EDGAR 10-K Filing

Company CIK: 1591165
Filing Year: 2023
Filename: 1591165_10-K_2023_0001493152-23-016145.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
Overview
H-CYTE, Inc (“the Company”) has evolved from focusing on treating chronic lung conditions after the closure of its lung treatment clinics due to COVID-19. The Company is currently focusing on acquiring and developing early-stage companies or their technologies in the areas of therapeutics, medical devices, and diagnostics. The goal is to develop these companies and incubate their technologies to meaningful clinical inflection points.
On June 3, 2022, the Company closed its clinic in Scottsdale, Arizona. The Company has now closed all of its clinical operations in the autologous infusion therapy business which delivered treatments for patients with chronic respiratory and pulmonary disorders. The Company will continue to pursue Food and Drug Administration (“FDA”) approval of the device that was utilized in the treatment provided at the clinics. The Company also has a continued interest in the commercialization of the DenerveX device through a joint venture. The Company has implemented the transition into a biologics and therapeutic device incubator company to bring new technologies to market.
The consolidated results for H-CYTE include the following wholly-owned subsidiaries: H-CYTE Management, LLC, Medovex Corp, Cognitive Health Institute, LLC, and Lung Institute Tampa, LLC and the results include Lung Institute Dallas, LLC (“LI Dallas”), Lung Institute Nashville, LLC (“LI Nashville”), Lung Institute Pittsburgh, LLC (“LI Pittsburgh”), and Lung Institute Scottsdale, LLC (“LI Scottsdale”), as Variable Interest Entities (“VIEs”). Additionally, H-CYTE Management, LLC was the operator and manager of the various Lung Health Institute (LHI) clinics: LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale. The LI Dallas and LI Pittsburgh clinics did not reopen in 2020 after the temporary closure of all LI clinics due to COVID-19. These two clinics will remain permanently closed. During the first quarter of 2022, the Company decided to close the LI Tampa and LI Nashville clinics. During the second quarter of 2022, the Company closed the LI Scottsdale clinic. All LHI clinics are closed as of December 31, 2022.
On June 10, 2022, the Company amended (the “Amendment”) its Articles of Incorporation to effectuate a one-for-one thousand reverse stock split (the “Reverse Split”) of its common stock. The Reverse Split was approved by FINRA on June 10, 2022 and effectuated on June 13, 2022. Pursuant to the Amendment, the Company also reduced the authorized shares of common stock to 500,000,000. As a result of the Reverse Split, as of December 31, 2022, the Company has 618,506 shares of common stock outstanding and 438,776,170 shares of Series A Preferred Stock outstanding. As a result of the Reverse Stock Split, the Series A Preferred Stock conversion ratio is now one thousand shares of Series A Preferred Stock converts into one share of common stock. Accordingly, the 438,776,170 outstanding shares of Series A Preferred Stock are now convertible into an aggregate of 438,776 shares of common stock.
On September 7, 2022, the Company acquired all of the membership interests, with common stock, of Jantibody LLC (“Jantibody”), a Nevada limited liability company. Jantibody is focused on the development of novel proprietary immunotherapies targeted towards ovarian cancer, pancreatic cancer, and mesothelioma (see Note 8).
On December 22, 2022, the Company acquired all the membership interests, with common stock, in Scion Solutions, LLC (“Scion”). Scion is a life sciences company that has developed a new technology in regenerative medicine specifically for limb salvage. Their proprietary product SkinDisc (patent pending) is a combination of stem cells and several other molecular components that stimulate tissue regeneration (see Note 8).
Impact of COVID-19
COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020 and the Company continues to monitor the impact on its operations of the COVID-19 pandemic and its aftermath. The Company believes the effect of the COVID-19 pandemic and certain public and governmental responses to it have negatively affected its results since the pandemic’s inception.
During the COVID-19 pandemic and its aftermath, the Company experienced material reductions in demand and net revenues at its lung treatment centers. This reduction in demand led to the Company shifting its focus from treating chronic lung disease to acquiring and developing early-stage companies or their technologies in the areas of therapeutics, medical devices, and diagnostics.
Autologous Infusion Therapy (“Infusion Division”)
The Company’s Infusion Division developed and implemented innovative treatment options in autologous cellular therapy (PRP-PBMC) to treat chronic lung disorders. During the first quarter of 2022, the clinics in Tampa and Nashville closed. During the second quarter of 2022, the clinic in Scottsdale closed. All clinical operations in the autologous infusion therapy division which delivered treatments for patients with chronic respiratory and pulmonary disorders have now closed.
Biotech Development (“Biotech Division”)
During the year ended December 31, 2021, the Company completed a review of the R&D status regarding the exclusive product supply and services agreements with Rion, LLC (“Rion”) to develop and distribute (post U.S. Food & Drug Administration, the “FDA”, approval) a biologic combining its PRP-PBMC (“PRP”) technology with Rion’s exosomes (“EV”) technology for the treatment of chronic obstructive pulmonary disease (“COPD”). The Company has determined a single entity biologic from an alternative commercial source will be a more viable solution. The Company has decided to move away from Rion’s PRP technology and is progressing towards alternate biologics and therapeutic devices to meet the needs of the business.
As of December 31, 2022, the Company has closed all of the LHI clinics and has moved away from the Infusion Division as part of its future plans. The Company has also decided that the Biotech Division will begin to transform into a medical biosciences incubator division focusing on bringing new biologics and therapeutic device technologies to market for various health conditions.
Competition
Developing and commercializing new FDA approved drugs and therapies is highly competitive. The market is characterized by extensive research and clinical efforts and rapid technological change. The Company faces intense competition worldwide from pharmaceutical, biomedical technology, medical therapy, and combination products companies, including major pharmaceutical companies. The Company may be unable to respond to technological advances through the development and introduction of new products. Most of the Company’s existing and potential competitors have substantially greater financial, sales and marketing, manufacturing and distribution, and technological resources. These competitors may also be in the process of seeking FDA (or other regulatory approvals) and patent protection for new products. The Company’s biologics and device product lines also face competition from numerous existing products and procedures, which currently are considered part of the standard of care. The Company believes that the principal competitive factors in its markets are:
● determining and progressing suitable biological therapies for specific disease states and the quality of outcomes for medical conditions;
● acceptance by physicians and the medical community;
● ease of use and reliability;
● technical leadership and superiority;
● effective marketing and distribution;
● speed to market; and
● price and qualification for insurance coverage and reimbursement.
The Company will also compete in the marketplace to recruit qualified scientific, management and sales personnel, as well as in acquiring technologies and licenses which it believes will be complementary to its products or advantageous to its business.
The Company is aware that several of its competitors are developing technologies in its current and future products areas. There are numerous autologous cellular therapy providers who make unsubstantiated claims that they are able to treat chronic lung disease. Most of these competitors are small clinics with little brand recognition. The landscape is changing as pharma and biologics companies, as well as academia, begin to develop therapies for multiple diseases using regenerative medicine through the more stringent regulatory pathway of a Biologics License Application (BLA).
Customers
The Company’s infusion division customer base consisted of individuals who were suffering from chronic lung disease that are searching for alternative or adjunct forms of treatment outside of traditional pharmaceutical care which has not been successful for them in the past.
Government Regulations
Governmental authorities in the United States (“U.S.” at the federal, state, and local levels) and abroad extensively regulate, among other things, the research and development, testing, manufacture, quality control, clinical research, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing, and export and import of products such as those we are developing.
FDA Regulation
In the U.S., the FDA subjects pharmaceutical and biologic products to rigorous review. If the Company does not comply with applicable requirements, it may be fined, the government may refuse to approve its marketing applications or to allow it to manufacture or market its products, and the Company may be criminally prosecuted. Failure to comply with the law could result in, among other things, warning letters, civil penalties, delays in approving or refusal to approve a product, product recall, product seizure, interruption of production, operating restrictions, suspension or withdrawal of product approval, injunctions, or criminal prosecution.
Good Manufacturing Practices (“GMP”)
United States Anti-Kickback and False Claims Laws
In the U. S., there are Federal and State anti-kickback laws that prohibit the payment or receipt of kickbacks, bribes or other remuneration intended to induce the purchase or recommendation of healthcare products and services. Violations of these laws can lead to civil and criminal penalties, including exclusion from participation in Federal healthcare programs. These laws are potentially applicable to manufacturers of products regulated by the FDA as pharmaceuticals, biologics, medical devices, and hospitals, physicians, and other potential purchasers of such products. Other provisions of Federal and State laws provide civil and criminal penalties for presenting, or causing to be presented, to third-party payers for reimbursement, claims that are false or fraudulent, or which are for items or services that were not provided as claimed. In addition, certain states have implemented regulations requiring medical device and pharmaceutical companies to report all gifts and payments of over $50 to medical practitioners. This does not apply to instances involving clinical trials.
Although the Company intends to structure its future business relationships with clinical investigators and purchasers of its products to comply with these and other applicable laws, it is possible that some of the Company’s business practices in the future could be subject to scrutiny and challenged by Federal or State enforcement officials under these laws.
Research and Development Expense
Research and development costs and expenses consist primarily of fees paid to external service providers, laboratory testing, supplies, costs for facilities and equipment, and other costs for research and development activities. Research and development expenses are recorded in operating expenses in the period in which they are incurred.
Employees
As of April 30, 2023, the Company had two full-time employees. None of its employees are represented by a union.
Available Information
The Company’s website, www.ir.hcyte.com, provides access, without charge, to its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (“SEC”). The information provided on the Company’s website is not part of this report and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.
Materials filed by the Company with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file electronically with the SEC.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
Not applicable to smaller reporting companies.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable to smaller reporting companies.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
The Company did not renew its corporate office space lease in Tampa, FL which expired on March 31, 2021. On June 3, 2022, the Company closed its clinic in Scottsdale, Arizona. The Company has now closed all of its clinical operations in the autologous infusion therapy business which delivered treatments for patients with chronic respiratory and pulmonary disorders.
The Company’s corporate staff will continue to work remotely. The Company leases a shared office space in Tampa, FL which it uses as its legal address.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a lawsuit with Sinclair Broadcast Group, Inc. (“Sinclair”) which was filed on September 8, 2020, in the Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough County, Florida. Sinclair has obtained a legal judgment for breach of contract for advertising services in the amount of approximately $72,000 plus interest and costs. The Company has retained legal counsel for guidance in this matter. The amount is recorded in accounts payable as of December 31, 2022.
The Company is involved in a lawsuit with ITN Networks, LLC (“ITN”) which was filed on July 22, 2021, in the Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough County, Florida. ITN has obtained a legal judgment for breach of contract for advertising services in the amount of approximately $45,000 plus interest and costs. The Company has retained legal counsel for guidance in this matter. The amount is recorded in accounts payable as of December 31, 2022.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
On May 8, 2023, the price per share of the Company’s common stock had a high of $1.95 per share, a low of $1.95 per share, and closed at $1.95. The Company had 264 holders of record of common stock as of May 8, 2023.
Dividends
The Company has not declared or paid any cash dividends on its common stock and presently intends on retaining future earnings, if any, to fund the development and growth of the business. Therefore, the Company does not anticipate paying any cash dividends in the foreseeable future.
Securities Authorized for Issuance under Equity Compensation Plans
The Company has authorized 2,650 options to be available under the Equity Compensation Plan (the “Plan”). As of December 31, 2022, the Company had an outstanding aggregate of 135 options to purchase common stock under the Plan at a weighted average price of $3,076 per share to certain employees, consultants, and outside directors.
On April 1, 2021, the Board of Directors of the Company approved and granted to certain directors and officers of the Company an aggregate of 54,750 stock options of which 4,750 were immediately vested on the date of grant. Each option granted has an exercise price of $70.00 per share and an expiration date of ten years from the date of grant. These options are not included in the Company’s current stock option plan as they were granted outside of the Plan (see Note 5).

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
Not required for smaller reporting company.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
H-CYTE, Inc (“the Company”) has evolved from focusing on treating chronic lung conditions after the closure of its lung treatment clinics due to COVID-19. The Company is currently focusing on acquiring and developing early-stage companies or their technologies in the areas of therapeutics, medical devices, and diagnostics. The goal is to develop these companies and incubate their technologies to meaningful clinical inflection points.
On June 3, 2022, the Company closed its clinic in Scottsdale, Arizona. The Company has now closed all of its clinical operations in the autologous infusion therapy business which delivered treatments for patients with chronic respiratory and pulmonary disorders. The Company will continue to pursue Food and Drug Administration (“FDA”) approval of the device that was utilized in the treatment provided at the clinics. The Company also has a continued interest in the commercialization of the DenerveX device through a joint venture. The Company has implemented the transition into a biologics and therapeutic device incubator company to bring new technologies to market.
The consolidated results for H-CYTE include the following wholly-owned subsidiaries: H-CYTE Management, LLC, Medovex Corp, Cognitive Health Institute, LLC, and Lung Institute Tampa, LLC and the results include Lung Institute Dallas, LLC (“LI Dallas”), Lung Institute Nashville, LLC (“LI Nashville”), Lung Institute Pittsburgh, LLC (“LI Pittsburgh”), and Lung Institute Scottsdale, LLC (“LI Scottsdale”), as Variable Interest Entities (“VIEs”). Additionally, H-CYTE Management, LLC was the operator and manager of the various Lung Health Institute (LHI) clinics: LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale prior to their closure. All LHI clinics are closed as of December 31, 2022.
On June 10, 2022, the Company amended (the “Amendment”) its Articles of Incorporation to effectuate a one-for-one thousand reverse stock split (the “Reverse Split”) of its common stock. The Reverse Split was approved by FINRA on June 10, 2022 and effectuated on June 13, 2022. Pursuant to the Amendment, the Company also reduced the authorized shares of common stock to 500,000,000. As a result of the Reverse Split, as of December 31, 2022, the Company has 618,506 shares of common stock outstanding and 438,776,170 shares of Series A Preferred Stock outstanding. As a result of the Reverse Stock Split, the Series A Preferred Stock conversion ratio is now one thousand shares of Series A Preferred Stock converts into one share of common stock. Accordingly, the 438,776,170 outstanding shares of Series A Preferred Stock are now convertible into an aggregate of 438,776 shares of common stock.
On September 7, 2022, the Company acquired all of the membership interests of Jantibody LLC (“Jantibody”), a Nevada limited liability company. Jantibody is focused on the development of novel proprietary immunotherapies targeted towards ovarian cancer, pancreatic cancer, and mesothelioma (see Note 8).
On December 22, 2022, the Company acquired all of the membership interests in Scion Solutions, LLC (“Scion”). Scion is a life sciences company that has developed a new technology in regenerative medicine specifically for limb salvage. Their proprietary product SkinDisc (patent pending) is a combination of stem cells and several other molecular components that stimulate tissue regeneration (see Note 8).
Impact of COVID-19
COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020 and the Company continues to monitor the impact on its operations of the COVID-19 pandemic and its aftermath. The Company believes the effect of the COVID-19 pandemic and certain public and governmental responses to it have negatively affected its results since the pandemic’s inception.
During the COVID-19 pandemic and its aftermath, the Company experienced material reductions in demand and net revenues at its lung treatment centers. This reduction in demand led to the Company shifting its focus from treating chronic lung disease to acquiring and developing early-stage companies or their technologies in the areas of therapeutics, medical devices, and diagnostics.
Results of Operations - For the years ended December 31, 2022 and 2021
H-CYTE, Inc
Statement of Operations
Change Change %
Revenues $ 453,460 $ 1,611,518 $ (1,158,058 ) -72 %
Gross Profit 335,859 906,813 (570,954 ) -63 %
Operating Expenses 5,441,632 6,192,417 (750,839 ) -12 %
Operating Loss (5,105,773 ) (5,285,604 ) 179,831 3 %
Other (Expense) Income (5,193,807 ) 486,297 (5,680,104 ) -1168 %
Net Loss $ (10,299,580 ) $ (4,799,307 ) $ (5,500,273 ) -115 %
Net Loss attributable to common stockholders $ (10,299,580 ) $ (4,799,307 ) $ (5,500,273 ) -115 %
Loss per share - Basic and diluted $ (35.06 ) $ (32.93 )
Weighted average outstanding shares - basic and diluted (1) 293,788 145,736
(1) The number of outstanding shares of common stock have been adjusted for all periods presented to reflect a one-for-one thousand reverse stock split that became effective on June 13, 2022. The amounts in common stock and additional paid-in capital were adjusted as of the effective date of the one-for-one thousand reverse stock split. See Note 1 for additional information.
Revenue and Gross Profit
The Company recorded revenue of approximately $453,000 and $1,612,000 for the years ended December 31, 2022, and 2021, respectively. The Company has closed all of the LHI Clinics as of December 31, 2022 which was the Company’s only current source of revenue. The Company has continued to transform itself into a biologics and therapeutic device incubator company to bring new technologies to market.
For the years ended December 31, 2022 and 2021, the Company generated a gross profit totaling approximately $336,000 and $907,000, respectively.
Operating Expenses
Salaries and Related Costs
For the years ended December 31, 2022 and 2021, the Company incurred approximately $1,054,000 and $2,214,000 in salaries and related costs, respectively. The decrease in salaries and related costs, as compared to the prior year, is due to the adjustments to the Company’s corporate structure by reducing expenses in marketing, sales, and operations due to decreased patient volume and closing of the LHI clinics. As of December 31, 2022, due to lack of financial resources, the Company has incurred $294,000 in unpaid salaries and wages.
Other General and Administrative
For the years ended December 31, 2022 and 2021, the Company incurred approximately $1,392,000 and $2,700,000 in other general and administrative costs, respectively. The Company adjusted its corporate structure by reducing expenses in marketing, sales, and operations due to decreased patient volume and closing of the LHI clinics.
Other Income/Expense
For the years ended December 31, 2022 and 2021, interest expense was approximately $368,000 and $177,000 respectively. The increase was related to the Company issuing additional convertible notes in 2022 compared to 2021. For the year ended December 31, 2021 the Company received forgiveness of the PPP loan in the amount of approximately $699,000.
For the year ended December 31, 2022, the Company incurred approximately $3,133,000 in inducement expense related to the warrant inducement (see Note 9). For the year ended December 31, 2022, the Company incurred approximately $377,000 in warrant expense related to the securities purchase agreements. For the year ended December 31, 2022, the Company incurred approximately $2,196,000, related to the loss on extinguishment of convertible notes payable (see Note 4).
Liquidity, Going Concern, and Sources of Liquidity
The Company had a negative cash balance of approximately $4,000 as of December 31, 2022, which is included in current liabilities, and cash on hand of approximately $3,000 as of May 8, 2023. The Company’s cash is insufficient to fund its operations over the next year and the Company is currently working to obtain additional debt or equity financing to help support working capital needs.
The Company has historically incurred losses from operations and expects to continue acquisitions and generate negative cash flows as the Company implements its updated strategic business plan. The Company will need to raise cash from debt and equity offerings to continue its operations. There can be no assurance that the Company will be successful in doing so.
Going Concern
The Company incurred net losses of approximately $10,300,000 and $4,799,000 for the years ended December 31, 2022 and 2021, respectively. The Company has historically incurred losses from operations and expects to continue to generate negative cash flows as it implements its plan around the Biosciences Division. The consolidated financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) as applicable to a going concern.
COVID-19 has adversely affected the Company’s financial condition and results of operations. Accordingly, the Company cannot predict the extent to which its financial condition and results of operations will be affected.
There can be no assurance that the Company will be able to raise additional funds or that the terms and conditions of any future financing will be workable or acceptable to the Company or its shareholders. If the Company is unable to fund its acquisitions and operations from existing cash on hand, operating cash flows, additional borrowings, or raising equity capital, the Company may not continue operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Sources of Liquidity
With the Company historically having experienced losses, the primary source of liquidity has been raising capital through debt and equity offerings, as described below.
Debt
Convertible Notes Payable
On April 1, 2021, the Company, entered into a Secured Convertible Note Purchase Agreement (the “April 2021 Note Purchase Agreement”) with five (5) related party investors (the “Holders”). Pursuant to the terms of the April 2021 Note Purchase Agreement, the Company sold promissory notes in the aggregate principal amount of $2,575,000 maturing on June 17, 2022 with an annual interest rate of 8%. The Notes are convertible into shares of Common Stock at a discount of 20% to the price paid for such New Securities in the next round of financing that meets the definition of Qualified Financing as defined in the April 2021 Note Purchase Agreement. The Notes are secured by the assets of the Company under a security agreement with the Holders. The lead investor of the April 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $1,500,000 of the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC, LLC, which is a principal stockholder and related party of the Company. An additional affiliate of FWHC, LLC provided an additional $25,000 as part of the April 2021 Note Purchase Agreement.
On October 14, 2021, the Company entered into the Second Closing Bring Down Agreement (the “October 2021 Note Purchase Agreement”) whereby the five (5) related party investors who had entered into the April 2021 Note Purchase Agreement purchased new notes in the Company in the aggregate principal amount of $750,000. The Notes are due and payable on June 17, 2022 and bear interest at an annual rate of 8%. The Notes are convertible into shares of Common Stock at a discount of 20% to the price paid for such New Securities in the next financing that meets the definition of a Qualified Financing as defined in the Note Purchase Agreement. The Notes are secured by all of the assets of the Company under a security agreement with the Holders. The lead investor of the October 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $437,000 of the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC, LLC, which is a principal stockholder and related party of the Company. An additional affiliate of FWHC, LLC provided an additional $7,000 as part of the October 2021 Note Purchase Agreement.
On February 22, 2022, the Company entered into a Debt Conversion Agreement (the “Amendment Agreement”) which i) provided for an additional round of convertible debt financing (“Tranche 2 Notes”) of up to $500,000 and ii) amended the conversion price on the convertible notes issued April 1, 2021 and October 8, 2021 (Tranche 1 Notes”) from 80% of the price paid in a Qualified Financing (proceeds of at least $15 million), to the lesser of (x) $0.002 and (y) the price paid in a Qualified Financing (proceeds of at least $10 million). The Amendment Agreement also provides the following Milestone Payments:
3) $1,000,000 after filing a premarket notification pursuant to Section 510(k) of the Food, Drug and Cosmetic Act, of its intent to market its PRP cellular therapy
4) Following the closing of a Qualified financing, 25% of all proceeds raised in excess of $10 million (not to exceed $1 million)
The Milestone Payments are not to exceed $2 million, and the Amendment Agreement also specifies that a Qualified Financing will not occur prior to the closing of the acquisition of Jantibody, LLC.
The Company evaluated the Amendment Agreement under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that probability of having to pay a Milestone payment was minimal and the change in the fair value of the conversion feature was not material. Since the Amendment did not cause a material change in cash flows, extinguishment accounting was not applicable.
On April 29, 2022, the Company entered into an Amended and Restated Note Conversion Agreement (the “Note Conversion Agreement”) with certain holders of its Tranche 1 Notes (i) providing for a conversion price equal to the lesser of (x) $0.002 per share (pre-split) and (y) the price per share paid by the investors in a Qualified Financing for such New Securities purchased for cash and not through conversion of Notes (as such terms are defined in the Note Conversion Agreement), in each case subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization, (ii) automatic conversion upon the occurrence of a Qualified Financing, and (iii) amendment of the maturity date from March 31, 2022 to June 17, 2022 (the “New Notes”). Upon the effectiveness of the Company’s 1,000-1 reverse split, the conversion price adjusted to the lesser of (a) the price in Qualified Financing or (b) $2.00 per share. The New Notes also provided the investors with Royalty Payments equal to 15% of all net sales generated by the Company with respect to the sale of products or services associated with the 510(k) Notification related to the Company’s autologous cellular therapy (PRP-PBMC) to treat chronic lung disorder. The Royalty Payments are in lieu of the Milestone payments but are perpetual and there is no limit to the aggregate amount of Royalty Payments that may be paid.
Due to changes in key provisions of the Tranche 1 Notes, the Company analyzed the before and after cash flows between the (i) fair value of the New Notes and (ii) reacquisition price of the Tranche 1 Notes prior to the (A) change in the maturity date from March 31, 2022 to June 17, 2022, (B) change in the conversion price to the lesser of (x) $2.00 and (y) the price paid in a Qualified Financing, and (C) the fair value of the potential Royalty Payments, to determine whether these changes resulted in a modification or extinguishment of the Tranche 1 Notes.
The Company used a discounted cash flow method with Monte Carlo Simulation to value the Royalty Payments. Future Royalty Payments were estimated based on management’s best estimate of future cash flows under various scenarios which were discounted to present value using a risk-adjusted rate of 70%.
Based on the before and after cash flows of each note, the change was considered significantly different. Consequently, the New Notes were accounted for as a debt extinguishment of the Tranche 1 Notes and a new debt issuance of the New Notes. The Company recorded approximately a $2,200,000 loss upon extinguishment of debt in the nine months ended December 31, 2022, which was comprised of the following:
Carrying value of Tranche 1 Notes $ 3,580,738
Less: Fair value of New Notes (4,079,838 )
Less: Fair value of Royalty Payments (1,697,000 )
Loss on Extinguishment $ (2,196,100 )
The Note Conversion Agreement also provided for the consummation of a Tranche 2 Financing (the “Tranche 2 Notes”) subject to (i) the aggregate principal amount of indebtedness represented by the Tranche 2 Notes being capped at $500,000 and (ii) Tranche 2 Notes’ being an unsecured obligation of the Company and expressly subordinate in all respects to all indebtedness of the Company under the Notes and including language in which the holders of such Tranche 2 Notes acknowledge, confirm and agree to the foregoing subordination terms. Pursuant to the terms of the Note Conversion Agreement, the Investors have agreed not to sell any capital stock of the Company for a period of 12 months following the Qualified Financing. The Company is currently working with the noteholders on the extension of the maturity of the outstanding notes.
On June 9, 2022, the Company entered into a securities purchase agreement for a total of $272,500 with two accredited investors. The notes issued are convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The notes bear interest at 10% and are due one year from issuance. For the first six months, the Company has the right to prepay the notes at a premium of between 25% and 35% depending on when it is repaid.
The Company also issued a promissory note for $100,000, on June 9, 2022, to another accredited investor. This note bears interest at 15% (no matter when repaid) and converts at a discount of 25% of the price of a public offering or a 25% discount to the VWAP of the five (5) days prior to conversion.
The embedded features in the convertible notes were analyzed under Accounting Standards Codification 815-“Derivatives and Hedging” (ASC 815) to determine if they required bifurcation as derivative instruments. To be a derivative, one of the criteria is that the embedded component must be net-settleable. While the Company’s Common Stock was traded on an exchange at the time of the transaction, the underlying shares are not readily convertible into cash since there is insufficient daily trading volume for the holders to convert the convertible notes into Common Stock without significantly affecting the share price. Accordingly, the embedded derivatives, including the embedded conversion feature, did not meet the definition of a derivative, and therefore, did not require bifurcation from the host instrument. Certain default put provisions, including a default put and default interest, were not considered to be clearly and closely related to the host instrument but the Company concluded that the value of these provisions was de minimus at inception. The Company will reconsider the value of these provisions each reporting period to determine if the value becomes material to the financial statements.
On August 8, 2022, the Company entered into a securities purchase agreement for a total of $65,000 with an accredited investor. The note issued is convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The note bears interest at 10% and is due one year from issuance. For the first six (6) months, the Company has the right to prepay the notes at a premium of between 25% and 40% depending on when it is repaid.
On February 24, 2023, the Company and certain investors entered into a Securities Purchase Agreement (the “SPA”), whereby the Company sold and issued to the certain investors an aggregate of three hundred thousand dollars ($300,000) of the Company’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $0.001 par value (“Common Stock”). In connection with the aforementioned Notes, the Company also issued to the investors a warrant to purchase (the “Purchase Warrant”) a certain number of shares of Common Stock, which are equal to 20% of the shares of Common Stock issuable upon conversion of the Note, based on a price of $2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to terminate earlier, the offering and the sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company has the option to extend this offering to June 30, 2023.
The Notes have a maturity date of the earlier of (i) one year from issuance; or (ii) upon the closing of a qualified offering. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum, and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s Common Stock at a conversion price equal to a 20% discount to the offering price.
Further, in connection with the SPA, the Company also issued a Common Stock Purchase Warrant to certain investors, which are exercisable on or prior to the close of business on the five (5) year anniversary of the initial exercise date, to purchase up to a certain amount of shares of Common Stock, with 20% of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company, dated February 24, 2023. The Company issued Warrants to purchase an aggregate of 30,000 shares of Common Stock. The exercise price per share of the Common Stock under this Warrant is $2.00.
On February 28, 2023, the Company entered into a securities purchase agreement for a total of $128,250 with an accredited investor. The notes issued are convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The notes bear interest at 10% and are due one year from issuance. For the first six months, the Company has the right to prepay the notes at a premium of between 25% and 40% depending on when it is repaid.
On March 27, 2023, H-Cyte, Inc., (the “Company”) and three related party investors entered into a Securities Purchase Agreement (the “SPA”), whereby, the Company sold and issued to the certain investors, an aggregate of one hundred twenty five thousand dollars ($125,000) of the Company’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $0.001 par value (“Common Stock”). On April 12, 2023, the Company and an additional investor entered into the SPA, whereby, the Company sold and issued an aggregate of thirty five thousand dollars ($35,000) of the Company’s Notes. In connection with the aforementioned Notes, the Company also issued to the investors a warrant to purchase (the “Purchase Warrant”) a certain number of shares of Common Stock, which are equal to 20% of the shares of Common Stock issuable upon conversion of the Note, based on a price of $2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to terminate earlier, the offering and the sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company has the option to extend this offering to June 30, 2023.
The March 27, 2023 Notes have a maturity date of the earlier of (i) one year from issuance; or (ii) upon the closing of a qualified offering. The April 12, 2023 Note has a maturity date 60 days from issuance. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum, and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s Common Stock at a conversion price equal to a 20% discount to the offering price.
Further, in connection with the SPA, the Company also issued a Common Stock Purchase Warrant to certain investors, which are exercisable on or prior to the close of business on the five (5) year anniversary of the initial exercise date, to purchase up to a certain amount of shares of Common Stock, with 20% of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company. The Company issued Warrants to purchase an aggregate of 13,500 shares of Common Stock. The exercise price per share of the Common Stock under this Warrant is $2.00.
Other Obligations
During the year ending December 31, 2022, Michael Yurkowsky, CEO, advanced the Company approximately $40,000 as a non-interest-bearing note with no established repayment terms. The balance owed is approximately $35,000 as of December 31, 2022.
Equity
In January 2022, the Company offered certain warrant holders the opportunity to receive an additional warrant to purchase the Company’s Common Stock at $14.00 per share, for a period of five (5) years from issuance for the exercise of each existing warrant originally issued in April 2020 prior to March 31, 2021. As of December 31, 2022, the Company had eleven warrant holders exercise an aggregate of 83,579 warrants at $14.00 per share resulting in cash proceeds of $1,170,110 to the Company.
The Company filed a Registration Statement on Form S-1 registering the resale of the shares of common stock issuable upon exercise of the warrants issued in the April 2020 financing. The registration statement was declared effective on February 14, 2022.
On September 29, 2022, the Company entered into a securities purchase agreement with two accredited investors for the sale of shares of Common Stock and warrants (the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Company sold an aggregate of 112,500 shares of common stock and warrants to purchase 56,250 shares of Common Stock exercisable at $2.50 per share for gross proceeds of approximately $225,000. All of the shares described in this Current Report on Form 8-K are being offered and issued to accredited investors in reliance upon exemptions from the registration requirements under Section 4(a)(2) under the Securities Act of 1933, as amended (“Securities Act”), and Rule 506 of Regulation D promulgated thereunder.
On November 14, 2022, pursuant to the Purchase Agreement, the Company sold an aggregate of 15,000 shares of common stock and warrants to purchase 7,250 shares of Common Stock exercisable at $2.50 per share for gross proceeds of $30,000.
Appointment of New Board Members and Officers.
On January 17, 2022, Mr. Richard Rosenblum was appointed as a member of the Board.
On January 17, 2022, Mr. Matthew Anderer was appointed as a member of the Board.
Consulting Agreements
The Company entered into a consulting agreement with Tanya Rhodes of Rhodes & Associates, Inc, effective June 15, 2020, to serve as the Chief Science Officer of the Company. The agreement has a minimum term of six months with an average fee of $21,000 per month plus expenses which increases 5% per month on January 1 of each calendar year unless an alternative retainer amount is negotiated and agreed upon by both parties. The Company extended the contract on January 1, 2021, resulting in monthly expenses of $22,500 plus expenses for services rendered. As of January 1, 2022, Ms. Rhodes is continuing to receive $22,500 and is engaged on a month-to-month basis. Due to lack of financial resources, the Company was unable to pay Ms. Rhodes for her services totaling $95.175, which has been accrued as part of accrued liabilities for the year ended December 31, 2022.
The Company entered into a consulting agreement with Alpha IR Group on March 1, 2022, to provide investor relations to the Company. The agreement is for twelve months with an average service fee of $9,750 per month, which is included in Accounts Payable. During 2023, the Company paused this service for a three month period.
Indemnification
We have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving, at our request, in such capacity, to the maximum extent permitted under the laws of the State of Nevada.
The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. However, we maintain directors and officers insurance coverage that may contribute, up to certain limits, a portion of any future amounts paid for indemnification of directors and officers. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal. Historically, we have not incurred any losses or recorded any liabilities related to performance under these types of indemnities.
Additionally, in the normal course of business, we have made certain guarantees, indemnities, and commitments under which we may be required to make payments in relation to certain transactions. These indemnities include intellectual property and other indemnities to our customers and distribution network partners in connection with the sales of our products and therapies, and indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease.
It is not possible to determine the maximum potential loss under these guarantees, indemnities, and commitments due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision.
Critical Accounting Policies and Estimates
The Company’s discussion and analysis of its financial condition and results of operations are based on its consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods.
On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below. The Company bases its estimates on historical experience and on various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.
Fair Value Measurements
The Company measures certain non-financial assets, liabilities, and equity issuances at fair value on a non-recurring basis. These non-recurring valuations include evaluating assets such as long-lived assets and non-amortizing intangible assets for impairment; allocating value to assets in an acquired asset group; and applying accounting for business combinations.
The Company classifies its stock warrants as either liability or equity instruments in accordance with ASC 480, “Distinguishing Liabilities from Equity” (ASC 480) and ASC 815, “Derivatives and Hedging” (ASC 815), depending on the specific terms of the warrant agreement.
The Company uses the fair value measurement framework to value these assets and report the fair values in the periods in which they are recorded, adjusted above, or written down.
The fair value measurement framework includes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair values in their broad levels. These levels from highest to lowest priority are as follows:
● Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities;
● Level 2: Quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted on active markets, but corroborated by market data; and
● Level 3: Unobservable inputs or valuation techniques that are used when little or no market data is available.
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist in determining fair value, as appropriate.
The Company evaluates its financial instruments subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. Although the Company believes that the recorded fair value of our financial instruments is appropriate at December 31, 2022, these fair values may not be indicative of net realizable value or reflective of future fair values.
Revenue Recognition
The Company recognizes revenue in accordance with U.S. GAAP as outlined in the FASB ASC 606, Revenue From Contracts with Customers, which requires that five steps be completed to determine when revenue can be recognized: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfies a performance obligation. The Company records revenue under ASC 606 as services are performed for the customer.
The Company uses a standard pricing model for the types of cellular therapy treatments that is offered to its patients. The transaction price accounts for medical, surgical, facility, and office services rendered by the Company for consented procedures and is recorded as revenue. The Company recognizes revenue when the terms of a contract with a patient are satisfied.
The Company offers two types of cellular therapy treatments to their patients:
1) The first type of treatment includes medical services rendered typically over a two-day period in which the patient receives cellular therapy. For this treatment type, revenue is recognized in full at time of service.
2) The Company also offers a four-day treatment in which medical services are rendered typically over a two-day period and then again, approximately three months later, medical services are rendered for an additional two days of treatment. Payment is collected in full for both service periods at the time the first treatment is rendered. Revenue is recognized when services are performed based on the estimated standalone selling price of each service.
The Company’s policy is to not offer refunds to patients. However, in limited instances the Company may make exceptions to this policy for extenuating circumstances. These instances are evaluated on a case-by-case basis and may result in a patient refund. Management performed an analysis of its customer refund history for refunds issued related to prior year’s revenue. Management used the results of this historical refund analysis to record a reserve for anticipated future refunds related to recognized revenue, which is not significant at December 31, 2022 and 2021. The Company has now closed all of its clinical operations in the autologous infusion therapy business which delivered treatments for patients with chronic respiratory and pulmonary disorders.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4) during the periods presented, investments in special-purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.
Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which amends the approaches and methodologies in accounting for income taxes during interim periods and makes changes to certain income tax classifications. The new standard allows exceptions to the use of the incremental approach for intra-period tax allocation, when there is a loss from continuing operations and income or a gain from other items, and to the general methodology for calculating income taxes in an interim period, when a year-to date loss exceeds the anticipated loss for the year. The standard also requires franchise or similar taxes partially based on income to be reported as income tax and the effects of enacted changes in tax laws or rates to be included in the annual effective tax rate computation from the date of enactment. Lastly, in any future acquisition, the Company would be required to evaluate when the step-up in the tax basis of goodwill is part of the business combination and when it should be considered a separate transaction. The Company adopted ASU 2019-12, as required, on January 1, 2021 and the adoption did not have a material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06. Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity. The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, ASU 2020-06 revises the requirements to separately account for conversion features as a derivative under ASC Topic 815 and it removes the requirement to account for beneficial conversion features on such instruments. The Company chose early adoption of ASU 2020-06 effective January 1, 2021, related to the April 2021 and October 2021 Note Purchase Agreements. Thus, the Notes did not require consideration for a beneficial conversion feature under ASC 470-20 and the Notes were accounted for solely as debt on the balance sheet.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS FOR THE FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID 215)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the years ended December 31, 2022 and 2021
Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of H-CYTE, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of H-CYTE, Inc. (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has negative working capital, has an accumulated deficit, has a history of significant operating losses and has a history of negative operating cash flow that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 audit to obtain reasonable assurance about whether the consolidated 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 consolidated 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 consolidated 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 consolidated 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 consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Frazier & Deeter, LLC
Tampa, Florida
May 10, 2023
We have served as the Company’s auditor since 2018.
H-CYTE, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2022
December 31, 2021
December 31, 2022 December 31, 2021
Assets
Current Assets
Cash $ - $ 95,172
Accounts receivable - 13,500
Patient financing receivable, current portion 29,464 43,900
Prepaid expenses 54,381 44,884
Total Current Assets 83,845 197,456
Property and equipment, net 20,394 38,374
Patient financing receivable, net of current portion 14,436 67,163
Other assets 18,682 18,412
Total assets $ 137,357 $ 321,405
Liabilities and Stockholders’ Deficit
Current Liabilities
Accounts payable $ 971,492 $ 585,291
Accrued liabilities 1,418,368 164,680
Other current liabilities 139,330 28,246
Notes payable, current portion 104,468 69,455
Convertible notes payable, related parties 3,325,000 3,325,000
Convertible notes payable 430,095 -
PPP Loan, current portion - 66,275
Deferred revenue - 414,025
Lease liability, current portion 63,291 94,805
Anti-dilution share contingent consideration liability 501,531 -
Interest payable, related parties 400,042 98,055
Interest payable 123,276 75,048
Total Current Liabilities 7,476,893 4,920,880
Long-term Liabilities
Royalty liability 1,697,000 -
Milestone payment contingent consideration liability 320,850 -
Lease liability, net of current portion - 62,768
Total Long-term Liabilities 2,017,850 62,768
Total Liabilities 9,494,743 4,983,648
Stockholders’ Equity (Deficit)
Preferred Stock - $.001 par value: 1,000,000,000 shares authorized; Series A Preferred Stock - $.001 par value: 800,000,000 shares authorized, 438,776,170 and 501,887,532 shares issued and outstanding at December 31, 2022 and 2021, respectively. 438,773 501,887
Common stock - $.001 par value: 500,000,000 shares authorized, 618,506 and 166,394 shares issued and outstanding at December 31, 2022 and 2021, respectively. (1) 164,199
Additional paid-in capital 49,531,216 43,700,084
Accumulated deficit (59,327,993 ) (49,028,413 )
Total Stockholders’ Deficit (9,357,386 ) (4,662,243 )
Total Liabilities and Stockholders’ Deficit $ 137,357 $ 321,405
(1) The number of outstanding shares of common stock have been adjusted for all periods presented to reflect a one-for-one thousand reverse stock split that became effective on June 13, 2022. The amounts in common stock and additional paid-in capital were adjusted as of the effective date of the one-for-one thousand reverse stock split. See Note 1 for additional information.
See accompanying notes to consolidated financial statements.
H-CYTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
December 31,
Revenues $ 453,460 $ 1,611,518
Cost of Sales (117,601 ) (704,705 )
Gross Profit 335,859 906,813
Operating Expenses
Salaries and related costs 1,053,542 2,213,862
Share based compensation 585,712 1,184,903
Loss on disposal of property and equipment 9,610 92,803
Other general and administrative 1,754,564 2,700,849
Acquired in-process research and development 2,038,204 -
Total Operating Expenses 5,441,632 6,192,417
Operating Loss (5,105,773 ) (5,285,604 )
Other (Expense) Income
Forgiveness of PPP loan - 698,820
Inducement expense (3,133,055 ) -
Loss on extinguishment of convertible notes payable (2,196,100 ) -
Interest income 507,944 -
Interest expense (368,139 ) (176,836 )
Other income (expense) (4,457 ) (35,687 )
Total Other (Expense) Income (5,193,807 ) 486,297
Net Loss $ (10,299,580 ) $ (4,799,307 )
Net Loss attributable to common stockholders $ (10,299,580 ) $ (4,799,307 )
Loss per share - Basic and Diluted (1) (35.06 ) (32.93 )
Weighted average outstanding shares - basic and diluted (1) 293,778 145,736
(1) The number of outstanding shares of common stock have been adjusted for all periods presented to reflect a one-for-one thousand reverse stock split that became effective on June 13, 2022. The amounts in common stock and additional paid-in capital were adjusted as of the effective date of the one-for-one thousand reverse stock split. See Note 1 for additional information.
See accompanying notes to consolidated financial statements.
H-CYTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
Shares Amount Shares Amount Capital Deficit Deficit
Preferred Series A Stock Common Stock Additional Paid-in Accumulated Stockholders’
Shares Amount Shares Amount Capital Deficit Deficit
Balances - December 31, 2020 538,109,409 $ 538,109 129,354 $ 127,159 $ 42,515,999 $ (44,229,106 ) $ (1,047,839 )
Conversion of Series A Preferred Stock to Common Stock (36,221,875 ) (36,222 ) 36,222 36,222 - - $ -
Share based compensation - - - - 1,184,903 - 1,184,903
Issuance of Common Stock pursuant to cashless exercise of warrant - - (818 ) - -
Net Loss - - - - - (4,799,307 ) (4,799,307 )
Balances - December 31, 2021 501,887,534 $ 501,887 166,394 $ 164,199 $ 43,700,084 $ (49,028,413 ) $ (4,662,243 )
Balances 501,887,534 $ 501,887 166,394 $ 164,199 $ 43,700,084 $ (49,028,413 ) $ (4,662,243 )
Shares Amount Shares Amount Capital
Deficit Deficit
Preferred Series A Stock Common Stock Additional Paid-in
Accumulated Stockholders’
Shares Amount Shares Amount Capital
Deficit Deficit
Balances - December 31, 2021 501,887,534 $ 501,887 166,394 $ 164,199 $ 43,700,084
$ (49,028,413 ) $ (4,662,243 )
Balance 501,887,534 $ 501,887 166,394 $ 164,199 $ 43,700,084
$ (49,028,413 ) $ (4,662,243 )
Conversion of Series A Preferred Stock to Common Stock (63,111,364 ) (63,114 ) 63,114 7,364 55,750
- -
Issuance of Common Stock pursuant to securities purchase agreement - - 127,500 254,871
- 254,999
Adjustment for 1-for-1000 reverse stock split (1)
(254,831 ) 254,831
- -
Issuance of Common Stock pursuant to Jantibody acquisition - - 52,023 29,505
- 29,557
Inducement expense - - - - 3,133,055
- 3,133,055
Warrant expense - - - - 376,934
- 376,934
Exercised warrants to Common Stock - - 83,579 83,580 1,086,530
- 1,170,110
Share based compensation - - - - 585,712
- 585,712
Issuance of anti-dilution Common Stock pursuant to Jantibody acquisition - - 2,743 (3 )
- -
Issuance of Common Stock pursuant to SkinDisc acquistion - - 123,153 53,947
- 54,070
Net loss - - - - -
(10,299,580 ) (10,299,580 )
Balances - December 31, 2022 438,776,170 $ 438,773 618,506 $ 618 $ 49,531,216
$ (59,327,993 ) $ (9,357,386 )
Balance 438,776,170 $ 438,773 618,506 $ 618 $ 49,531,216
$ (59,327,993 ) $ (9,357,386 )
(1) The number of outstanding shares of common stock have been adjusted for all periods presented to reflect a one-for-one thousand reverse stock split that became effective on June 13, 2022. The amounts in common stock and additional paid-in capital were adjusted as of the effective date of the one-for-one thousand reverse stock split. See Note 1 for additional information.
See accompanying notes to consolidated financial statements.
H-CYTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended December 31,
Cash Flows from Operating Activities
Net loss $ (10,299,580 ) $ (4,799,307 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 14,215 15,829
Amortization of debt premium (499,100 ) -
Inducement expense 3,133,055 -
Share based compensation expense 585,712 1,184,903
Loss on debt extinguishment 2,196,100 -
Gain on extinguishment of debt - PPP Loan - (698,820 )
Loss on impairment of ROU Asset - 139,884
Warrant expense 376,934 -
Bad debt expense 67,595 14,399
Loss on disposal of property and equipment 9,610 92,803
Expense of acquired in-process research and development 2,038,204 -
Changes in operating assets and liabilities:
Accounts receivable (54,095 ) (27,900 )
Accounts payable 364,601 (421,677 )
Accrued liabilities 239,623 (111,735 )
Other current liabilities (80,198 ) (126,566 )
Patient financing receivable 67,163 (111,063 )
Other assets (270 ) 22,123
Prepaid expenses (9,497 ) 60,379
Deferred revenue (414,025 ) (220,124 )
Interest payable, related parties 301,987 98,055
Interest payable 48,228 79,007
Net Cash Used in Operating Activities (1,913,738 ) (4,809,810 )
Cash Flows from Investing Activities
Purchase of property and equipment - (7,830 )
Cash acquired in asset acquisition -
Net Cash Provided By (Used in) Investing Activities (7,830 )
Cash Flows from Financing Activities
Proceeds from notes payable 92,513 -
Proceeds from convertible notes payable, related parties - 1,969,174
Proceeds from convertible notes payable 437,500 1,355,826
Proceeds from warrants exercised 1,170,110 -
Proceeds from issuance of common stock 254,999 -
Payment on notes payable (57,500 ) -
Payment on convertible note financing costs (13,250 ) -
Payment on PPP Loan (66,275 ) (52,833 )
Net Cash Provided by Financing Activities 1,818,097 3,272,167
Net Change in Cash (95,172 ) (1,545,473 )
Cash - Beginning of year 95,172 1,640,645
Cash - End of year $ - $ 95,172
Supplementary Cash Flow Information
Cash paid for interest $ 12,080 $ 8,370
Non Cash Investing & Financing Activity
Conversion of Series A Preferred Stock to Common Stock $ 63,114 $ 36,222
Conversion of warrants to Common Stock $ - $ 818
Issuance of common stock pursuant to Jantibody $ 29,557 $ -
Issuance of warrants pursuant to inducement agreements $ 3,133,055 $ -
Issuance of warrants pursuant to securities purchase agreement $ 376,934 $ -
Issuance of Common Stock pursuant to SkinDisc acquisition $ 54,070 $ -
Issuance of anti-dilution Common Stock pursuant to Jantibody acquisition $ 3 $ -
See accompanying notes to consolidated financial statements.
Notes to consolidated financial statements
Note 1 - Description of the Company
DESCRIPTION OF THE COMPANY
H-CYTE, Inc (“the Company”) has evolved from focusing on treating chronic lung conditions after the closure of its lung treatment clinics due to COVID-19. The Company is currently focusing on acquiring and developing early-stage companies or their technologies in the areas of therapeutics, medical devices, and diagnostics. The goal is to develop these companies and incubate their technologies to meaningful clinical inflection points.
On June 3, 2022, the Company closed its clinic in Scottsdale, Arizona. The Company has now closed all of its clinical operations in the autologous infusion therapy business which delivered treatments for patients with chronic respiratory and pulmonary disorders. The Company will continue to pursue Food and Drug Administration (“FDA”) approval of the device that was utilized in the treatment provided at the clinics. The Company also has a continued interest in the commercialization of the DenerveX device through a joint venture. The Company has implemented the transition into a biologics and therapeutic device incubator company to bring new technologies to market.
The consolidated results for H-CYTE include the following wholly-owned subsidiaries: H-CYTE Management, LLC, Medovex Corp, Cognitive Health Institute, LLC, and Lung Institute Tampa, LLC and the results include Lung Institute Dallas, LLC (“LI Dallas”), Lung Institute Nashville, LLC (“LI Nashville”), Lung Institute Pittsburgh, LLC (“LI Pittsburgh”), and Lung Institute Scottsdale, LLC (“LI Scottsdale”), as Variable Interest Entities (“VIEs”). Additionally, H-CYTE Management, LLC was the operator and manager of the various Lung Health Institute (LHI) clinics: LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale prior to their closure. All LHI clinics are closed as of December 31, 2022.
On June 10, 2022, the Company amended (the “Amendment”) its Articles of Incorporation to effectuate a one-for-one thousand reverse stock split (the “Reverse Split”) of its common stock. The Reverse Split was approved by FINRA on June 10, 2022 and effectuated on June 13, 2022. Pursuant to the Amendment, the Company also reduced the authorized shares of common stock to 500,000,000. As a result of the Reverse Split, as of December 31, 2022, the Company has 618,506 shares of common stock outstanding and 438,776,170 shares of Series A Preferred Stock outstanding. As a result of the Reverse Stock Split, the Series A Preferred Stock conversion ratio is now one thousand shares of Series A Preferred Stock converts into one share of common stock. Accordingly, the 438,776,170 outstanding shares of Series A Preferred Stock are now convertible into an aggregate of 438,776 shares of common stock.
On September 7, 2022, the Company acquired all of the membership interests of Jantibody LLC (“Jantibody”), a Nevada limited liability company. Jantibody is focused on the development of novel proprietary immunotherapies targeted towards ovarian cancer, pancreatic cancer, and mesothelioma (see Note 8).
On December 22, 2022, the Company acquired all of the membership interests in Scion Solutions, LLC (“Scion”). Scion is a life sciences company that has developed a new technology in regenerative medicine specifically for limb salvage. Their proprietary product SkinDisc (patent pending) is a combination of stem cells and several other molecular components that stimulate tissue regeneration. (see Note 8).
Autologous Infusion Therapy (“Infusion Division”)
The Company’s Infusion Division develops and implements innovative treatment options in autologous cellular therapy (PRP-PBMC) to treat chronic lung disorders. Committed to an individualized patient-centric approach, this division consistently provides oversight and management of the highest quality care to the LHI clinics located in Tampa, Nashville, and Scottsdale, while producing positive medical outcomes following the strictest CDC guidelines. During the first quarter of 2022, the Company decided to close the clinics in Tampa and Nashville. During the second quarter of 2022, the Company closed its clinic in Scottsdale. The Company has now closed all clinical operations in the autologous infusion therapy division which delivered treatments for patients with chronic respiratory and pulmonary disorders.
Biotech Development (“Biotech Division”)
During the year ended December 31, 2021, the Company completed a review of the R&D status regarding the exclusive product supply and services agreements with Rion, LLC (“Rion”) to develop and distribute (post U.S. Food & Drug Administration, the “FDA”, approval) a biologic combining its PRP-PBMC (“PRP”) technology with Rion’s exosomes (“EV”) technology for the treatment of chronic obstructive pulmonary disease (“COPD”). The Company has determined a single entity biologic from an alternative commercial source will be a more viable solution. The Company has decided to move away from Rion’s PRP technology and is progressing towards alternate biologics and therapeutic devices to meet the needs of the business.
As of June 30, 2022, the Company has closed all of the LHI clinics and has moved away from the Infusion Division as part of its future plans. The Company has also decided that the Biotech Division will begin to transform into a medical biosciences incubator division focusing on bringing new biologics and therapeutic device technologies to market for various health conditions.
Note 2 - Basis Of Presentation And Summary of Significant Accounting Policies
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated results for H-CYTE include the following wholly-owned subsidiaries: H-CYTE Management, LLC, Medovex Corp, Cognitive Health Institute, LLC, and Lung Institute Tampa, LLC and the results include Lung Institute Dallas, LLC (“LI Dallas”), Lung Institute Nashville, LLC (“LI Nashville”), Lung Institute Pittsburgh, LLC (“LI Pittsburgh”), and Lung Institute Scottsdale, LLC (“LI Scottsdale”), as Variable Interest Entities (“VIEs”). Additionally, H-CYTE Management, LLC was the operator and manager of the various Lung Health Institute (LHI) clinics: LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale prior to their closure.
Principles of Consolidation
PRINCIPLES OF CONSOLIDATION
U.S. GAAP requires that a related entity be consolidated with a company when certain conditions exist. An entity is considered to be a VIE when it has equity investors who lack the characteristics of having a controlling financial interest, or its capital is insufficient to permit it to finance its activities without additional subordinated financial support. Consolidation of a VIE by the Parent would be required if it is determined that the Parent will absorb a majority of the VIE’s expected losses or residual returns if they occur, retain the power to direct or control the VIE’s activities, or both.
The accompanying consolidated financial statements include the accounts of the Parent, its wholly owned subsidiaries, and its VIEs. All intercompany accounts and transactions have been eliminated in consolidation.
Reclassification of Prior Year Presentation
RECLASSIFICATION OF PRIOR YEAR PRESENTATION
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Use of Estimates
USE OF ESTIMATES
In preparing the financial statements, U.S. GAAP requires disclosure regarding estimates and assumptions used by management that affect the amounts reported in financial statements and accompanying notes. Significant estimates were made around the valuation of embedded derivatives, which impacts gains or losses on such derivatives, the carrying value of debt, interest expense, and deemed dividends. Actual results could differ from those estimates.
Cash
CASH
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s cash balances at December 31, 2022 and 2021 consists of funds deposited in checking accounts with commercial banks.
Accounts Receivable
ACCOUNTS RECEIVABLE
Accounts receivable represent amounts due from customers for which revenue has been recognized. Generally, the Company does not require collateral or any other security to support its receivables. Trade accounts receivable are stated net of an estimate made for doubtful accounts, if any. Management evaluates the adequacy of the allowance for doubtful accounts regularly to determine if any account balances will potentially be uncollectible. Customer account balances are considered past due or delinquent based on the contractual agreement with each customer. Accounts are written off when, in management’s judgment, they are considered uncollectible. At December 31, 2022 and 2021, management believes no allowance is necessary. For the year ended December 31, 2022 and 2021, the Company recorded bad debt expense of approximately $68,000 and $14,000, respectively.
In February 2021, the Company implemented a patient financing program whereby it utilized third-party financing companies to facilitate financing to its patients to pay for treatments. The financing structure allows patients to make monthly payments to the financing companies with an interest rate ranging from 7.0 - 13.9% based on the patient’s credit score with contract terms ranging from 12 to 36 months. The Company subsequently receives a payment from the financing company net of the finance company’s service fees plus interest. The Company earns interest income from these arrangements which are reflected in interest income in the Company’s financials and combined with interest expense to reflect the net expense. Accounts receivable for financed treatments are listed as “Patient financing receivable, current portion” and “Patient financing receivable, net of current portion”.
Leases
LEASES
The Company accounts for leases in accordance with the Financial Accounting Standard Board (“FASB”) Topic 842, Leases, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. The Company has not entered into significant lease agreements in which it is the lessor.
Revenue Recognition
REVENUE RECOGNITION
The Company recognizes revenue in accordance with U.S. GAAP as outlined in the FASB ASC 606, Revenue From Contracts with Customers, which requires that five steps be completed to determine when revenue can be recognized: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfies a performance obligation. The Company records revenue under ASC 606 as services are performed for the customer.
The Company uses a standard pricing model for the types of cellular therapy treatments that is offered to its patients. The transaction price accounts for medical, surgical, facility, and office services rendered by the Company for consented procedures and is recorded as revenue. The Company recognizes revenue when the terms of a contract with a patient are satisfied.
The Company offers two types of cellular therapy treatments to their patients:
1) The first type of treatment includes medical services rendered typically over a two-day period in which the patient receives cellular therapy. For this treatment type, revenue is recognized in full at time of service.
2) The Company also offers a four-day treatment in which medical services are rendered typically over a two-day period and then again, approximately three months later, medical services are rendered for an additional two days of treatment. Payment is collected in full for both service periods at the time the first treatment is rendered. Revenue is recognized when services are performed based on the estimated standalone selling price of each service.
The Company’s policy is to not offer refunds to patients. However, in limited instances the Company may make exceptions to this policy for extenuating circumstances. These instances are evaluated on a case-by-case basis and may result in a patient refund. Management performed an analysis of its customer refund history for refunds issued related to prior year’s revenue. Management used the results of this historical refund analysis to record a reserve for anticipated future refunds related to recognized revenue of approximately $25,000 for the year ended December 31, 2022. The Company has now closed all of its clinical operations in the autologous infusion therapy business which delivered treatments for patients with chronic respiratory and pulmonary disorders.
Research and development costs
RESEARCH AND DEVELOPMENT COSTS
Research and development expenses are recorded in operating expenses in the period in which they are incurred.
Advertising
ADVERTISING
Advertising costs are recorded in operating expenses in the period in which they are incurred.
Share-Based Compensation
SHARE-BASED COMPENSATION
The Company maintains a stock option incentive plan and accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. The Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award to employees and directors. As required by fair value provisions of share-based compensation, employee and non-employee share-based compensation expense recognized is calculated over the requisite service period of the awards and reduced for estimated forfeitures.
Income Taxes
The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC Topic 740, “Income Taxes”. Under the liability method, deferred taxes are determined based on temporary differences between the financial statement and tax bases of assets and liabilities using tax rates expected to be in effect during the years in which the difference turns around. The Company accounts for interest and penalties on income taxes as income tax expense. A valuation allowance is recorded when it is more likely than not that a tax benefit will not be realized. In determining the need for valuation allowances the Company considers projected future taxable income and the availability of tax planning strategies.
From inception to December 31, 2022, the Company has incurred net losses and, therefore, has no current income tax liability. The net deferred tax asset generated by these losses is fully offset by a valuation allowance as of December 31, 2022 and 2021 since it is currently likely that the benefit will not be realized in future periods.
There are no uncertain tax positions at December 31, 2022 and 2021. The Company has not undergone any tax examinations since inception.
Net Loss Per Share
NET LOSS PER SHARE
Basic loss per share is computed on the basis of the weighted average number of shares outstanding for the reporting period. Diluted loss per share is computed on the basis of the weighted average number of common shares plus potentially dilutive common shares outstanding using the treasury stock and if-converted methods, as applicable. Any potentially dilutive securities are antidilutive due to the Company’s net losses.
Fair Value Measurements
FAIR VALUE MEASUREMENTS
The Company measures certain non-financial assets, liabilities, and equity issuances at fair value on a non-recurring basis. These non-recurring valuations include evaluating assets such as long-lived assets and non-amortizing intangible assets for impairment; allocating value to assets in an acquired asset group; and applying accounting for business combinations.
The Company classifies its stock warrants as either liability or equity instruments in accordance with ASC 480, “Distinguishing Liabilities from Equity” (ASC 480) and ASC 815, “Derivatives and Hedging” (ASC 815), depending on the specific terms of the warrant agreement.
The Company uses the fair value measurement framework to value these assets and report the fair values in the periods in which they are recorded, adjusted above, or written down.
The fair value measurement framework includes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair values in their broad levels. These levels from highest to lowest priority are as follows:
● Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities;
● Level 2: Quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted on active markets, but corroborated by market data; and
● Level 3: Unobservable inputs or valuation techniques that are used when little or no market data is available.
The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist in determining fair value, as appropriate.
The Company evaluates its financial liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. Although the Company believes that the recorded fair value of our financial instruments is appropriate at December 31, 2022, these fair values may not be indicative of net realizable value or reflective of future fair values.
Note 3 - Liquidity, Going Concern and Management’s Plans
LIQUIDITY, GOING CONCERN AND MANAGEMENT’S PLANS
The Company incurred net losses of approximately $10,300,000 for the year ended December 31, 2022. The Company had a negative cash balance of approximately $4,000 as of December 31, 2022, which is included in current liabilities, and has historically incurred losses from operations and expects to continue to generate negative cash flows as the Company implements its plan to transition the Biotech Division into a medical biosciences incubator division focusing on bringing new biologics and therapeutic device technologies to market for various health conditions. The consolidated financial statements are prepared using generally accepted accounting principles in the United States (“U.S. GAAP”) as applicable to a going concern.
COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020 and the Company continues to monitor the impact on its operations of the COVID-19 pandemic and its aftermath. The Company believes the effect of the COVID-19 pandemic and certain public and certain governmental responses to it have negatively affected each of its last twelve quarter’s results.
During the COVID-19 pandemic and its aftermath the Company experienced material reductions in demand and net revenues at its lung treatment centers. This reduction in demand lead to the Company shifting its focus from treating chronic lung disease to acquiring and developing early-stage companies or their technologies in the areas of therapeutics, medical devices, and diagnostics.
The Company had a negative cash balance of approximately $4,000 as of December 31, 2022, and approximately $4,000, as of April 30, 2023. The Company’s cash is insufficient to fund its operations over the next year and the Company is currently working to obtain additional debt or equity financing to help support short-term working capital needs.
There can be no assurance that the Company will be able to raise additional funds or that the terms and conditions of any future financing will be workable or acceptable to the Company or its shareholders. If the Company is unable to fund its operations from existing cash on hand, operating cash flows, additional borrowings, or raising equity capital, the Company may not continue operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
On February 24, 2023, the Company and certain investors entered into a Securities Purchase Agreement (the “SPA”), whereby the Company sold and issued to the certain investors an aggregate of three hundred thousand dollars ($300,000) of the Company’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $0.001 par value (“Common Stock”). In connection with the aforementioned Notes, the Company also issued to the investors a warrant to purchase (the “Purchase Warrant”) a certain number of shares of Common Stock, which are equal to 20% of the shares of Common Stock issuable upon conversion of the Note, based on a price of $2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to terminate earlier, the offering and the sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company has the option to extend this offering to June 30, 2023.
The Notes have a maturity date of the earlier of (i) one year from issuance; or (ii) upon the closing of a qualified offering. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum, and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s Common Stock at a conversion price equal to a 20% discount to the offering price.
Further, in connection with the SPA, the Company also issued a Common Stock Purchase Warrant to certain investors, which are exercisable on or prior to the close of business on the five (5) year anniversary of the initial exercise date, to purchase up to a certain amount of shares of Common Stock, with 20% of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company, dated February 24, 2023. The Company issued Warrants to purchase an aggregate of 30,000 shares of Common Stock. The exercise price per share of the Common Stock under this Warrant is $2.00.
On February 28, 2023, the Company entered into a securities purchase agreement for a total of $128,250 with an accredited investor. The notes issued are convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The notes bear interest at 10% and are due one year from issuance. For the first six months, the Company has the right to prepay the notes at a premium of between 25% and 40% depending on when it is repaid.
On March 27, 2023, H-Cyte, Inc., (the “Company”) and three related party investors entered into a Securities Purchase Agreement (the “SPA”), whereby, the Company sold and issued to the certain investors, an aggregate of one hundred twenty five thousand dollars ($125,000) of the Company’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $0.001 par value (“Common Stock”). On April 12, 2023, the Company and an additional investor entered into the SPA, whereby, the Company sold and issued an aggregate of thirty five thousand dollars ($35,000) of the Company’s Notes. In connection with the aforementioned Notes, the Company also issued to the investors a warrant to purchase (the “Purchase Warrant”) a certain number of shares of Common Stock, which are equal to 20% of the shares of Common Stock issuable upon conversion of the Note, based on a price of $2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to terminate earlier, the offering and the sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company has the option to extend this offering to June 30, 2023.
The March 27, 2023 Notes have a maturity date of the earlier of (i) one year from issuance; or (ii) upon the closing of a qualified offering. The April 12, 2023 Note has a maturity date 60 days from issuance. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum, and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s Common Stock at a conversion price equal to a 20% discount to the offering price.
Further, in connection with the SPA, the Company also issued a Common Stock Purchase Warrant to certain investors, which are exercisable on or prior to the close of business on the five (5) year anniversary of the initial exercise date, to purchase up to a certain amount of shares of Common Stock, with 20% of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company. The Company issued Warrants to purchase an aggregate of 13,500 shares of Common Stock. The exercise price per share of the Common Stock under this Warrant is $2.00.
Note 4 - Related Party Transactions
RELATED PARTY TRANSACTIONS
Officers and Board Members and Related Expenses
On January 12, 2021, Mr. Raymond Monteleone was appointed as Chairman of the Board, Audit Committee Chair, and Compensation Committee Chair. There are understandings between the Company and Mr. Monteleone for him to receive $5,000 per month to serve on the Board of Directors and an additional $2,500 per quarter to serve as Chairman of the Board, Audit Committee Chair, and Compensation Committee Chair. Effective January 1, 2022, Mr. Monteleone received $7,500 per month to serve on the Board of Directors and an additional $2,500 per quarter to serve as Chairman of the Board, Audit Committee Chair, and Compensation Committee Chair. Effective July 1, 2022, due to lack of working capital, Mr. Monteleone receives $3,750 per month to serve on the Board of Directors and to serve as Chairman of the Board, Audit Committee Chair, and Compensation Committee Chair. For the years ended December 31, 2022, and 2021, the Company expensed $75,000 and $70,000 respectively, for board of director fees to Mr. Monteleone. Due to lack of financial resources, the Company was unable to pay Mr. Monteleone for his services totaling $35,000, which is included in accrued liabilities as of December 31, 2022.
Mr. Michael Yurkowsky entered into an oral agreement with the Company on October 1, 2020, in which Mr. Yurkowsky will receive $4,167 per month to serve on the Board of Directors. For the years ended December 31, 2022 and 2021, the Company expensed $0 and $46,000 respectively, for board of director fees to Michael Yurkowsky. On December 1, 2021, the Board of Directors of the Company appointed Michael Yurkowsky to serve as the Company’s Chief Executive Officer. Upon Mr. Yurkowsky’ s appointment as CEO in December 2021, the Company terminated his payments for serving on the Board of Directors.
On January 12, 2021, Mr. William Horne stepped down as Chairman of the Board. Mr. Horne will remain a member of the Board. Effective March 1, 2021, the Company entered into an oral agreement with Mr. Horne in which Mr. Horne will receive $4,167 per month to serve on the Board of Directors. Mr. Horne agreed to continue to defer the $108,000 in base salary deferred by him in 2018 until such time as there is a positive cash flow to meet the Company’s financial obligations and then the Company and Mr. Horne will work together in good faith to negotiate a payment plan for such deferred salary. Effective December 1, 2021, Mr. Horne will receive $5,000 per month to serve on the Board of Directors. Effective July 1, 2022, due to lack of working capital, Mr. Horne receives $2,500 per month to serve on the Board of Directors. For the years ended December 31, 2022, and 2021, the Company expensed $50,000 and $37,500, respectively, for board of director fees to Mr. Horne. Due to lack of financial resources, the Company was unable to pay Mr. Horne for his services totaling $17,500, which is included in accrued liabilities as of December 31, 2022.
Mr. Richard Rosenblum entered into an oral agreement with the Company effective January 17, 2022, in which Mr. Rosenblum will receive $5,000 per month to serve on the Board of Directors. Effective July 1, 2022, due to lack of working capital, Mr. Rosenblum receives $2,500 per month to serve on the Board of Directors. For the year ended December 31, 2022 the Company expensed $42,500 for board of director fees to Mr. Rosenblum. Due to lack of financial resources, the Company was unable to pay Mr. Rosenblum for his services totaling $17,500, which is included in accrued liabilities as of December 31, 2022.
Mr. Matthew Anderer entered into an oral agreement with the Company effective January 17, 2022, in which Mr. Anderer will receive $5,000 per month to serve on the Board of Directors. Effective July 1, 2022, due to lack of working capital, Mr. Anderer receives $2,500 per month to serve on the Board of Directors. For the year ended December 31, 2022 the Company expensed $42,500 for board of director fees to Mr. Anderer. Due to lack of financial resources, the Company was unable to pay Mr. Anderer for his services totaling $17,500, which which is included in accrued liabilities as of December 31, 2022.
Debt and Other Obligations
Convertible Notes Payable
On April 1, 2021, the Company, entered into a Secured Convertible Note Purchase Agreement (the “April 2021 Note Purchase Agreement”) with five (5) related party investors (the “Holders”). Pursuant to the terms of the April 2021 Note Purchase Agreement, the Company sold promissory notes in the aggregate principal amount of $2,575,000 maturing on June 17, 2022 with an annual interest rate of 8%. The Notes are convertible into shares of Common Stock at a discount of 20% to the price paid for such New Securities in the next round of financing that meets the definition of Qualified Financing as defined in the April 2021 Note Purchase Agreement. The Notes are secured by the assets of the Company under a security agreement with the Holders. The lead investor of the April 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $1,500,000 of the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC, LLC, which is a principal stockholder and related party of the Company. An additional affiliate of FWHC, LLC provided an additional $25,000 as part of the April 2021 Note Purchase Agreement.
On October 14, 2021, the Company entered into the Second Closing Bring Down Agreement (the “October 2021 Note Purchase Agreement”) whereby the five (5) related party investors who had entered into the April 2021 Note Purchase Agreement purchased new notes in the Company in the aggregate principal amount of $750,000. The Notes are due and payable on June 17, 2022 and bear interest at an annual rate of 8%. The Notes are convertible into shares of Common Stock at a discount of 20% to the price paid for such New Securities in the next financing that meets the definition of a Qualified Financing as defined in the Note Purchase Agreement. The Notes are secured by all of the assets of the Company under a security agreement with the Holders. The lead investor of the October 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $437,000 of the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC, LLC, which is a principal stockholder and related party of the Company. An additional affiliate of FWHC, LLC provided an additional $7,000 as part of the October 2021 Note Purchase Agreement.
On February 22, 2022, the Company entered into a Debt Conversion Agreement (the “Amendment Agreement”) which i) provided for an additional round of convertible debt financing (“Tranche 2 Notes”) of up to $500,000 and ii) amended the conversion price on the convertible notes issued April 1, 2021 and October 8, 2021 (“Tranche 1 Notes”) from 80% of the price paid in a Qualified Financing (proceeds of at least $15 million), to the lesser of (x) $0.002 and (y) the price paid in a Qualified Financing (proceeds of at least $10 million). The Amendment Agreement also provides the following Milestone Payments:
1) $1,000,000 after filing a premarket notification pursuant to Section 510(k) of the Food, Drug and Cosmetic Act, of its intent to market its PRP cellular therapy
2) Following the closing of a Qualified financing, 25% of all proceeds raised in excess of $10 million (not to exceed $1 million)
The Milestone Payments are not to exceed $2 million, and the Amendment Agreement also specifies that a Qualified Financing will not occur prior to the closing of the acquisition of Jantibody, LLC.
The Company evaluated the Amendment Agreement under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that probability of having to pay a Milestone payment was minimal and the change in the fair value of the conversion feature was not material. Since the Amendment did not cause a material change in cash flows, extinguishment accounting was not applicable.
On April 29, 2022, the Company entered into an Amended and Restated Note Conversion Agreement (the “Note Conversion Agreement”) with certain holders of its Tranche 1 Notes (i) providing for a conversion price equal to the lesser of (x) $0.002 per share (pre-split) and (y) the price per share paid by the investors in a Qualified Financing for such New Securities purchased for cash and not through conversion of Notes (as such terms are defined in the Note Conversion Agreement), in each case subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization, (ii) automatic conversion upon the occurrence of a Qualified Financing, and (iii) amendment of the maturity date from March 31, 2022 to June 17, 2022 (the “New Notes”). Upon the effectiveness of the Company’s 1,000-1 reverse split, the conversion price adjusted to the lesser of (a) the price in the Qualified Financing or (b) $2.00 per share. The New Notes also provided the investors with Royalty Payments equal to 15% of all net sales generated by the Company with respect to the sale of products or services associated with the 510(k) Notification related to the Company’s autologous cellular therapy (PRP-PBMC) to treat chronic lung disorder. The Royalty Payments are in lieu of the Milestone payments but are perpetual and there is no limit to the aggregate amount of Royalty Payments that may be paid.
Due to changes in key provisions of the Tranche 1 Notes, the Company analyzed the before and after cash flows between the (i) fair value of the New Notes and (ii) reacquisition price of the Tranche 1 Notes prior to the (A) change in the maturity date from March 31, 2022 to June 17, 2022, (B) change in the conversion price to the lesser of (x) $2.00 and (y) the price paid in a Qualified Financing, and (C) the fair value of the potential Royalty Payments, to determine whether these changes resulted in a modification or extinguishment of the Tranche 1 Notes.
The Company used a discounted cash flow method with Monte Carlo Simulation to value the Royalty Payments. Future Royalty Payments were estimated based on management’s best estimate of future cash flows under various scenarios which were discounted to present value using a risk-adjusted rate of 70%.
Based on the before and after cash flows of each note, the change was considered significantly different. Consequently, the New Notes were accounted for as a debt extinguishment of the Tranche 1 Notes and a new debt issuance of the New Notes. The Company recorded a $2.2 million loss upon extinguishment of debt in the year ended December 31, 2022, which was comprised of the following:
SCHEDULE OF LOSS UPON EXTINGUISHMENT
Carrying value of Tranche 1 Notes $ 3,580,738
Less: Fair value of New Notes (4,079,838 )
Less: Fair value of Royalty Payments (1,697,000 )
Loss on Extinguishment $ (2,196,100 )
The Note Conversion Agreement also provided for the consummation of a Tranche 2 Financing (the “Tranche 2 Notes”) subject to (i) the aggregate principal amount of indebtedness represented by the Tranche 2 Notes being capped at $500,000 and (ii) Tranche 2 Notes’ being an unsecured obligation of the Company and expressly subordinate in all respects to all indebtedness of the Company under the Notes and including language in which the holders of such Tranche 2 Notes acknowledge, confirm and agree to the foregoing subordination terms. Pursuant to the terms of the Note Conversion Agreement, the Investors have agreed not to sell any capital stock of the Company for a period of 12 months following the Qualified Financing. For the year ended December 31, 2022, approximately $499,000 of amortization of the debt premium is included in interest income. Management is currently working with the noteholders on the extension of the maturity of the outstanding notes.
On June 9, 2022, the Company entered into a securities purchase agreement for a total of $272,500 with two accredited investors. The notes issued are convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The notes bear interest at 10% and are due one year from issuance. For the first six months, the Company has the right to prepay the notes at a premium of between 25% and 35% depending on when it is repaid.
The Company also issued a promissory note for $100,000, on June 9, 2022, to another accredited investor. This note bears interest at 15% (no matter when repaid) and converts at a discount of 25% of the price of a public offering or a 25% discount to the VWAP of the five (5) days prior to conversion.
The embedded features in the convertible notes were analyzed under Accounting Standards Codification 815-“Derivatives and Hedging” (ASC 815) to determine if they required bifurcation as derivative instruments. To be a derivative, one of the criteria is that the embedded component must be net-settleable. While the Company’s Common Stock was traded on an exchange at the time of the transaction, the underlying shares are not readily convertible into cash since there is insufficient daily trading volume for the holders to convert the convertible notes into Common Stock without significantly affecting the share price. Accordingly, the embedded derivatives, including the embedded conversion feature, did not meet the definition of a derivative, and therefore, did not require bifurcation from the host instrument. Certain default put provisions, including a default put and default interest, were not considered to be clearly and closely related to the host instrument but the Company concluded that the value of these provisions was de minimus at inception. The Company will reconsider the value of these provisions each reporting period to determine if the value becomes material to the financial statements.
On August 8, 2022, the Company entered into a securities purchase agreement for a total of $65,000 with an accredited investor. The note issued is convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The note bears interest at 10% and is due one year from issuance. For the first six (6) months, the Company has the right to prepay the notes at a premium of between 25% and 40% depending on when it is repaid.
The Company chose to early adopt effective January 1, 2021, ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contract in Entity’s Own Equity. Thus, the April 2021 and October 2021 Note Purchase Agreements did not require consideration of a beneficial conversion feature and were accounted for solely as debt on the balance sheets.
Other Obligations
During the year ending December 31, 2022, Michael Yurkowsky, CEO, advanced the Company approximately $40,000 as a non-interest-bearing note with no established repayment terms. The balance owed is approximately $35,000 as of December 31, 2022.
Note 5 - Equity Transactions
EQUITY TRANSACTIONS
On December 31, 2021, a certain warrant holder of the Company, exercised 1,339,286 warrants on a cashless basis resulting in the issuance of 818,453 shares of the Company’s common stock.
In January 2022, the Company offered certain warrant holders the opportunity to receive an additional warrant to purchase the Company’s Common Stock at $14.00 per share, for a period of five (5) years from issuance for the exercise by March 31, 2022 of each existing warrant originally issued in April 2020. As of December 31, 2022, the Company had eleven warrant holders exercise an aggregate of 83,579 warrants at $14.00 per share resulting in cash proceeds of approximately $1,170,000 to the Company.
On June 10, 2022, the Company amended (the “Amendment”) its Articles of Incorporation to effectuate a one-for-one thousand reverse stock split (the “Reverse Split”) of its common stock. The Reverse Split was approved by FINRA on June 10, 2022, and effectuated on June 13, 2022. Pursuant to the Amendment, the Company also reduced the authorized shares of common stock to 500,000,000. As a result of the Reverse Split, the Company has approximately 618,506 shares of common stock outstanding and 438,776,170 shares of Series A Preferred Stock outstanding. As a result of the Reverse Stock Split, the Series A Preferred Stock is convertible at a ratio of one thousand shares of Series A Preferred Stock into one share of common stock. Accordingly, the 438,776,170 outstanding shares of Series A Preferred Stock are now convertible into an aggregate of 438,776 shares of common stock.
On September 29, 2022, the Company entered into a securities purchase agreement with two related party accredited investors for the sale of shares of Common Stock and warrants (the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Company sold an aggregate of 112,500 shares of common stock and warrants to purchase 56,250 shares of Common Stock exercisable at $2.50 per share for gross proceeds of approximately $225,000. All of the shares described in this Current Report on Form 8-K are being offered and issued to accredited investors in reliance upon exemptions from the registration requirements under Section 4(a)(2) under the Securities Act of 1933, as amended (“Securities Act”), and Rule 506 of Regulation D promulgated thereunder.
On November 14, 2022, pursuant to the Purchase Agreement, the Company sold an aggregate of 15,000 shares of common stock and warrants to purchase 7,250 shares of Common Stock exercisable at $2.50 per share for gross proceeds of $30,000.
The following table summarizes the Company’s common and preferred stock outstanding by class. The number of common stock shares has been adjusted to reflect a one-for-one thousand reverse stock split that became effective on June 13, 2022.
SCHEDULE OF COMMON AND PREFERRED STOCK OUTSTANDING
December 31, 2022 December 31, 2021
Common Stock 618,506 166,394
Series A Preferred Stock 438,776,170 501,887,532
Series A Preferred Stock
For the years ended December 31, 2022 and 2021, 63,111,364 and 36,221,875 shares of Series A Preferred Stock were converted to 63,114 and 36,222 shares of Common Stock, respectively, at the request of certain Series A Preferred Shareholders.
Voting Rights
Holders of Series A Preferred Stock (“Series A Holders”) have the right to receive notice of any meeting of holders of common stock and to vote upon any matter submitted to a vote of the holders of common stock. Each Series A Holder shall vote on each matter on an as converted basis submitted to them with the holders of common stock.
Conversion
Series A Preferred Stock converts to common stock at a 1:1000 ratio immediately upon request of the Series A Holder.
Liquidation
Series A Preferred Stock does not have preferential treatment over common stock shareholders if the Company liquidates or dissolves.
Share-Based Compensation
The Company utilizes the Black-Scholes valuation method to recognize share-based compensation expense over the vesting period. The expected life represents the period that the stock-based compensation awards are expected to be outstanding.
On April 1, 2021, the Board of Directors of the Company approved and granted certain directors and officers of the Company an aggregate of 54,750 stock options of which 4,750 were immediately vested on the date of grant. Each option granted has an exercise price of $70.00 per share and an expiration date of ten years from the date of grant. These options are not included in the Company’s current stock option plan as they were granted outside of the plan.
The Board of Directors decided not to renew the former CEO’s (Robert Greif) employment contract; therefore, the unvested shares were forfeited resulting in a reduction of share-based compensation of approximately $205,000 for the period ended September 30, 2021, that was recognized during the period ended June 30, 2021.
On June 10, 2022, the Company amended its Articles of Incorporation to effectuate a one-for-one thousand reverse stock split of its common stock. The Reverse Split was approved by FINRA on June 10, 2022 and effectuated on June 13, 2022.
As of December 31, 2022, 29,385 options were outstanding and 21,406 were vested. As of December 31, 2021, 29,635 options were outstanding and 15,385 were vested. For the years ended December 31, 2022 and 2021, the Company recognized and expense related to stock options of approximately $296,000 and $1,147,000, respectively, which is included in share based compensation. As of December 31, 2022, the Company has approximately $156,000 of unrecognized compensation costs related to non-vested stock options, which is expected to be recognized over a weighted average period of approximately 1.95 years.
Inputs used in the valuation models are as follows:
SCHEDULE OF ASSUMPTIONS USED TO CALCULATE FAIR VALUE OF STOCK OPTIONS
2021 Grants
Option value $ 54.00 to $ 56.00
Risk Free Rate 0.90 % to 1.37 %
Expected Dividend- yield - to -
Expected Volatility 173.99 % to 176.04 %
Expected term (years) to
The following is a summary of stock option activity for the years ended December 30, 2021 and 2022:
SUMMARY OF STOCK OPTION ACTIVITY
Shares Weighted
Average
Exercise
Price
Weighted
Average Remaining
Term (Years)
Outstanding at December 31, 2020 $ 1,390.00 6.72
Granted 54,750 70.00 9.25
Expired/Cancelled (25,525 ) 70.00 -
Outstanding at December 31, 2021 29,635 $ 86.48 9.20
Exercisable at December 31, 2021 15,385 $ 101.74 9.16
Outstanding at December 31, 2021 29,635 $ 86.48 9.20
Forfeited (250 ) 400.00 -
Outstanding at December 31, 2022 29,385 $ 83.81 8.22
Exercisable at December 31, 2022 21,406 $ 88.96 8.21
The following is a summary of the Company’s non-vested shares for the years ended December, 2021 and 2022:
SUMMARY OF STOCK OPTION ACTIVITY NON-VESTED
Shares Weighted
Average Grant
Date Fair Value
Non-vested at December 31, 2020 - $ -
Granted 54,750 60.00
Vested (15,000 ) 50.00
Forfeited (25,500 ) 70.00
Non-vested at December 31, 2021 14,250 $ 60.00
Vested (6,271 ) 54.64
Non-vested at December 31, 2022 7,979 $ 55.70
Net Loss Per Share
Basic loss per share is computed on the basis of the weighted average number of shares outstanding for the reporting period. Diluted loss per share is computed on the basis of the weighted average number of common shares plus dilutive potential common shares outstanding using the treasury stock and if-converted methods, as applicable. Any potentially dilutive securities are antidilutive due to the Company’s net losses.
The Company excluded the following securities from the calculation of basic and diluted net loss per share as the effect would have been antidilutive:
SCHEDULE OF ANTI-DILUTIVE SECURITIES OF BASIC AND DILUTED NET LOSS PER SHARE
For the Year Ended December 31,
Warrants to purchase common stock (in the money) 147,329 383,694
Series A Preferred Stock convertible to common stock 438,776 501,888
Total 586,105 885,582
Antidilutive Shares 586,105 885,582
Excluded from the above table are 300,638 warrants and 21,406 stock options for the year ended December 31, 2022 and 22,608 warrants and 29,635 stock options for the year ended December 31, 2021 as they are out of the money (exercise price greater than the stock price). Inclusion of such would be anti-dilutive. As a result of the Reverse Stock Split, the Series A Preferred Stock is convertible at a ratio of one thousand shares of Series A Preferred Stock into one share of common stock. Accordingly, the 438,776,168 outstanding shares of Series A Preferred Stock are convertible into an aggregate of 438,776 shares of common stock at December 31, 2022.
Note 6 - Commitments & Contingencies
COMMITMENTS & CONTINGENCIES
CEO Compensation Agreement
On December 23, 2021, the Company entered into an employment agreement (the “Employment Agreement”) with Michael Yurkowsky, the Company’s Chief Executive Officer, to continue to serve as the Chief Executive Officer of the Company. Under the Employment Agreement, which commenced on December 1, 2021 (the “Effective Date”) and has a term of one year from the Effective Date (the “Employment Period”), Mr. Yurkowsky will receive a base salary of $180,000 per year. Upon the expiration of the Employment Period, Mr. Yurkowsky’s employment with the Company will be on an at-will basis.
In addition to his base salary, Mr. Yurkowsky may receive a one-time cash bonus in gross amount equal to $100,000 if (i) the Company’s stock is listed and quoted on the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, or the New York Stock Exchange; or (ii) the Company secures and receives financing of at least $10,000,000.
As additional compensation, Mr. Yurkowsky shall receive shares of common stock of the Company representing 1% of the Company’s fully diluted equity as of the grant date if the Company achieves a market capitalization of at least $250 million for 60 consecutive days during the Employment Period (the “Equity Award”). If the Company achieves a market capitalization of at least $500 million for 60 consecutive days during the Employment Period, the executive shall receive an additional Equity Award of 1%, such that he has in the aggregate received shares of common stock of the Company representing 2% of the Company’s fully diluted equity as of the date of grant. These market conditions were reflected in the grant date fair value of the award as required under ASC 718 Compensation-Stock Compensation.
The Equity Award was measured at fair value on its grant date using a Monte Carlo simulation model. The Monte Carlo simulation model includes assumptions for the expected term, volatility, and dividend yield, each of which are determined in reference to the Company’s historical results. The Company will recognize aggregate stock-based compensation expense of approximately $328,000 related to the Equity Award on a straight-line basis over the derived service period determined by the Monte Carlo simulation model, which was 0.71 years. During the years ended December 31, 2022 and 2021, the Company recognized approximately $290,000 and $38,000, respectively, in compensation expense related to the Equity Award. If the market capitalization targets are met sooner than the derived service period, the Company will adjust its stock-based compensation to reflect the cumulative expense associated with the vested Equity Award. The Company will recognize expense if the requisite service is provided, regardless of whether the market conditions are achieved.
Consulting Agreements
The Company entered into a consulting agreement with Tanya Rhodes of Rhodes & Associates, Inc, effective June 15, 2020, to serve as the Chief Science Officer of the Company. The agreement has a minimum term of six months with an average fee of $21,000 per month plus expenses which increases 5% per month on January 1 of each calendar year unless an alternative retainer amount is negotiated and agreed upon by both parties. The Company extended the contract on January 1, 2021, resulting in monthly expenses of $22,500 plus expenses for services rendered. As of January 1, 2022, Ms. Rhodes is continuing to receive $22,500 and is engaged on a month-to-month basis.
The Company entered into a consulting agreement with Alpha IR Group on March 1, 2022, to provide investor relations to the Company. The agreement is for twelve months with an average service fee of $9,750 per month. During 2023, the Company paused this service for a three month period.
Litigation
From time to time, the Company may be involved in routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. The ultimate amount of liability, if any, for any claims of any type (either alone or in the aggregate) may materially and adversely affect the Company’s financial condition, results of operations, and liquidity. In addition, the ultimate outcome of any litigation is uncertain. Any outcome, whether favorable or unfavorable, may materially and adversely affect the Company due to legal costs and expenses, diversion of management attention, and other factors. The Company expenses legal costs in the period incurred. The Company cannot assure that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against the Company in the future, and these matters could relate to prior, current or future transactions or events.
The Company is involved in a lawsuit with Sinclair Broadcast Group, Inc. (“Sinclair”) which was filed on September 8, 2020, in the Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough County, Florida. Sinclair has obtained a legal judgment for breach of contract for advertising services in the amount of approximately $72,000 plus interest and costs. The Company has retained legal counsel for guidance in this matter. The amount is recorded in accounts payable as of December 31, 2022.
The Company is involved in a lawsuit with ITN Networks, LLC (“ITN”) which was filed on July 22, 2021, in the Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough County, Florida. ITN has obtained a legal judgment for breach of contract for advertising services in the amount of approximately $45,000 plus interest and costs. The Company has retained legal counsel for guidance in this matter. The amount is recorded in accounts payable as of December 31, 2022.
Note 7 - Debt
DEBT
Notes Payable
Notes payable were assumed in the Merger (for further discussion, see Note 1 - “Overview” to the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K) and are due in aggregate monthly installments of approximately $5,800 and carry an interest rate of 5%. Each note originally had a maturity date of August 1, 2019. The Company finalized an eighteen-month extension to March 1, 2021. The promissory notes have an aggregate outstanding balance of approximately $69,000 at December 31, 2022 and December 31, 2021. The Company has not made payments on these notes since February 10, 2020. On April 19, 2022, the Company entered into a promissory note modification agreement with the Lender extending the maturity date of the notes to April 1, 2024. The modification agreement also reduces the interest rate from 5% to 3% and requires a monthly payment of $1,000 per month with a balloon payment at the end of the modified term.
Convertible notes
On April 1, 2021, the Company, entered into a Secured Convertible Note Purchase Agreement (the “April 2021 Note Purchase Agreement”) with five (5) related party investors (the “Holders”). Pursuant to the terms of the April 2021 Note Purchase Agreement, the Company sold promissory notes in the aggregate principal amount of $2,575,000 maturing on June 17, 2022 with an annual interest rate of 8%. The Notes are convertible into shares of Common Stock at a discount of 20% to the price paid for such New Securities in the next round of financing that meets the definition of Qualified Financing as defined in the April 2021 Note Purchase Agreement. The Notes are secured by the assets of the Company under a security agreement with the Holders. The lead investor of the April 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $1,500,000 of the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC, LLC, which is a principal stockholder and related party of the Company. An additional affiliate of FWHC, LLC provided an additional $25,000 as part of the April 2021 Note Purchase Agreement.
On October 14, 2021, H-Cyte, Inc. (the “Company”) entered into the Second Closing Bring Down Agreement (the “October 2021 Note Purchase Agreement”) whereby the five (5) related party investors who had entered into the April 2021 Note Purchase Agreement purchased new notes in the Company in the aggregate principal amount of $750,000. The Notes are due and payable on June 17, 2022 and bear interest at an annual rate of 8%. The Notes are convertible into shares of Common Stock at a discount of 20% to the price paid for such New Securities in the next financing that meets the definition of a Qualified Financing as defined in the Note Purchase Agreement. The Notes are secured by all of the assets of the Company under a security agreement with the Holders. The lead investor of the October 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $437,000 of the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC, LLC, which is a principal stockholder and related party of the Company. An additional affiliate of FWHC, LLC provided an additional $7,000 as part of the October 2021 Note Purchase Agreement.
On February 22, 2022, the Company entered into a Debt Conversion Agreement (the “Amendment Agreement”) which i) provided for an additional round of convertible debt financing (“Tranche 2 Notes”) of up to $500,000 and ii) amended the conversion price on the convertible notes issued April 1, 2021 and October 8, 2021 (“Tranche 1 Notes”) from 80% of the price paid in a Qualified Financing (proceeds of at least $15 million), to the lesser of (x) $0.002 and (y) the price paid in a Qualified Financing (proceeds of at least $10 million). The Amendment Agreement also provides the following Milestone Payments:
1) $1,000,000 after filing a premarket notification pursuant to Section 510(k) of the Food, Drug and Cosmetic Act, of its intent to market its PRP cellular therapy
2) Following the closing of a Qualified financing, 25% of all proceeds raised in excess of $10 million (not to exceed $1 million)
The Milestone Payments are not to exceed $2 million, and the Amendment Agreement also specifies that a Qualified Financing will not occur prior to the closing of the acquisition of Jantibody, LLC.
The Company evaluated the Amendment Agreement under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that probability of having to pay a Milestone payment was minimal and the change in the fair value of the conversion feature was not material. Since the Amendment did not cause a material change in cash flows, extinguishment accounting was not applicable.
On April 29, 2022, the Company entered into an Amended and Restated Note Conversion Agreement (the “Note Conversion Agreement”) with certain holders of its Tranche 1 Notes (i) providing for a conversion price equal to the lesser of (x) $0.002 per share (pre-split) and (y) the price per share paid by the investors in a Qualified Financing for such New Securities purchased for cash and not through conversion of Notes (as such terms are defined in the Note Conversion Agreement), in each case subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization, (ii) automatic conversion upon the occurrence of a Qualified Financing, and (iii) amendment of the maturity date from March 31, 2022 to June 17, 2022 (the “New Notes”). Upon the effectiveness of the Company’s 1,000-1 reverse split, the conversion price adjusted to the lesser of (a) the price in the Qualified Financing or (b) $2.00 per share. The New Notes also provided the investors with Royalty Payments equal to 15% of all net sales generated by the Company with respect to the sale of products or services associated with the 510(k) Notification related to the Company’s autologous cellular therapy (PRP-PBMC) to treat chronic lung disorder. The Royalty Payments are in lieu of the Milestone payments but are perpetual and there is no limit to the aggregate amount of Royalty Payments that may be paid.
Due to changes in key provisions of the Tranche 1 Notes, the Company analyzed the before and after cash flows between the (i) fair value of the New Notes and (ii) reacquisition price of the Tranche 1 Notes prior to the (A) change in the maturity date from March 31, 2022 to June 17, 2022, (B) change in the conversion price to the lesser of (x) $2.00 and (y) the price paid in a Qualified Financing, and (C) the fair value of the potential Royalty Payments, to determine whether these changes resulted in a modification or extinguishment of the Tranche 1 Notes.
The Company used a discounted cash flow method with Monte Carlo Simulation to value the Royalty Payments. Future Royalty Payments were estimated based on management’s best estimate of future cash flows under various scenarios which were discounted to present value using a risk-adjusted rate of 70%.
Based on the before and after cash flows of each note, the change was considered significantly different. Consequently, the New Notes were accounted for as a debt extinguishment of the Tranche 1 Notes and a new debt issuance of the New Notes. The Company recorded a $2.2 million loss upon extinguishment of debt in the nine months ended December 31, 2022, which was comprised of the following:
SCHEDULE OF LOSS UPON EXTINGUISHMENT OF DEBT
Carrying value of Tranche 1 Notes $ 3,580,738
Less: Fair value of New Notes (4,079,838 )
Less: Fair value of Royalty Payments (1,697,000 )
Loss on Extinguishment $ (2,196,100 )
The Note Conversion Agreement also provided for the consummation of a Tranche 2 Financing (the “Tranche 2 Notes”) subject to (i) the aggregate principal amount of indebtedness represented by the Tranche 2 Notes being capped at $500,000 and (ii) Tranche 2 Notes’ being an unsecured obligation of the Company and expressly subordinate in all respects to all indebtedness of the Company under the Notes and including language in which the holders of such Tranche 2 Notes acknowledge, confirm and agree to the foregoing subordination terms. Pursuant to the terms of the Note Conversion Agreement, the Investors have agreed not to sell any capital stock of the Company for a period of 12 months following the Qualified Financing.
On June 9, 2022, the Company entered into a securities purchase agreement for a total of $272,500 with two accredited investors. The notes issued are convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The notes bear interest at 10% and are due one year from issuance. For the first six months, the Company has the right to prepay the notes at a premium of between 25% and 35% depending on when it is repaid.
The Company also issued a promissory note for $100,000, on June 9, 2022, to another accredited investor. This note bears interest at 15% (no matter when repaid) and converts at a discount of 25% of the price of a public offering or a 25% discount to the VWAP of the five (5) days prior to conversion.
The embedded features in the convertible notes were analyzed under ASC 815 to determine if they required bifurcation as derivative instruments. To be a derivative, one of the criteria is that the embedded component must be net-settleable. While the Company’s Common Stock was traded on an exchange at the time of the transaction, the underlying shares are not readily convertible into cash since there is insufficient daily trading volume for the holders to convert the convertible notes into Common Stock without significantly affecting the share price. Accordingly, the embedded derivatives, including the embedded conversion feature, did not meet the definition of a derivative, and therefore, did not require bifurcation from the host instrument. Certain default put provisions, including a default put and default interest, were not considered to be clearly and closely related to the host instrument but the Company concluded that the value of these provisions was de minimus at inception. The Company will reconsider the value of these provisions each reporting period to determine if the value becomes material to the financial statements.
The Company chose to early adopt effective January 1, 2021, ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contract in Entity’s Own Equity. Thus, the April 2021 and October 2021 Note Purchase Agreements did not require consideration of a beneficial conversion feature and were accounted for solely as debt on the balance sheets.
On August 9, 2022, the Company entered into a securities purchase agreement for a total of $65,000 with an accredited investor. The note issued is convertible into common stock at a 35% discount to the lowest trading price in the 20-day period prior to conversion. The note bears interest at 10% and is due one year from issuance. For the first six (6) months, the Company has the right to prepay the notes at a premium of between 25% and 40% depending on when it is repaid.
On February 24, 2023, H-Cyte, Inc., (the “Company”) and certain investors entered into a Securities Purchase Agreement (the “SPA”), whereby, the Company sold and issued to the certain investors, an aggregate of three hundred thousand dollars ($300,000.00) of the Company’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $0.001 par value (“Common Stock”), par value $0.001. In connection with the aforementioned Notes, the Company also issued to the investors a warrant to purchase (the “Purchase Warrant”) a certain number of shares of Common Stock, which are equal to 20% of the shares of Common Stock issuable upon conversion of the Note, based on a price of $2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to terminate earlier, the offering and the sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company has the option to extend this offering to June 30, 2023.
The Notes have a maturity date of the earlier of (i) one year from issuance; or (ii) upon the closing of a qualified offering. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum, and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s Common Stock at a conversion price equal to a 20% discount to the offering price.
Further, in connection with the SPA, the Company also issued a Common Stock Purchase Warrant to certain investors, which are exercisable on or prior to the close of business on the five (5) year anniversary of the initial exercise date, to purchase up to a certain amount of shares of Common Stock, with 20% of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company, dated February 24, 2023. The Company issued Warrants to purchase an aggregate of 30,000 shares of Common Stock. The exercise price per share of the Common Stock under this Warrant is $2.00.
On February 28, 2023, the Company entered into a securities purchase agreement for a total of $128,250 with an accredited investor. The notes issued are convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The notes bear interest at 10% and are due one year from issuance. For the first six months, the Company has the right to prepay the notes at a premium of between 25% and 40% depending on when it is repaid.
On March 27, 2023, H-Cyte, Inc., (the “Company”) and three related party investors entered into a Securities Purchase Agreement (the “SPA”), whereby, the Company sold and issued to the certain investors, an aggregate of one hundred twenty five thousand dollars ($125,000.00) of the Company’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $0.001 par value (“Common Stock”). On April 12, 2023, the Company and an additional investor entered into the SPA, whereby, the Company sold and issued an aggregate of thirty five thousand dollars ($35,000.00) of the Company’s Notes. In connection with the aforementioned Notes, the Company also issued to the investors a warrant to purchase (the “Purchase Warrant”) a certain number of shares of Common Stock, which are equal to 20% of the shares of Common Stock issuable upon conversion of the Note, based on a price of $2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to terminate earlier, the offering and the sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company has the option to extend this offering to June 30, 2023.
The March 27, 2023 Notes have a maturity date of the earlier of (i) one year from issuance; or (ii) upon the closing of a qualified offering. The April 12, 2023 Note has a maturity date 60 days from issuance. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum, and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s Common Stock at a conversion price equal to a 20% discount to the offering price.
Further, in connection with the SPA, the Company also issued a Common Stock Purchase Warrant to certain investors, which are exercisable on or prior to the close of business on the five (5) year anniversary of the initial exercise date, to purchase up to a certain amount of shares of Common Stock, with 20% of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company. The Company issued Warrants to purchase an aggregate of 13,500 shares of Common Stock. The exercise price per share of the Common Stock under this Warrant is $2.00.
Paycheck Protection Program
On April 29, 2020, the Company issued a promissory note in the principal amount of $809,082 to the Bank of Tampa in connection with a loan in such amount made under the Paycheck Protection Program (“PPP Loan”). The PPP Loan bears an interest rate of 1% per annum and matures on April 29, 2022. The Company elected to use a 24-week Covered Period, per the SBA Paycheck Protection Program guidelines, which ended on October 14, 2020.
The Company did apply for loan forgiveness in an amount equal to the sum of the following costs incurred by the Company:
1) payroll costs;
2) any payment of interest on covered mortgage obligations;
3) any payment on a covered rent obligation; and
4) any covered utility payment
The Company received notification from the Small Business Administration (“SBA”), dated August 17, 2021, notifying it that $689,974 in principal and $8,847 in interest was forgiven under the guidelines of the Paycheck Protection Program. As of December 31, 2022, the PPP loan was paid in full.
Note 8 - Acquisitions
ACQUISITIONS
The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs which would meet the definition of a business. Significant judgment is required in the application of the screen test to determine whether an acquisition is a business combination or an acquisition of assets.
If an acquisition is determined to be a business combination as indicated in ASC 805, Business Combinations, the assets acquired, and liabilities assumed are recorded at their respective estimated fair values at the date of the acquisition. The Company recognizes and measures goodwill as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.
If an acquisition is determined to be an asset acquisition, the Company accounts for the transaction under ASC 805-50, which requires the cost of the asset acquisition, including transaction costs, to be allocated to identifiable assets acquired and liabilities assumed based on a relative fair value basis. Assets acquired as part of an asset acquisition that are considered to be in-process research and development (IPR&D) are immediately expensed unless there is an alternative future use in other research and development projects. Goodwill is not recognized in an asset acquisition and any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values (excluding non-qualifying assets). If the cost of the asset acquisition is less than the fair value of the net assets acquired, no gain is recognized in earnings.
Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the consideration is paid or becomes payable (unless the contingent consideration meets the definition of a derivative, in which case the amount becomes part of the basis in the asset acquired). Upon recognition of the contingent consideration payment, the amount is included in the cost of the acquired asset or group of assets.
On September 7, 2022, the Company acquired all of the membership interests of Jantibody LLC (“Jantibody”), a Nevada limited liability company. Jantibody is focused on the development of novel proprietary immunotherapies targeted towards ovarian cancer, pancreatic cancer, and mesothelioma. Prior to the acquisition, Michael Yurkowsky, CEO, had approximately 17.5% ownership interest in Jantibody.
Pursuant to the Jantibody Agreement, the Company issued the equity holders of Jantibody an aggregate of 52,023 shares of the Company’s common stock which represented 15% of the Company’s common stock on a fully diluted basis at the time of the transaction. In addition, for every share of the Company’s common stock issued as a result of the future conversion of the Company’s dilutive instruments, including Series A preferred stock, warrants, stock options, and convertible notes, the Jantibody members will receive 15% of the aggregate number of shares issued (the “Anti-Dilution” shares). The Anti-Dilution shares will be issued before the end of each fiscal quarter.
The Company has agreed to issue the Jantibody holders an additional 2.0% of the Company’s common stock then outstanding upon the enrollment of the first patient in a Phase I FDA trial and additional 3.0% of the Company’s then outstanding common stock on a fully diluted basis upon the enrollment of the first patient in a Phase [III] FDA trial. The Company determined the contingent consideration was not subject to derivative accounting and will be recognized when the contingency is resolved, and the consideration is paid or becomes payable as outlined in ASC 450, Contingencies.
The Company determined this transaction represented an asset acquisition as defined by ASC 805, Business Combinations, as substantially all of the value was in a single in-process research and development (“IPR&D”) group, which included the small molecule drug CXCR4 inhibitor, AMD3100, and/or checkpoint inhibitors (CPI) for anti-cancer immune modulation. As a result, the consideration transferred was allocated to the identifiable tangible and intangible assets acquired and liabilities assumed based on their relative fair values resulting in approximately $1,240,000 being assigned to the IPR&D asset and approximately $1,000,000 to assumed liabilities. The liabilities assumed were current accounts payable and as such were recorded a book value.
The purchase price of approximately $247,000 represented 52,023 shares of the Company’s common stock, 344,159 Anti-Dilution shares, and direct transaction costs of $21,600. The purchase price was allocated, on a relative fair value basis, to the acquired intellectual property, and the acquired net assets as follows:
SCHEDULE OF NET IDENTIFIABLE ASSETS ACQUIRED
Consideration:
Common stock $ 29,557
Common stock (anti-dilution shares, to be issued - included in other current liabilities) 195,532
Direct transaction costs 21,600
Total costs of the asset acquisition $ 246,689
Assets acquired
Cash $ 469
Accounts payable assumed - legal and administrative costs (999,728 )
Intangible assets: IPR&D 1,245,948
Net identifiable assets acquired $ 246,689
The IPR&D had not yet reached technological feasibility and had no alternative future use; thus, the purchased IPR&D asset and related costs were expensed immediately subsequent to the acquisition within the consolidated statements of operations.
On December 22, 2022, the Company acquired a 100% interest in Scion Solutions, LLC (“Scion”). Scion is a life sciences company that has developed a new technology in regenerative medicine specifically for limb salvage. Their proprietary product SkinDisc (patent pending) is a combination of stem cells and several other molecular components that stimulate tissue regeneration. Prior to the acquisition, Tanya Rhodes, CSO, had approximately 33.3% ownership interest in Scion.
Pursuant to the terms of the Scion Agreement, the Company issued the equity holders of Scion an aggregate of 123,153 shares of the Company’s common stock. In addition, for every share of the Company’s common stock issued within 18-months of the Effective Date of the transaction, as a result of the future conversion of the Company’s dilutive instruments, including Series A preferred stock, warrants, stock options, and convertible notes, the Scion members will receive 20% of the aggregate number of shares issued (the “Anti-Dilution” shares). The Anti-Dilution shares will be issued before the end of each fiscal quarter.
In addition, the former shareholders of Scion are eligible to receive Performance Payments consisting of the following:
SCHEDULE OF PERFORMANCE PAYMENTS
Performance Milestone Performance Payment
Qualified Funding/Uplifting of H-Cyte $ 45,000
1-Year Anniversary of Uplifting of H-Cyte $ 75,000
2-Year Anniversary of Uplifting of H-Cyte $ 120,000
Initiation of SkinDisc Study $ 50,000
Receipt of De Novo or any other approval/clearance that would allow SkinDisc to go to market $ 100,000
Submission for specific and individual reimbursement codes relating to SkinDisc $ 25,000
Receipt of specific and individual reimbursement codes relating to SkinDisc $ 50,000
Completion of SkinDisc Study $ 50,000
Launch of any additional SkinDisc product line extension (e.g., SkinDisc Lite)* $ 100,000
Annual net sales from SkinDisc (including SkinDisc extensions) (2023 and each subsequent calendar year)* Greater of (i) 4% of net revenues from SkinDisc (including SkinDisc line extensions) during such calendar year and (ii) $50,000
Cumulative net sales from SkinDisc (including SkinDisc extensions) of $600,000 $ 200,000
Cumulative net sales from SkinDisc (including SkinDisc extension) of $2,000,000 $ 150,000
Cumulative net sales from SkinDisc (including SkinDisc extension) of $4,000,000 $ 300,000
Net sales from SkinDisc (including SkinDisc extensions) of $6,000,000 during any single calendar year* $ 300,000
Substantially all of the value acquired was concentrated in a single in-process research and development (“IPRD”) asset, which included license rights, clinical trial data, clinical trial development plans, research and development materials, formulations and intellectual property related to SkinDisc. There was no workforce, and no outputs were present. Accordingly, the acquired set of assets and activities did not meet the definition of a business as defined by ASC 805, Business Combinations and was considered an asset acquisition. In an asset acquisition, the consideration transferred is allocated to identifiable tangible and intangible assets acquired and liabilities assumed based on their relative fair values. In the Scion acquisition, the only asset or liability acquired was IPR&D. As a result, the consideration transferred was recorded fully to the IPR&D asset.
In an asset acquisition, cash-settled contingent consideration is measured when probable and estimable, unless the contingent consideration falls under the guidance of ASC 815. The Company determined the contingent consideration was not subject to ASC 815 and thus, the performance payments which were estimable and probable (i.e., more than 50% likely to occur) were recorded on the acquisition date. The fair value was estimated based on a probability weighting of the present value of cash flows over the expected time period until payment, using a credit-risk adjusted interest rate. Each reporting period, the Company will determine if the performance payments are estimable and probable and will record them as a liability at that time.
The purchase price was allocated, as follows:
SCHEDULE OF NET IDENTIFIABLE ASSETS ACQUIRED AND LIABILITIES ASSUMED
Consideration:
Common stock $ 54,070
Anti-Dilution share liability 305,998
Contingent Performance payment liability 417,850
Direct transaction costs 14,338
Total costs of the asset acquisition $ 792,256
The common stock value was recorded as equity. The consideration of $792,256 was recorded as IPR&D, since the SkinDisc technology was still in the research and development stage and had no alternative future use. The purchased IPR&D asset was expensed immediately subsequent to the acquisition within our consolidated statements of operations.
Note 9 - Common Stock Warrants
COMMON STOCK WARRANTS
A summary of the Company’s warrant issuance activity and related information for the years ended December 31, 2021 and 2022 is as follows:
SUMMARY OF ISSUANCE OF WARRANTS
Shares Weighted
Average
Exercise Price Weighted
Average
Remaining
Contractual
Life
Outstanding and exercisable at December 31, 2020 413,424 $ 15.00 10.30
Expired (5,783 ) 330.00 -
Exercised (1,339 ) 10.00 -
Outstanding and exercisable at December 31, 2021 406,302 $ 35.00 8.17
Issued 148,329 9.06 4.41
Expired (23,085 ) (364.60 ) -
Exercised (83,579 ) 14.00 -
Outstanding and exercisable at December 31, 2022 447,967 $ 10.90 6.65
The fair value of all warrants issued are determined by using the Black-Scholes valuation technique. The inputs used in the Black-Scholes valuation technique to value each of the warrants as of their respective issue dates are as follows:
SCHEDULE OF ISSUANCE OF WARRANTS VALUATION TECHNIQUE
Event Description Date Number of Warrants H-CYTE Stock Price Exercise Price of Warrant Grant Date Fair Value Life of Warrant Risk Free Rate of Return (%) Annualized Volatility Rate (%)
Granted for inducement agreement 1/19/2022 3,732 $ 63.25 $ 14.00 $ 62.00 5 years 1.62 187.79
Granted for inducement agreement 1/20/2022 $ 64.50 $ 14.00 $ 64.00 5 years 1.62 187.85
Granted for inducement agreement 1/20/2022 $ 64.50 $ 14.00 $ 64.00 5 years 1.62 187.85
Granted for inducement agreement 1/24/2022 $ 48.00 $ 14.00 $ 47.00 5 years 1.53 188.01
Granted for inducement agreement 1/25/2022 3,744 $ 49.10 $ 14.00 $ 48.00 5 years 1.56 188.00
Granted for inducement agreement 2/02/2022 3,741 $ 44.55 $ 14.00 $ 44.00 5 years 1.60 188.25
Granted for inducement agreement 2/04/2022 6,935 $ 44.38 $ 14.00 $ 43.00 5 years 1.78 188.33
Granted for inducement agreement 2/04/2022 13,870 $ 44.38 $ 14.00 $ 43.00 5 years 1.78 188.33
Granted for services provided 2/09/2022 1,000 $ 32.00 $ 14.00 $ 31.00 5 years 1.82 188.69
Granted for inducement agreement 2/22/2022 41,609 $ 32.88 $ 14.00 $ 32.00 5 years 1.85 188.59
Granted for inducement agreement 2/22/2022 $ 32.88 $ 14.00 $ 32.00 5 years 1.85 188.59
Granted for inducement agreement 3/21/2022 8,322 $ 28.00 $ 14.00 $ 27.00 5 years 2.33 194.01
Granted for securities purchase agreement 9/27/2022 56,250 $ 6.00 $ 2.50 $ 5.94 5 years 4.21 213.54
Granted for securities purchase agreement 11/14/2022 7,500 $ 5.75 $ 2.50 $ 5.69 5 years 4.00 213.28
The fair value of warrants issued during the year ended December 31, 2022 totaled approximately $377,000 and is included in general and administrative expense. The fair value of warrants issued as a result of the warrant inducement during the year ended December 31, 2022 totaled approximately $3,133,000 and is included in inducement expense. The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Note 10 - Income Taxes
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC Topic 740, “Income Taxes”. Under the liability method, deferred taxes are determined based on differences between the financial statement and tax bases of assets and liabilities using tax rates expected to be in effect during the years in which the basis difference reverses. The Company accounts for interest and penalties on income taxes as income tax expense. A valuation allowances is recorded when it is more likely than not that a tax benefit will not be realized. In determining the need for valuation allowances the Company considers projected future taxable income and the availability of tax planning strategies.
The Company’s policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. As of December 31, 2022, the Company has not recorded any uncertain tax positions and, therefore, has not incurred any interest or penalties. The Company is not currently under examination by any Federal or State authority and is no longer subject to federal or state examination for years prior to 2019.
A reconciliation of the statutory federal income tax expense (benefit) to the effective tax is as follows for the years ended December 31:
SCHEDULE OF COMPONENTS OF INCOME TAX EXPENSE (BENEFIT)
Statutory rate - federal 21.0 % 21.0 %
Effect of:
State deferred provision 3.4 5.1
State NOL true-up (.3
) (2.1 )
Prior year true up .1 (6.8 )
Other true-ups 8.9
-
Loan forgiveness - PPP - 3.0
Other permanent differences (8.2
) -
Change in valuation allowances (24.9 ) (20.2 )
Income taxes 0.0 % 0.0 %
The Company’s financial statements contain certain deferred tax assets which have arisen primarily as a result of losses incurred that are considered start-up costs for tax purposes, as well as net deferred income tax assets resulting from other temporary differences related to certain reserves and differences between book and tax depreciation and amortization.
The Company assesses the realizability of deferred tax assets based on the available evidence, including a history of taxable income and estimates of future taxable income. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that all or some portion of deferred tax assets will not be realized. Due to the history of losses incurred by the Company, management believes it is not more likely than not that all of the deferred tax assets can be realized. Accordingly, the Company established and recorded a full valuation allowance on its net deferred tax assets of $16.0 million and $13.5 million as of December 31, 2022 and 2021, respectively.
Deferred tax assets and liabilities consist of the following at December 31:
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
Deferred Tax Assets:
Federal and state net operating loss carry forwards $ 11,475,536 $ 10,680,766
Capitalized start-up costs 1,858,781 1,980,984
Capitalized research and development costs 616,031 210,448
Patents 26,777 32,371
Share-based compensation 423,133 543,252
Depreciation/Amortization 720,701
--
Accruals 833,004
--
Other 94,305 35,083
Total gross deferred tax assets 16,048,268 13,482,904
Deferred Tax Liabilities
Right-of-use asset - -
Total gross deferred tax liabilities - -
Valuation Allowance 16,048,268 13,482,904
Net deferred tax assets $ - $ -
Utilization of the net operating loss carryforwards is subject to a substantial annual limitation due to the “ownership change” limitations provided by Section 382 and 383 of the Internal Revenue Code of 1986, as amended, and other similar state provisions. Any annual limitation may result in the expiration of net operating loss carryforwards before utilization. As of December 31, 2022, the Company had $46.4 million of U.S. federal net operating loss carryforwards available to reduce future taxable income, of which $39.2 million will be carried forward indefinitely for U.S. federal tax purposes and $7.2 million will expire beginning in 2035 to 2037. The Company also has $31.3 million of U.S. state net operating loss carryforwards of which $30.6 million will be carried forward indefinitely and $.7 million that will expire beginning in 2035 to 2037.
Note 11 - Subsequent Events
SUBSEQUENT EVENTS
On February 24, 2023, H-Cyte, Inc., (the “Company”) and certain investors entered into a Securities Purchase Agreement (the “SPA”), whereby, the Company sold and issued to the certain investors, an aggregate of three hundred thousand dollars ($300,000.00) of the Company’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $0.001 par value (“Common Stock”), par value $0.001. In connection with the aforementioned Notes, the Company also issued to the investors a warrant to purchase (the “Purchase Warrant”) a certain number of shares of Common Stock, which are equal to 20% of the shares of Common Stock issuable upon conversion of the Note, based on a price of $2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to terminate earlier, the offering and the sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company has the option to extend this offering to June 30, 2023.
The Notes have a maturity date of the earlier of (i) one year from issuance; or (ii) upon the closing of a qualified offering. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum, and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s Common Stock at a conversion price equal to a 20% discount to the offering price.
Further, in connection with the SPA, the Company also issued a Common Stock Purchase Warrant to certain investors, which are exercisable on or prior to the close of business on the five (5) year anniversary of the initial exercise date, to purchase up to a certain amount of shares of Common Stock, with 20% of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company, dated February 24, 2023. The Company issued Warrants to purchase an aggregate of 30,000 shares of Common Stock. The exercise price per share of the Common Stock under this Warrant is $2.00.
On February 28, 2023, the Company entered into a securities purchase agreement for a total of $128,250 with an accredited investor. The notes issued are convertible into common stock at a 65% discount to the lowest trading price in the 20-day period prior to conversion. The notes bear interest at 10% and are due one year from issuance. For the first six months, the Company has the right to prepay the notes at a premium of between 25% and 40% depending on when it is repaid.
On March 27, 2023, H-Cyte, Inc., (the “Company”) and three related party investors entered into a Securities Purchase Agreement (the “SPA”), whereby, the Company sold and issued to the certain investors, an aggregate of one hundred twenty five thousand dollars ($125,000.00) of the Company’s convertible promissory notes (the “Note” or “Notes”), which are convertible into the Company’s Common Stock, $0.001 par value (“Common Stock”). On April 12, 2023, the Company and an additional investor entered into the SPA, whereby, the Company sold and issued an aggregate of thirty five thousand dollars ($35,000.00) of the Company’s Notes. In connection with the aforementioned Notes, the Company also issued to the investors a warrant to purchase (the “Purchase Warrant”) a certain number of shares of Common Stock, which are equal to 20% of the shares of Common Stock issuable upon conversion of the Note, based on a price of $2.00 per share. These warrants have a term of five (5) years, with an exercise price of $2.00 per share. Unless the Company chooses to terminate earlier, the offering and the sale of the Notes shall terminate on the sooner of the sale of the maximum offering amount or April 30, 2023. However, the Company has the option to extend this offering to June 30, 2023.
The March 27, 2023 Notes have a maturity date of the earlier of (i) one year from issuance; or (ii) upon the closing of a qualified offering. The April 12, 2023 Note has a maturity date 60 days from issuance. Interest on the Note shall accrue on the unpaid principal balance of this Note at the rate of eight percent (8%) per annum, and will be calculated on an actual/365-day basis. In the event that the Company moves forward with a qualified offering, as referenced in the SPA, the Holder may convert the unpaid and outstanding principal plus any accrued and unpaid Interest into shares of the Company’s Common Stock at a conversion price equal to a 20% discount to the offering price.
Further, in connection with the SPA, the Company also issued a Common Stock Purchase Warrant to certain investors, which are exercisable on or prior to the close of business on the five (5) year anniversary of the initial exercise date, to purchase up to a certain amount of shares of Common Stock, with 20% of the shares of Common Stock issuable upon conversion of the Convertible Promissory Note purchased by the Holder, pursuant to the SPA between the Holder and the Company. The Company issued Warrants to purchase an aggregate of 13,500 shares of Common Stock. The exercise price per share of the Common Stock under this Warrant is $2.00.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal accounting officer, as appropriate to allow timely decisions regarding disclosure.
The Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”) evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of December 31, 2022, the end of our fiscal year. In designing and evaluating the Company’s disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives, and the Company necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
The Company’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2022.
Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2022, the Company’s disclosure controls and procedures were not effective because of the material weakness in our internal control over financial reporting as discussed below, and as a result, the Company engaged consultants to help mitigate these material weaknesses.
In light of the conclusion that our internal disclosure controls are classified as ineffective as of December 31, 2022, we have applied procedures and processes as necessary to ensure the reliability of our financial reporting in regard to this annual report. Accordingly, the Company believes, based on its knowledge, that: (i) this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading with respect to the period covered by this report; and (ii) the financial statements, and other financial information included in this annual report, fairly present in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in this annual report.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Under the supervision of our CEO and CFO, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 32, 2022, using the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013 Framework).
A material weakness is a deficiency, or 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 our assessment of the effectiveness of internal control over financial reporting as of December 31, 2022, we determined that control deficiencies existed that constituted material weaknesses as follows:
● an ineffective control environment due to an insufficient number of accounting personnel with an appropriate level of knowledge and experience, related to some of the Company’s more complex accounting transactions and SEC financial reporting,
● ineffective control activities and monitoring controls due to the lack of segregation of duties and insufficient analysis of certain accounts.
Remediation Efforts to Address Material Weaknesses
Management is committed to maintaining a strong internal control environment. In response to the identified material weaknesses, management, with the oversight of the Audit Committee, has taken actions toward the remediation of the respective material weaknesses in internal control over financial reporting as outlined below.
(i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting (iii) continued education.
The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
Management believes continuing to use qualified consultants and experts to help with the Company’s more complex transactions will help remediate the material weaknesses described above. The Audit Committee and management will continue to monitor the implementation of these remediation measures and the effectiveness of our internal controls over financial reporting on an ongoing basis.
As a result of the material weaknesses described above, our CEO and CFO concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control- Integrated Framework issued by COSO (2013 Framework).
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal controls over financial reporting because this is not required of the Company pursuant to Regulation SK Item 308(b).
Changes in Internal Control Over Financial Reporting
Except as set forth above, there were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2022, that materially affected, or that are reasonably likely to materially affect our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our board of directors consists of five (5) members: William E. Horne, Raymond Monteleone, Michael Yurkowsky, Richard Rosenblum, and Matthew Anderer.
Our current executive officers are Michael Yurkowsky, Chief Executive Officer, Jeremy Daniel, Chief Financial Officer, and Tanya Rhodes, Chief Science Officer.
Directors and Executive Officers
The following table provides information as of April 30, 2023, as to each person who is, as of the filing hereof, a director and/or executive officer of the Company:
Name
Position(s)
Age
Michael Yurkowsky
Chief Executive Officer/Director
Jeremy Daniel
Chief Financial Officer
Tanya Rhodes
Chief Science Officer
Raymond Monteleone
Chairman of the Board (1)
William E Horne
Director
Richard Rosenblum
Director
Matthew Anderer
Director
(1) Chairman of audit committee and compensation committee
No Family Relationships
There is no family relationship between any director and executive officer or among any directors or executive officers.
Business Experience and Background of Directors and Executive Officers
BOARD OF DIRECTORS
Raymond Monteleone
Raymond Monteleone serves managerial and consultative roles at several enterprises. Mr. Monteleone currently serves as the chairman and president of Paladin Global Partners, LLC since 2007; a board member and vice president of Dannelly, Monteleone & Associates, LLC since 2010; sits on the board of Chen Moore and Associates Inc. since 2015; is a managing member at Diner Investment Partners, LLC since 2016 and Uyona Management, LLC since 2013; a managing member and the chief financial officer at HBRE, LLC since 2013 and Horne Management, LLC since 2011; and the president at Monteleone & Associates Consulting, Inc. since 2005. Mr. Monteleone received a college degree from the New York Institute of Technology and an MBA degree from Florida Atlantic University. Mr. Monteleone, until recently, was the interim CFO and Reorganization Officer of LVI Intermediate Holdings, Inc.
A former partner with Arthur Young (now EY), Raymond Monteleone joined H-CYTE after working closely with several large and small companies serving as board member and/or advisor, specializing in strategic planning, health care, tax and financial planning and corporate management. Mr. Monteleone previously held officer positions with Sensormatic Electronics Corporation, a billion-dollar company listed in the New York Stock Exchange and was a member of the Board of Directors of Rexall Sundown, Inc., a large public entity. He also previously served as an officer working closely with the Board of Directors of Laser Spine Institute (“LSI”) and worked as deputy commissioner, chief operating officer, and chief financial officer with the Florida Department of Education. He attended an exclusive Arthur Young Harvard Business School program and earned his MBA from Florida Atlantic University. Considered an expert in financial analysis and business management, Mr. Monteleone is regularly featured as a lecturer at various universities and professional associations.
William E. Horne
William “Bill” Horne is a founder and former Chief Executive Officer and Chairman of the Board of Laser Spine Institute. From 2005 to 2015, Mr. Horne served as the company’s CEO, expanding the homegrown organization from one facility with nine employees, to seven state-of-the-art surgery centers with more than 1,000 employees across six states, while driving annual revenues as high as $288M during his tenure. In his role as Chairman of the Board, he led the strategic direction of the company, which has made it possible for more than 75,000 patients to take back their lives from chronic pain with its minimally invasive spine procedures.
Michael Yurkowsky
Mr. Yurkowsky has been a member of the Board of Directors of the Company since 2019. Mr. Yurkowsky also serves as President and Chairman of Deverra Therapeutics, a clinical stage biotech developing allogeneic cell therapies. Mr. Yurkowsky operates his own family office, YP Holdings LLC, which has an investment portfolio of 50 private companies and has participated in over 100 financing transactions with public companies since 2012. Previously, Mr. Yurkowsky managed his own hedge fund and worked as a broker at several national broker-dealer firms. On December 6, 2021, the Board of Directors of the Company appointed Michael Yurkowsky to serve as the Company’s Chief Executive Officer.
Richard Rosenblum
Mr. Rosenblum is a business veteran and entrepreneur in the areas of the financial services, capital markets, healthcare, technology and real estate. His experience ranges from serving as managing director at several investment merchant banks to heading companies as a C-suite executive. He also sits on the boards of public and private healthcare, life sciences and technology-sector companies.
Mr. Rosenblum is currently President, CFO and Board Member of Innovative Payment Solutions, Inc., a California-based FinTech company focused on building a 21st century universal digital payment and money remittance platform. As the founder of Harborview Capital Advisors, LLC, Mr. Rosenblum leads a team of strategic advisors in the areas of capital formation, merchant banking and management consulting, and has raised more than $250 million in capital funding for companies. Since founding it over 20 years ago, Mr. Rosenblum has served as manager and director of Harborview Property Management LLC, raising over $100 million while managing domestic and international commercial and multi-family real estate assets. From 2008 to 2014, Mr. Rosenblum was Director, President and Executive Chairman of Alliqua Biomedical Inc. (NASDAQ: ALQA), a leader in hydrogel manufacturing technology in the wound care sector.
Mr. Rosenblum received his B.A. in Finance & Accounting from the State University of New York at Buffalo in 1981, graduating summa cum laude.
Matthew Anderer
Mr. Anderer started his career in the United States Air Force as a fast jet and special operations pilot and instructor before taking operational and staff officer roles with Special Operations Command and NATO. He has commanded worldwide airlift capability of the highest posts within the White House and from a technology perspective, he has directed a range of high-profile, high-value acquisition projects. Mr. Anderer was the Director of the US Air Force leadership and citizenship development program for 220,000 cadets before taking command of the busiest air mobility group in the world, responsible for support to destinations world-wide. Among other contingency crisis operations in this capacity, Matt played a crucial role establishing robust, resilient, and repeatable processes to prevent the potential spread of the Ebola Virus for aircraft, cargo and passengers that transited sub-Saharan West Africa. He is currently the training systems Country Integration Lead for Lockheed Martin’s International customers, a position that he has held since prior to 2017.
Most recently, Mr. Anderer was also a member of the Board for Deverra Theraputics, a clinical stage cell therapy company headquartered in Seattle. He is a graduate of Villanova University, Air Command and Staff College, Naval Staff College and the Geneva Center for Security Policy.
NON-DIRECTOR EXECUTIVE OFFICERS
Chief Financial Officer - Jeremy Daniel
Jeremy Daniel has been the Chief Financial Officer of H-CYTE Inc since 2019. Prior to that, Mr. Daniel worked in the private sector in the accounting and finance field for the past twenty years. Mr. Daniel is a Certified Public Accountant and received a college degree from the University of Cincinnati and an MBA degree from Xavier University. The Company currently does not have any employment agreement with Mr. Daniel.
Chief Science Officer - Tanya Rhodes
Ms. Rhodes is an innovative, growth-oriented leader in the healthcare industry with a broad base of international experience in all aspects of operational business including R&D, clinical and regulatory, and business development. Ms. Rhodes has a demonstrated record of accomplishment for bringing new technologies from concept through commercialization and possesses an in-depth knowledge of biological tissues, enzymes, stem cells, antimicrobials, and natural products.
Prior to joining the Company on June 15, 2020, Ms. Rhodes held various C-level positions in many sectors, including wound care, dermatology, aesthetics and plastic surgery. Ms, Rhodes was the VP of Innovation for Smith & Nephew and a global executive team member driving a $450 million business.
Ms. Rhodes has served as President of Rhodes & Associates since 2016 through which, Ms. Rhodes has held long-term contracts with medical device and drug companies as well as private equity companies.
Ms. Rhodes completed her PhD in molecular orbital computational chemistry in the United Kingdom and received a master’s degree in the Management of Technology in the United States.
Liability and Indemnification of Directors and Officers
The Company’s Articles of Incorporation provide that to the fullest extent permitted under Nevada law, its directors will not be personally liable to the Company or its stockholders for monetary damages for breach of the duty of care, breach of fiduciary duty or breach of any other duties as directors. The Company’s Articles of Incorporation also provide for indemnification of its directors and officers by the Company to the fullest extent permitted by law. The Company maintains D&O insurance coverage.
Role of Board in Risk Oversight Process
The Company’s board of directors has responsibility for the oversight of the Company’s risk management processes.
The audit committee reviews information regarding liquidity and operations and oversees the Company’s management of financial risks. Periodically, the audit committee reviews the Company’s policies with respect to risk assessment, risk management, loss prevention and regulatory compliance. Oversight by the audit committee includes direct communication with the Company’s external auditors and discussions with the CFO regarding significant risk exposures.
Board Committees and Independence
The Company’s board of directors has established an audit committee and a compensation committee, each of which operates under a charter that has been approved by the board.
The corporate governance committee is in the process of being formulated.
Mr. Monteleone chairs the audit committee. The audit committee’s main function is to oversee the financial reporting of the Company. Mr. Monteleone also chairs the compensation committee.
Code of Business Conduct and Ethics
The Company has adopted a written code of business conduct and ethics that applies to the Company’s directors, officers, and employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
In addition, the Company intends to post on its website all disclosures that are required by law or the listing standards of The OTCQB Capital Market concerning any amendments to, or waivers from, any provision of the code. The reference to our website address does not constitute incorporation by reference of the information contained at or available through the Company’s website, and you should not consider it to be a part of this Annual Report.
Procedures for Security Holders to Recommend Nominees for Election as Directors
There have been no material changes to the procedures by which security holders may recommend nominees to the board of directors since the Company last described such procedures or any material changes thereto.
Company Policy as to Director Attendance at Annual Meetings of Stockholders
The Company’s policy encourages board members to attend annual meetings of stockholders.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires each person who is a director or officer or beneficial owner of more than 10% of the common stock of the Company to file reports in connection with certain transactions. To the knowledge of the Company, based solely upon a review of forms or representations furnished to the Company during or with respect to the most recent completed fiscal year, there were a few isolated instances where the director purchased or received shares and was late filing under section 16(a). All the required filings have now been made.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
Name & Position Fiscal Year Salary ($) Bonus ($) Stock
Option
Awards ($)
All Other Compensation ($) Total ($)
Michael Yurkowsky, CEO 180,000 - 327,787
- 507,787
15,000 - 191,833 - 206,833
Jeremy Daniel, CFO 200,000 - -
- 200,000
200,000 - 274,250 - 474,250
Tanya Rhodes, CSO 252,000 - -
- 252,000
252,000 - 275,313 - 527,213
The current annualized salaries of our executive officers as of April 11, 2023 are as follows:
Name & Position Annual Salary
Michael Yurkowsky, CEO $ 180,000
Jeremy Daniel, CFO $ 200,000
Tanya Rhodes, CSO $ 252,000
Director Compensation
There are understandings between the Company and Mr. Raymond Monteleone as follows: $2,500 per quarter as Audit Committee Chair and Compensation Committee Chair, and $5,000 per month for advisory services and to serve as Chairman of the Board. On April 1, 2021, the Company granted Mr. Monteleone an aggregate of 5,250,000 stock options with a total fair value of $287,750. Effective January 1, 2022, Mr. Monteleone will receive $7,500 per month to serve on the Board of Directors and an additional $2,500 per quarter to serve as Chairman of the Board, Audit Committee Chair, and Compensation Committee Chair. Effective July 1, 2022, due to lack of working capital, Mr. Monteleone receives $3,750 per month to serve on the Board of Directors and to serve as Chairman of the Board, Audit Committee Chair, and Compensation Committee Chair.
There are understandings between the Company and William Horne as follows: $4,167 per month to serve on the Board of Directors. On April 1, 2021, the Company granted Mr. Horne an aggregate of 2,000,000 stock options with a total fair value of $110,500. Effective December 1, 2021, Mr. Horne will receive $5,000 per month to serve on the Board of Directors. Effective July 1, 2022, due to lack of working capital, Mr. Horne receives $2,500 per month to serve on the Board of Directors.
There are understandings between the Company and Richard Rosenblum as follows: $5,000 per month to serve on the Board of Directors. Effective July 1, 2022, due to lack of working capital, Mr. Rosenblum receives $2,500 per month to serve on the Board of Directors.
There are understandings between the Company and Matthew Anderer as follows: $5,000 per month to serve on the Board of Directors. Effective July 1, 2022, due to lack of working capital, Mr. Anderer receives $2,500 per month to serve on the Board of Directors.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information is presented for each person we know to be a beneficial owner of 5% or more of our securities, each of our directors and executive officers, and our officers and directors as a group.
The percentage of common equity beneficially owned is based upon 618,506 shares of Common Stock and 438,776,170 shares of Series A Preferred Stock, which converts to Common Stock at a 1000:1 ratio, issued and outstanding as of December 31, 2022.
The number of shares beneficially owned by each stockholder is determined under the rules issued by the Securities and Exchange Commission and includes voting or investment power with respect to such securities.
Under these rules, beneficial ownership includes any shares as to which the individual or entity has sale or shared voting power or investment power. Unless otherwise indicated, the address of all listed stockholders is c/o H-CYTE, 2202 N West Shore Blvd. Ste 200, Tampa, FL 33607
Unless otherwise indicated each of the stockholders listed has sole voting and investment power with respect to the shares beneficially owned, subject to community property laws where applicable.
Number of Shares
Beneficially Owned(1)
Percentage of
common equity
beneficially owned (2)
Michael Yurkowsky, Director and Officer (4) 13,203 1.24 %
William E. Horne, Director (5) 29,695 2.79 %
Raymond Monteleone, Director 4,000 0.38 %
Jeremy Daniel, Officer 2,750 0.26 %
Tanya Rhodes, Officer 43,239 4.08 %
RMS Shareholder, LLC 50,925 4.82 %
FWHC Holdings (6) 697,263 51.83 %
CFRS Investments, LLC (7) 85,738 7.91 %
CTS Equities Holdings (8) 185,419 16.65 %
DB-BZ, LLC (9) 94,584 8.71 %
Officers and Directors as a Group (5 persons) 92,887 6.41 %
(1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to shares beneficially owned and options and warrants exercisable within 60 days. Beneficial ownership is based on information furnished by the individuals or entities.
(2) Percentage calculated using for each person or entity the sum of that person’s or entity’s outstanding shares plus shares from exercisable options and warrants and shares from convertible securities divided by the sum of total outstanding shares plus that person’s or entity’s outstanding shares plus shares from exercisable options and warrants and shares from convertible securities.
(3) The Series A Preferred shares have been calculated assuming that the shares have been converted to common shares at 1-1000 per the terms of the Reverse Split (see Note 1).
(4) Represents Mr. Yurkowsky’s 50% ownership in YPH, LLC which entitles him to 9,261 common shares and 933 warrants which are exercisable within 60 days of December 31, 2022. It also included 2,667 options, exercisable within 60 days, personally held by Mr. Yurkowsky.
(5) Includes 8,443 common shares held with RMS Shareholder, LLC through Horne Management, LLC (of which Mr. Horne owns 96%), 830 common shares held with RMS Shareholder, LLC through Uyona Management (of which Mr. Horne owns 90%) and 3,665 Series A Preferred Stock shares and 1,870 warrants through Uyona Management II, (of which Mr. Horne owns 33%). It also includes 4,368 common shares and 4,637 warrants held by Horne Management directly with the Company along with 4,726 common shares and 1,167 options, exercisable within 60 days of December 31, 2022, held personally by Mr. Horne.
(6) Represents 57,822 common shares, 351,416 Series A Preferred Stock shares, and 288,026 warrants which are exercisable within 60 days of December 31, 2022 held by FWHC Holdings, LLC, FWHC Bridge, LLC, and FWHC Bridge Friends, LLC.
(7) Represents 8,322 common shares, 51,208 Series A Preferred Stock shares, and 26,208 warrants which are exercisable within 60 days of December 31, 2022.
(8) Represents 129,200 common shares and 56,220 warrants which are exercisable within 60 days of December 31, 2022 held by Blue Zone Med, LLC, Chris T. Sullivan, and CTS Equities, L.P.
(9) Represents 66,474 common shares and 28,110 warrants which are exercisable within 60 days of December 31, 2022.
Equity Compensation Plan Information
In the Merger, the Company assumed
The 2013 Stock Incentive Plan (the “Plan”) is intended to secure for H-CYTE and its stockholders the benefits arising from ownership of its Common Stock by individuals the Company employs or retains who will be responsible for the future growth of the enterprise. The Plan is also designed to help attract and retain superior personnel for positions of substantial responsibility, including advisory relationships where appropriate, and to provide individuals with an additional incentive to contribute to the Company’s success.
The “Administrator” of the Plan is the CEO; however, the Administrator may also delegate to one or more officers of the Company the authority to make most determinations otherwise reserved for decision by the Administrator. Under the Plan, the Administrator has the flexibility to determine eligible participants and the type and amount of awards to grant to eligible participants.
The Administrator may make the following types of grants under the Plan, each of which will be an “Award”:
● qualified incentive stock options (“QISOs”);
● nonqualified stock options; and
● awards of restricted stock and/or restricted stock units.
The Company’s officers, key employees, directors, consultants, and other independent contractors or agents who are responsible for or contribute to its management, growth or profitability will be eligible for selection by the Administrator to participate in the Plan, provided, however, that QISOs may be granted only to the Company’s employees.
H-CYTE authorized and reserved for issuance under the Plan an aggregate of 2,650 shares of its Common Stock. As of December 31, 2022, the Company had outstanding an aggregate of 165 options to purchase common stock at a weighted average price of $3,076 per share. The Company did not grant stock options under the plan in 2022 or 2021. If any of the awards granted under the Plan expire, terminate, or are forfeited for any reason before they have been exercised, vested, or issued in full, the unused shares allocable to or subject to those expired, terminated or forfeited awards will become available for further grants under the Plan.
On April 1, 2021, the Board of Directors of the Company approved a non-qualified stock option agreement and granted an aggregate of 54,750 stock options to certain directors and officers of the Company having an exercise price of $70.00 per share and an expiration date of ten years from the date of grant (The “Options). The Director’s Options vest over a period of three years, and the Chief Executive Officer and Chief Financial Officer’s Options vest over a period of four years. These options were granted outside of the Plan. The Board of Directors decided not to renew the former CEO’s (Robert Greif) employment contract, which expired in September 2021, therefore, 25,500 unvested shares were forfeited. (see Note 5)

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Policies and Procedures for Related Person Transactions
H-CYTE’s board of directors has adopted written policies and procedures for the review of any transaction, arrangement, or relationship in which the Company is a participant, the amount involved exceeds $120,000 and one of its executive officers, directors, director nominees or 5% stockholders, or their immediate family members, each of whom is referred to as a “related person,” has a direct or indirect material interest.
If a related person proposes to enter into such a transaction, arrangement or relationship, which the Company refers to as a “related person transaction,” the related person must report the proposed related person transaction to the CEO. The policy calls for the proposed related person transaction to be reviewed and, if deemed appropriate, approved by the audit committee. Whenever practicable, the reporting, review and approval will occur prior to entry into the transaction.
If advance review and approval is not practicable, the committee will review, and, in its discretion, may ratify the related person transaction. The policy also permits the chairman of the committee to review and, if deemed appropriate, approve proposed related person transactions that arise between committee meetings, subject to ratification by the committee at its next meeting. Any related person transactions that are ongoing in nature will be reviewed annually.
A related person transaction reviewed under the policy will be considered approved or ratified if it is authorized by the committee after full disclosure of the related person’s interest in the transaction. As appropriate for the circumstances, the committee will review and consider:
● the related person’s interest in the related person transaction;
● the approximate dollar value of the amount involved in the related person transaction;
● the approximate dollar value of the amount of the related person’s interest in the transaction without regard to the amount of any profit or loss;
● whether the transaction was undertaken in the ordinary course of our business;
● whether the terms of the transaction are no less favorable than terms that could have been reached with an unrelated third party; and
● the purpose of, and the potential benefits of, the transaction.
The committee may approve or ratify the transaction only if the committee determines that, under all circumstances, the transaction is in the Company’s best interests. The committee may impose any conditions on the related person transaction that it deems appropriate.
In addition to the transactions that are excluded by the instructions to the SEC’s related person transaction disclosure rule, our board of directors has determined that the following transactions do not create a material direct or indirect interest on behalf of related persons and, therefore, are not related person transactions for purposes of this policy:
● interests arising solely from the related person’s position as an executive officer of another entity (whether or not the person is also a director of such entity) that is a participant in the transaction, where (i) the related person and all other related persons own in the aggregate less than a 10% equity interest in such entity, (ii) the related person and his or her immediate family members are not involved in the negotiation of the terms of the transaction and do not receive any special benefits as a result of the transaction and (iii) the amount involved in the transaction is less than the greater of $200,000 or 5% of the annual gross revenues of the company receiving payment under the transaction; and
● a transaction that is specifically contemplated by provisions of the Company’s charter or bylaws.
The policy provides that transactions involving compensation of executive officers shall be reviewed and approved by the compensation committee in the manner specified in its charter.
Stock Option Grants to Executive Officers and Directors
H-CYTE authorized and reserved for issuance under the Plan an aggregate of 2,650 shares of Common Stock. The Company did not grant stock options under the plan in 2021. If any of the Awards granted under the Plan expire, terminate, or are forfeited for any reason before they have been exercised, vested or issued in full, the unused shares allocable to or subject to those expired, terminated or forfeited awards will become available for further grants under the Plan.
On April 1, 2021, the Board of Directors of the Company approved a non-qualified stock option agreement and granted an aggregate of 54,750,000 stock options to certain directors and officers of the Company having an exercise price of $0.07 per share and an expiration date of ten years from the date of grant (The “Options). The Director’s Options vest over a period of three years, and the Chief Executive Officer, Chief Financial Officer, and Chief Science Officer’s Options vest over a period of four years. These options are not included in the Company’s current stock option plan as they were granted outside of the Plan.
Policies and Procedures for Approving Related Person Transactions
The Company’s policy and procedure with respect to any related person transaction between the Company and any related person requiring disclosure under Item 404(a) of regulation S-K under the Exchange Act, is that the Company’s audit committee reviews all such transactions.
This review covers any material transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which the Company was and is to be a participant, and a related party had or will have a direct or indirect material interest, including, purchases of goods or services by or from the related party or entities in which the related party has a material interest, indebtedness, guarantees of indebtedness and employment by the Company of a related party. The board of directors has adopted a written policy reflecting the policy and procedure identified above.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following is a summary of the fees billed to the Company by Frazier & Deeter, LLC for professional accounting services rendered for the year ended December 31, 2022 and 2021.
Fiscal Year 2022
Fiscal Year 2021
Audit fees
$ 232,500
$ 237,500
Tax fees
-
-
Other fees
-
-
Total
$ 232,500
$ 237,500
Audit fees consist of fees billed for services rendered for the audit of our financial statements and review of our financial statements included in our quarterly reports on Form 10-Q.
Tax fees consist of fees billed for professional services related to the preparation of our U.S. federal and state income tax returns.
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Registered Public Accounting Firms
The policy of the audit committee is to pre-approve all audit and permissible non-audit services to be performed by the independent public accounting firm during the fiscal year. The audit committee pre-approves services by authorizing specific projects within the categories outlined above. The audit committee’s charter delegates to its Chair the authority to address any requests for pre-approval of services between audit committee meetings, and the Chair must report any pre-approval decisions to the audit committee at its next scheduled meeting. All services related to the fees described above were approved by the audit committee pursuant to the pre-approval provisions set forth in the applicable SEC rules and the audit committee’s charter.

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES