flows. As of December 31, 2022, we have an accumulated deficit of approximately $26.8 million and cash and cash equivalents on hand of approximately $2.1 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. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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. The Company operates its business in one operating segment consisting of one reporting unit.

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

Credit Concentration

We generate accounts receivable from the sale of our products. Specific customer receivable balances in excess of 10% of total receivables at December 31, 2022 is listed below. We had no trade receivables as of December 31, 2021.

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Customer A 19%

Customer B 17%

Customer C 16%

Customer D 14%

Customer E 12%

Revenue from significant customers exceeding 10% of total revenues for the year ended December 31, 2022 is listed below. All our revenue in 2022 was generated within the U.S. We generated no revenues in the year ended December 31, 2021.

Customer A 14%

Customer B 14%

Customer F 13%

Customer C 13%

Customer D 11%

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, Cash Equivalents, and Restricted Cash

We consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents potentially subject us to a concentration of credit risk, as approximately $2.1 million held in financial institutions was in excess of the FDIC insurance limit of $250,000 at December 31, 2022. We maintain our cash in the form of money market deposit accounts with financial institutions that we believe are credit worthy. We maintained no cash equivalents as of December 31, 2022 or 2021. As of December 31, 2022, $55,000 of cash was considered as restricted as it collateralizes a corporate credit card.

Accounts Receivables, net

We generate accounts receivables from the sale of the Aurix product and accounts receivable as of December 31, 2022 reflects customer receivables from the initial commercial sales activities since the re-initiation of commercial sales activities beginning in the three months ended September 30, 2022. We will provide for an allowance against receivables for estimated losses that may result from a customer’s inability or unwillingness to pay. The allowance for doubtful accounts is estimated primarily based upon historical write-off percentages, known problem accounts, and current economic conditions. Accounts are written off against the allowance for doubtful accounts when we determine that amounts are not collectable. Recoveries of previously written-off accounts are recorded when collected. At December 31, 2022, we did not maintain an allowance for doubtful accounts as it was not considered necessary based on the recent initiation of commercial sales. We had no accounts receivable as of December 31, 2021.

Inventory, net

Our inventory is produced by third-party manufacturers and consists of raw materials and finished goods. Inventory cost is determined on a first-in, first-out basis and is stated at the lower of cost or net realizable value. We will maintain an inventory of kits, reagents, and other disposables having shelf-lives that generally range from 12 months to two years.

As of December 31, 2022, our inventory consisted of approximately $157,000 of finished goods inventory and approximately $83,000 of raw materials acquired to facilitate the manufacturing of finished goods at our contract manufacturer and our warehouse/distribution facility.

We will provide for an allowance against inventory for estimated losses that may result in excess and obsolete inventory (i.e., from the expiration of products). Our allowance for expired inventory will be estimated based upon the inventory’s remaining shelf-life and our anticipated ability to sell such inventory, which is estimated using past experience and future forecasts, within its remaining shelf life. Expired products are segregated and used for demonstration purposes only; we will record the associated expense for this reserve to cost of sales in the consolidated statements of operations. At December 31, 2022, we did not maintain an allowance for inventory obsolescence as it was not considered necessary based on the recent initiation of commercial sales and the relatively recent vintage of product inventory.

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Property and Equipment

Property and equipment is stated at cost less accumulated depreciation and amortization. Assets are depreciated, using the straight-line method, over their estimated useful life ranging from one to six years. Maintenance and repairs are charged to operations as incurred. Our medical equipment was fully depreciated as of December 31, 2022, while depreciation on property and equipment acquired during the year ended December 31, 2022 was initiated at the beginning of the second quarter 2022 in the month following the date the property was placed in service.

Leases

At the inception of a contract, the Company determines if the arrangement is, or contains, a lease. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Rent expense is recognized on a straight-line basis over the lease term.

The Company has made certain accounting policy elections whereby the Company (i) does not recognize ROU assets or lease liabilities for short-term leases (those with original terms of 12-months or less) and (ii) combines lease and non-lease elements of its operating leases.

Revenue Recognition

The Company analyzes its revenue arrangements to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers; (ii) identification of distinct performance obligations in the contract; (iii) determination of contract transaction price; (iv) allocation of contract transaction price to the performance obligations; and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation. The Company recognizes revenues upon the satisfaction of its performance obligations (upon transfer of control of promised goods or services to customers) in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

We provide for the sale of our products, including disposable processing sets and supplies to customers. Revenue from the sale of products is recognized upon shipment of products to the customers. We do not maintain a reserve for returned products, as in the past those returns have not been material and are not expected to be material in the future. Percentage-based fees on licensee sales of covered products are generally recorded as products are sold by licensees and are reflected as royalties in the consolidated statements of operations. Direct costs associated with product sales and royalty revenues are recorded at the time that revenue is recognized.

We recognized initial revenues from commercial sales activities beginning in the three months ended September 30, 2022. We had no revenues for the year ended December 31, 2021.

Stock-Based Compensation

The fair value of employee stock options is measured at the date of grant. Expected volatilities for the 2016 Omnibus Plan options are based on the equally weighted average historical volatility from five comparable public companies with an expected term consistent with ours. Expected years until exercise represents the period of time that options are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company estimated that the dividend rate on its common stock will be zero. The assumptions are summarized in the following table:

Weighted average expected years until exercise 5 - 6 5

Expected stock volatility 100% 100%

Dividend yield - -

The Company recognizes forfeitures of stock-based awards as they occur.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. Tax rate changes are reflected in income during the period such changes are enacted. We measure our deferred tax assets and liabilities using the enacted tax rates that we believe will apply in the years in which the temporary differences are expected to be recovered or paid. The Company expects that recent tax law changes contained in Inflation Reduction Act and CHIPS Act will not have a material impact on its provision for income taxes.

A deferred income tax asset or liability is recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. All of our tax years remain subject to examination by the tax authorities.

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The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income before taxes. There were no material penalties and interest incurred in 2022 and 2021.

Basic and Diluted Earnings (Loss) per Share

The following table provides a reconciliation of the numerator and denominators used in the calculation of basic and diluted earnings (loss) per share for the years ended December 31, 2022 and 2021:

For the year ended December 31,

Deemed dividend (contribution):

Warrant modification - (795,592 )

Net Loss per Share – basic and diluted $ (0.08 ) $ (0.03 )

The following table sets forth the potential dilutive securities excluded from the calculation of diluted loss per share for the years ended December 31, 2022 and 2021:

For the year ended December 31,

Financing Participation Right and Contingent Warrant 500,000 -

Recent Accounting Developments

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13,Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is designed to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. When determining such expected credit losses, the guidance requires companies to apply a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective on a modified retrospective basis for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating ASU 2016-13 and its impact on its financial position, results of operations and cashflows.

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In August 2020, the FASB issued new accounting guidance (ASU 2020-06) with respect to the accounting for convertible debt instruments and contracts in an entity’s own equity. The guidance simplifies the accounting for convertible instruments by reducing the various accounting models that can require the instrument to be separated into a debt component and equity component or derivative component. Additionally, the guidance eliminated certain settlement conditions previously required to be able to classify a derivative in equity. The new guidance is effective on a modified or full retrospective basis for fiscal years beginning after December 15, 2023, including interim periods with those fiscal years. The Company is currently evaluating the impact on the consolidated financial statements.

We have evaluated all other issued and unadopted Accounting Standards Updates and believe the adoption of these standards will not have a material impact on our results of operations, financial position, or cash flows.

Note 4 – Property and Equipment

Property and equipment, net consisted of the following:

Office/warehouse equipment 40,026 -

Warehouse/production equipment 19,966 -

Property and equipment, net $ 53,165 $ -

Depreciation expense was $6,827 for the year ended December 31, 2022 and there was no depreciation expense for the year ended December 31, 2021. None of the Company's long-lived assets were deemed to be impaired during the years ended December 31, 2022 and 2021.

Note 5 — Accrued Liabilities

Accrued liabilities consisted of the following:

December 31, December 31,

Accrued vacation payable $ 100,625 $ -

Accrued compensation payable - 103,333

Accrued professional fees - 10,000

Note6 – Stock Purchase Warrants

The following schedule reflects outstanding stock purchase warrants as of December 31, 2022 and 2021:

During the year ended December 31, 2022, the Company issued two warrants to purchase (i) 250,000 shares of common stock at an exercise price of $1.00 per share and expiring December 31, 2027 and (ii) 200,000 shares of common stock at an exercise price of $1.50 per share and expiring December 31, 2028 to a distribution partner under an agreement whereby the warrants are exercisable subject to the distributor attaining certain performance goals set forth in the warrants based upon exceeding sales quota revenues for calendar years 2023 through potentially 2025. The aggregate intrinsic value for 2022 sales incentive warrants as of December 31, 2022 was $125,000. Additionally, the Company agreed to issue certain additional warrants to acquire up to 500,000 shares of common stock to the same distribution partner where the issuance of the warrant is contingent upon future financing events and are not reflected in the above table. See Note 7– Equity and Stock Based Compensation for further information.

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The 2018 Convertible Notes warrants were exercised under a cashless exercise provision during the year ended December 31, 2022 with the resulting issuance of 217,054 shares of common stock. The warrants had an exercise price of $0.15 per share, an original term of five years, and were equity classified.

In connection with the issuance of the 2019 Senior Secured Notes, the Company issued to the noteholders stock purchase warrants to acquire 457,500 shares of the Company’s common stock. The warrants have an exercise price of $0.15, a term of two years, a fair value of $17,763 on issuance, and are equity classified. The noteholders agreed to cancel these stock purchase warrants in connection with the Recapitalization.

In connection with the Recapitalization and the extinguishment of the 2019 Senior Secured Note, the Company issued to the noteholders stock purchase warrants to acquire 3,977,971 shares of the Company’s common stock. The warrants have an exercise price of $0.40, a term of five years and are equity classified. In connection with the Recapitalization and to compensate certain employees for past compensation, the Company issued to employees stock purchase warrants to acquire 2,887,500 shares of the Company’s common stock. The warrants have an exercise price of $0.40, a term of five years and are equity classified.

In connection with the Modification, the Company induced the exercise of existing stock purchase warrants to acquire 6,865,461 shares of the Company’s common stock by reducing the exercise price from $0.40 to $0.20 and requiring exercise by a certain date. All warrants were exercised by December 31, 2021 for aggregate proceeds of $1,373,092. The Company recognized stock-based compensation expense of $13,936 for the fair value of the portion of the induced warrants held by employees and consultants and recognized a deemed dividend of $795,592 for the fair value of the portion of the induced warrants held by investors. Certain related parties including a principal shareholder, members of the Board of Directors, and a member of senior management exercised an aggregate of 3,469,250 warrants for proceeds of $693,850 pursuant to the Modification.

Note 7– Equity and Stock-Based Compensation

Under the Company’s Second Amended and Restated Certificate of Incorporation, it has the authority to issue a total of 101,000,000 shares of capital stock, consisting of: (i) 100,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share, which will have such rights, powers and preferences as the Board of Directors of the Company shall determine.

Private Placement Equity Issuances

The Company sold 3,957,757 shares of common stock to certain accredited investors pursuant to Security Purchase Agreements in two private placements which closed in April and May 2022 for proceeds of $3,957,757. Certain related parties including a principal shareholder, members of the Board of Directors, and members of senior management invested an aggregate of $940,400 in the April 2022 private placement transaction.

Pacific Medical Common Stock and Warrant Purchase Agreement

On August 24, 2022, the Company entered into a Common Stock and Warrant Purchase Agreement (the “Agreement”) with Pacific Medical, Inc. (“Pacific Med”) for the sale and issuance of shares of common stock and warrants to purchase shares of common stock. Pacific Med is the exclusive distributor for the Aurix System product within a territory that covers the states of Washington, Oregon, Idaho, Montana, Wyoming, most of California, the northern half of Nevada, plus Alaska.

Pursuant to the Agreement, Pacific Med purchased 500,000 shares of the Company’s common stock for $500,000. As part of the purchase of common stock, the Company agreed to grant to Pacific Med the right to participate in any future financing by the Company through December 31, 2023 (the “Participation Rights”) in connection with a listing of our common stock on a national securities exchange. The Participation Rights entitle Pacific Med to purchase up to 500,000 shares of common stock upon substantially the same terms, conditions, and price provided for in such financing. If such a financing does not occur by December 31, 2023, the Company agreed to issue Pacific Med a warrant with a January 1, 2024 issuance date and exercisable until June 30, 2024, to purchase up to 500,000 shares of Common Stock at a price equal to the lower of $2.00 per share or the 20-day volume weighted average closing price per share ending December 31, 2023 (the “Contingent Warrant”). The common stock, Participation Rights, and Contingent Warrant are equity classified.

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As part of the Agreement and as additional incentive compensation with respect to Pacific Med’s performance under its existing sales and distribution arrangement, the Company also provided to Pacific Med two compensatory performance-based stock purchase warrants and certain contingently issuable performance shares. The first warrant entitles Pacific Med to purchase up to 250,000 shares of common stock at a price of $1.00 per share (the “First Warrant”) upon Pacific Med attaining certain performance goals set forth in the First Warrant based upon exceeding sales quota revenue, as agreed between the Company and Pacific Med, for calendar years 2023 and/or 2024. The second warrant entitles Pacific Med to purchase up to 200,000 shares of Common Stock at a price of $1.50 per share (the “Second Warrant”) upon Pacific Med attaining certain performance goals set forth in the Second Warrant based upon exceeding sales quota revenue, as agreed between the Company and Pacific Med, for calendar years 2024 and/or 2025. The First Warrant will expire December 31, 2027 and the Second Warrant will expire December 31, 2028. The fair value of the First Warrant and Second Warrant at the date of issuance was approximately $434,000 and $345,000, respectively, based on a Black-Scholes option pricing model. As the exercisability of the two warrants is not considered probable as of December 31, 2022, there was no recognition of stock-based compensation expense for the year ended December 31, 2022. When exercisability is determined to be probable, the issuance date fair value of the warrant earned through such date will be recognized with the balance of the fair value recognized ratably over the remaining period of performance. The Company also agreed to issue up to 300,000 shares of common stock to Pacific Med subject to and upon the achievement of certain milestones set forth in the Agreement based upon sales of our products over defined 12-month periods of between $4.5 million by June 30, 2024 through at least $12.5 million in calendar year 2025 (the Performance Shares”). The fair value of the Performance Shares at the date of issuance was approximately $615,000 based on the closing stock price on the closing of the Agreement. As the issuance of the shares is not considered probable as of December 31, 2022, there was no expense recognition for the year ended December 31, 2022. When issuance is determined to be probable, the issuance date fair value of the shares through such date will be recognized with the balance of the fair value recognized ratably over the remaining period of performance.

Stock-Based Compensation

In July 2016, the Board of Directors approved the Company’s 2016 Omnibus Incentive Plan (the “2016 Omnibus Plan”), and in August 2016, the Board amended such plan to include an evergreen provision, intended to increase the maximum number of shares issuable under the Omnibus Plan on the first day of each fiscal year (starting on January 1, 2017) 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. In November 2016, holders of a majority of our capital stock approved the 2016 Omnibus Plan, as amended and restated, which provides for the Company to grant equity and cash incentive awards to officers, directors and employees of, and consultants to, the Company and its subsidiaries. Further, in March 2022, the Board approved an amendment to the 2016 Omnibus Plan to increase the shares available under to Plan to 4,250,000 and remove the annual evergreen provision, which was approved by the holders of a majority of our common stock outstanding and which became effective in June 2022.

A summary of stock option activity under the 2016 Omnibus Plan during the year ended December 31, 2022 is presented below:

Granted - - -

Exercised - - -

Forfeited or expired - - -

Exercised - - -

Forfeited or expired - - -

There were 2,021,666 stock options granted under the 2016 Omnibus Plan during the year ended December 31, 2022 of which (i) 206,666 options were granted to settle prior accrued compensation liabilities with senior management and Board of Directors, (ii) 450,000 of immediately vested options were granted to management, the Board of Directors, and a third-party service provider, (iii) 1,355,000 incentive stock options vesting over 3 years were granted to employees, and (iv) 10,000 incentive stock options vesting over 1 year were granted to a third party consultant. The fair value of the stock options granted in settlement of accrued liabilities was approximately $3,000. As the options issued were to related parties, the $103,333 of settled liabilities was credited to additional paid-in-capital. The fair value of 450,000 of immediately vested options was $6,430 and was recognized as stock-based compensation expense for the year ended December 31, 2022. The fair value of 1,365,000 of incentive stock options vesting over one and three years was approximately $47,500 with $2,715 recognized as stock-based compensation expense for the year ended December 31, 2022. No stock options were exercised during the year ended December 31, 2022. The aggregate intrinsic value for outstanding and exercisable options as of December 31, 2022 was approximately $2,892,000 and $2,001,000, respectively. There were no options granted or exercised during 2021 and zero intrinsic value for all options as of December 31, 2021.

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For the year ended December 31, 2022, the Company recorded total stock-based compensation expense of $9,145. There was no stock based compensation expense for the year ended December 31, 2021. As of December 31, 2022, there was approximately $45,000 of unrecognized compensation cost related to the 1,225,000 non-vested stock options granted during the year ended December 31, 2022.

Note 8 — Income Taxes

Income tax expense (benefit) for the years ended December 31, 2022 and 2021 consisted of the following:

Year ended December 31,

Current provision (benefit)

Federal $ - $ -

State - -

- -

Deferred provision (benefit)

Consolidated provision (benefit) $ - $ -

Significant components of the Company's deferred tax assets and liabilities consisted of the following at December 31, 2022 and 2021:

December 31,

Deferred tax assets:

Property, equipment, intangible assets, and other 353,310 356,956

Deferred tax liabilities - -

Net deferred tax assets $ - $ -

The following table presents a reconciliation between the U.S. federal statutory income tax rate and the Company's effective tax rate:

Year ended December 31,

Federal tax rate (21.0 )% (21.0 )%

State tax rate, net of Federal benefit (6.5 )% (4.8 )%

Change in valuation allowance 50.2 % 23.2 %

Permanent differences and other (22.7 )% 2.6 %

Effective tax rate 0.0 % 0.0 %

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The Company has Federal net operating loss carry-forwards of approximately $159.1 million as of December 31, 2022. The Federal net operating loss carry-forwards are subject to annual limitation under Section 382 of the Internal Revenue Code as a result of the Company’s emergence from bankruptcy in 2016 as well as due to other changes in ownership subsequent to such emergence; any such limitation reduces the Company's ability to use its net operating loss carryforwards to offset future taxable income on an annual basis and may permanently reduce the Company’s ability to use such net operating loss carryforwards. Federal net operating loss carryforwards generated before 2018 have a 20-year life and expire through 2028, while net operating loss carryforwards generated after 2017 have an indefinite life. The Company has not filed its required state tax returns since 2017 and intends to file all required state returns within the next 12 months. The Company has provided a full valuation allowance against its net deferred tax assets as it is more likely than not that those net assets will not be realized. The Company does not believe that it has any uncertain income tax positions.

Note 9 – Fair Value Measurements

Financial Instruments Carried at Cost

Short-term financial instruments in our consolidated balance sheets, including cash and cash equivalents, accounts payable and accrued expenses, are carried at cost which approximates fair value, due to their short-term nature.

Fair Value Measurements

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.

Financial Assets and Liabilities Measured at Fair Value

The Company has no financial assets and liabilities measured at fair value.

The Company had no financial assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2021.

Non-Financial Assets and Liabilities Measured at Fair Value

The Company’s property and equipment is measured at fair value on a non-recurring basis when there are indicators of impairment. There were no impairments during the years ended December 31, 2022 and 2021.

During 2021, the Company measured certain equity-linked financial instruments at fair value. The financial instruments measured at fair value are as follows:

The fair value of “plain vanilla” stock purchase warrants is measured on the issuance date using the Black-Scholes option pricing model, and uses estimated of stock price volatility, estimated period of time that warrants are expected to be outstanding, the risk-free rate based on the U.S. Treasury yield curve in effect at the time of issuance, an estimated dividend rate and the price of our common stock at the issuance date. The assumptions are summarized in the following table:

Risk free rate 0.26 %

Weighted average expected years until exercise 5

Expected stock volatility 100 %

Dividend yield -

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Note 10 – Commitments and Contingencies

In January 2022, the Company entered into a commercial operating lease agreement for its office space in Florida, expiring on December 31, 2024. The lease requires the Company to pay for its insurance, taxes, and its share of common operating expenses. The lease resulted in an increase in its right of use assets and lease liabilities of $89,312, using a discount rate of 10%. The lease was cancellable by the landlord at any time prior to December 31, 2022 based on certain capital raising contingencies which the Company met in April 2022.

In February 2022, the Company entered into an additional commercial operating lease for its primary office and warehouse/distribution space in Texas. The lease requires the Company to pay for its insurance, taxes, and its share of common operating expenses. This lease expires in March 2027. The space remained under buildout and Landlord control during the three months ended March 31, 2022 with the Company acquiring control of the lease space effective April 1, 2022; as a result, a right of use asset and lease liability was recognized of $337,226 as of April 1, 2022 using a discount rate of 10%.

Operating lease liabilities are classified as other current and non-current liabilities in the Company’s consolidated balance sheet.

Total operating lease costs were approximately $128,000 for the year ended December 31, 2022, consisting solely of base rental and common area maintenance costs and were zero for the year ended December 31, 2021. The Company has no financing leases. The weighted average remaining lease term is 3.8 years at December 31, 2022.

Future undiscounted cash flows under these leases are:

Total operating lease payments 406,476

Present value of operating lease liabilities 335,045

Current portion of operating lease liabilities (79,453 )

Non-current portion of operating lease liabilities $ 255,592

Note 11 – Subsequent Events

The Company has evaluated subsequent events through the date the consolidated financial statements were available to be issued. No material events requiring disclosure were identified.

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AURX US Equity

AURX · 10-K · period ended 2022-12-31

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 2022-12-31

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