NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 - Description of the Company
DESCRIPTION
OF THE COMPANY
H-CYTE,
Inc (“the Company”) is a hybrid-biopharmaceutical company dedicated primarily to developing and delivering new treatments
for patients with chronic respiratory and pulmonary disorders. During the last three years, the Company has evolved into two separate
divisions with its entrance into the biologics and device development space (“Biotech Division”). This division is complementary
to the Company’s current Lung Health Institute (LHI) autologous infusion therapy business (“Infusion Division”) and
is focused on underserved disease states. On September 8, 2021, the Company announced that its Lung Health Institute facilities changed
their names to Centers for Respiratory Health as the clinics continue to deliver treatments for patients with chronic respiratory and
pulmonary disorders.
The consolidated results for H-CYTE include the following
wholly-owned subsidiaries: H-CYTE Management, LLC, Medovex Corp, Cognitive Health Institute, LLC, and Lung Institute Tampa, LLC and the
results include Lung Institute Dallas, 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 is the operator and manager of the various Lung Health Institute
(LHI) clinics: LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale. The LI Dallas and LI Pittsburgh clinics did not reopen in 2020
after the temporary closure of all LI clinics due to COVID-19. These two clinics will remain permanently closed. During the first quarter
of 2022, the Company decided to close the LI Tampa and LI Nashville clinics. The LI Scottsdale clinic will remain open.
Impact
of COVID-19
The
coronavirus outbreak (“COVID-19”) has adversely affected the Company’s financial condition and results of operations.
The impact of the COVID-19 outbreak on businesses and the economy in the United States is expected to continue to be significant. The
extent to which the COVID-19 outbreak will continue to impact businesses and the economy is highly uncertain. Accordingly, the Company
cannot predict the extent to which its financial condition and results of operation will be affected.
On
January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency caused by a new strain of the
coronavirus and advised of the risks to the international community as the virus spread globally. In March 2020, the WHO classified the
COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. The spread of COVID-19 coronavirus has caused public
health officials to recommend precautions to mitigate the spread of the virus, especially as to travel and congregating in large numbers.
In addition, certain states and municipalities have enacted quarantining regulations which severely limit the ability of people to move
and travel.
In
addition, the Company is uncertain of the full effect the pandemic will have on it for the longer term since the scope and duration of
the pandemic is unknown, and evolving factors such as the level and timing of the distribution of efficacious vaccines across the world
and the extent of any resurgences of the virus or emergence of new variants of the virus, such as the Delta variant and the Omicron variant,
will impact the stability of economic recovery and growth. The Company may experience long-term disruptions to its operations resulting
from changes in government policy or guidance; quarantines of employees, customers and suppliers in areas affected by the pandemic; and
closures of businesses or manufacturing facilities critical to its business.
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,
the Scottsdale clinic will remain open.
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 alternate biologics and therapeutic devices to meet the needs of the business.
Note
2 – Basis of presentation
BASIS
OF PRESENTATION
The
accompanying interim consolidated financial statements have been prepared based upon U.S. Securities and Exchange Commission rules that
permit reduced disclosure for interim periods. Therefore, they do not include all information and footnote disclosures necessary for
a complete presentation of the Company’s financial position, results of operations and cash flows, in conformity with generally
accepted accounting principles. The Company filed audited consolidated financial statements as of and for the fiscal years ended December
31, 2021 and 2020, which included all information and notes necessary for such complete presentation in conjunction with its 2021 Annual
Report on Form 10-K.
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.
The
results of operations for the interim period ended March 31, 2022 are not necessarily indicative of the results to be expected for
any future period or the entire fiscal year. These interim consolidated financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 2021, which are contained in the Company’s 2021
Annual Report on Form 10-K. For further discussion refer to Note 2 – “Basis Of Presentation And Summary of
Significant Accounting Policies” to the consolidated financial statements and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Note
3 - Liquidity, Going Concern and Management’s Plans
LIQUIDITY,
GOING CONCERN AND MANAGEMENT’S PLANS
The
Company incurred net losses of approximately $3,892,000 and $1,408,000 for the three months ended March 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. The impact of the outbreak of COVID-19 on the
economy in the U.S. and the rest of the world is expected to continue to be significant. The extent to which the COVID-19 outbreak will
continue to impact the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which
its financial condition and results of operations will be affected.
The
Company had cash on hand of approximately $341,000
as of March 31, 2022 and approximately $92,000,
as of April 29, 2022. 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 financings
will be workable or acceptable to the Company or its shareholders. If the Company is unable to fund its operations from existing cash
on hand, operating cash flows, additional borrowings, or raising equity capital, the Company may be forced to discontinue operations.
The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going
concern.
In
January 2022, the Company offered certain warrant holders the opportunity to receive an additional warrant to purchase the Company’s
Common Stock at $0.014
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 March 31,
2022, the Company had eleven warrant holders exercise an aggregate of 83,579,296
warrants at $0.014
per share resulting in cash proceeds of approximately
$1,170,000
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
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 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. For the three months ended March 31, 2022 and 2021, the Company expensed $25,000 and $17,500, respectively,
for board of director fees to Mr. Monteleone.
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 three months ended March 31, 2022 and 2021, the Company expensed
$0
and $12,500,
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. For the three months ended March 31, 2022 and 2021, the Company
expensed approximately $20,000
and $4,000, respectively,
in compensation and board of director fees to Mr. Horne.
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.
For the three months ended March 31, 2022 and 2021, the Company expensed $12,500 and $0, respectively, for board of director fees to Mr.
Rosenblum.
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. For
the three months ended March 31, 2022 and 2021, the Company expensed $12,500 and $0, respectively, for board of director fees to Mr. Anderer.
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) investors (the “Holders”). Pursuant to the terms of the April 2021 Note Purchase Agreement, the Company sold
promissory notes in the aggregate principal amount of $2,575,000 maturing on March 31, 2022 with an annual interest rate of 8%. The Notes
are convertible into shares of Common Stock at a discount of 20% to the price paid for such New Securities in the next round of financing
that meets the definition of Qualified Financing as defined in the April 2021 Note Purchase Agreement. The Notes are secured by the assets
of the Company under a security agreement with the Holders. The lead investor of the April 2021 Note Purchase Agreement, FWHC Bridge,
LLC, advanced $1,500,000 of the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC, LLC, which is a principal
stockholder and related party of the Company. An additional affiliate of FWHC, LLC provided an additional $25,000 as part of the April
2021 Note Purchase Agreement.
On
October 14, 2021, the Company entered into the Second Closing Bring Down Agreement (the “October 2021 Note Purchase Agreement”)
whereby the five (5) investors who had entered into the April 2021 Note Purchase Agreement purchased new notes in the Company in the
aggregate principal amount of $750,000.
The Notes are due and payable on March
31, 2022 and bear interest at an annual rate of
8%.
The Notes are convertible into shares of Common Stock at a discount of 20%
to the price paid for such New Securities in the next financing that meets the definition of a Qualified Financing as defined in the
Note Purchase Agreement. The Notes are secured by all of the assets of the Company under a security agreement with the Holders. The lead
investor of the October 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $437,000
of the total amount to the Company. FWHC Bridge,
LLC is an affiliated entity of FWHC, LLC, which is a principal stockholder and related party of the Company. An additional affiliate
of FWHC, LLC provided an additional $7,000
as part of the October 2021 Note Purchase Agreement.
Management is currently working with the noteholders on the extension of the maturity of the outstanding notes.
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.
Note
5 - Equity Transactions
EQUITY TRANSACTIONS
In January 2022, the Company offered certain
warrant holders the opportunity to receive an additional warrant to purchase the Company’s Common Stock at $0.014
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 March 31, 2022, the Company had eleven warrant holders exercise an aggregate of 83,579,296
warrants at $0.014
per share resulting in cash proceeds of approximately $1,170,000
to the Company.
Series
A Preferred Stock
During the quarter ended March 31, 2022, 3,657,730 shares of Series A Preferred
Stock were converted to 3,657,730 shares of Common Stock at the request of certain Series A Preferred Shareholders.
Voting Rights
Holders of Series A Preferred Stock (“Series
A Holders”) have the right to receive notice of any meeting of holders of common stock and to vote upon any matter submitted to
a vote of the holders of common stock. Each Series A Holder shall vote on each matter on an as converted basis submitted to them with
the holders of common stock.
Conversion
Series A Preferred Stock converts to common stock
at a 1:1 ratio immediately upon request of the Series A Holder.
Liquidation
Series A Preferred Stock does not have preferential
treatment over common stock shareholders if the Company liquidates or dissolves.
Share-Based
Compensation Plan
The
Company utilizes the Black-Scholes valuation method to recognize stock-based compensation expense over the vesting period. The expected
life represents the period that the stock-based compensation awards are expected to be outstanding.
Stock
Option Activity
On
April 1, 2021, the Board of Directors of the Company approved and granted to certain directors and officers of the Company an aggregate
of 54,750,000 stock options of which 4,750,000 were immediately vested on the date of grant. Each option granted has an exercise price
of $0.07 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.
At
March 31, 2021, all outstanding stock options
were fully vested, and related compensation expense recognized. At March 31, 2022, 29,635,000
options were outstanding and 18,218,333
were vested. For the three months ended March
31, 2022 and 2021, the Company recognized approximately $112,000
and $0
in stock-based compensation expense, respectively,
which is included in share based compensation. At March 31, 2022, the Company has approximately $340,123
of unrecognized compensation costs related
to non-vested stock options, which is expected to be recognized over a weighted average period of approximately 2.63
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 | |
$ | 0.054 | | |
to | |
$ | 0.056 | |
| Risk Free Rate | |
| 0.90 | % | |
to | |
| 1.37 | % |
| Expected Dividend- yield | |
| - | | |
to | |
| - | |
| Expected Volatility | |
| 173.99 | % | |
to | |
| 176.04 | % |
| Expected term (years) | |
| 5 | | |
to | |
| 7 | |
The
following is a summary of stock option activity for the three months ended March 31, 2022 and 2021:
SUMMARY
OF STOCK OPTION ACTIVITY
| |
|
Shares |
|
|
Weighted
Average
Exercise
Price |
|
|
Weighted
Average Remaining Term (Years) |
| Outstanding
at December 31, 2020 |
|
|
410,000 |
|
|
$ |
1.39 |
|
|
6.72 |
| Granted |
|
|
- |
|
|
|
- |
|
|
- |
| Expired/Cancelled |
|
|
- |
|
|
|
- |
|
|
- |
Outstanding
and exercisable at March 31, 2021 |
|
|
410,000 |
|
|
$ |
1.39 |
|
|
6.48 |
| |
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2021 |
|
|
29,635,000 |
|
|
|
0.09 |
|
|
9.20 |
| Granted |
|
|
- |
|
|
|
- |
|
|
- |
| Outstanding
at March 31, 2022 |
|
|
29,635,000 |
|
|
$ |
0.09 |
|
|
8.96 |
| |
|
|
|
|
|
|
|
|
|
|
| Exercisable
at March 31, 2022 |
|
|
18,218,333 |
|
|
$ |
0.10 |
|
|
8.93 |
The
following is a summary of the Company’s non-vested shares for the three months ended March 31, 2022:
SUMMARY
OF STOCK OPTION ACTIVITY NON-VESTED
| | |
Shares | | |
Weighted
Average Grant
Date Fair Value | |
| Non-vested at December 31, 2021 | |
| 14,250,000 | | |
$ | 0.06 | |
| Granted | |
| - | | |
| - | |
| Vested | |
| (2,833,333 | ) | |
| 0.05 | |
| Forfeited | |
| - | | |
| - | |
| Non-vested at March 31, 2022 | |
| 11,416,667 | | |
$ | 0.07 | |
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
| | |
2022 | | |
2021 | |
| | |
For the Three Months Ended March 31, | |
| | |
2022 | | |
2021 | |
| Warrants to purchase common stock (in the money) | |
| 384,693,796 | | |
| 389,486,207 | |
| Series A Preferred Stock convertible to common stock | |
| 498,229,804 | | |
| 528,429,575 | |
| Total | |
| 882,923,600 | | |
| 917,915,782 | |
Excluded
from the above table are 2,196,355
warrants and 29,635,000
stock options for the three months ended
March 31, 2022 and 23,937,765 warrants and 410,000 stock options for the three months ended March 31, 2021 as they are out of
the money (exercise price greater than the stock price). Inclusion of such would be anti-dilutive.
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 an 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 three month period ending March 31, 2022, the Company recognized approximately $114,000 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.
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.
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 filed suit alleging breach of contract for advertising services in the amount of approximately
$75,000 plus interest and costs. The Company has retained legal counsel for its defense against the suit. The amount is recorded in accounts
payable as of March 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 filed suit alleging breach of contract for advertising services in the amount of approximately $75,000 plus
interest and costs. The Company has retained legal counsel for its defense against the suit. The amount is recorded in accounts payable
as of March 31, 2022.
Guarantee
The
Company has guaranteed payments based upon the terms found in the management services agreements to affiliated physicians related to
LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale. For the three months ended March 31, 2022 and 2021, payments totalling approximately
$14,000 and
$17,000,
respectively, were made to these physicians’ legal entities. Due to the Company ceasing operations effective March 23, 2020 in
LI Dallas, LI Pittsburgh, and LI Scottsdale, in response to COVID-19, the guaranteed payments for these clinics were suspended in March
2020. The Company resumed these guaranteed payments in January 2021.
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
March 31, 2022 and December 31, 2021. The
Company has not made payments on these notes since February 10, 2020, due to COVID-19. 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.
Paycheck
Protection Program
On
April 29, 2020, the Company issued a promissory note in the principal amount of $809,082 to the Bank of Tampa in connection with a loan
in such amount made under the Paycheck Protection Program (“PPP Loan”). The PPP Loan bears an interest rate of 1% per annum
and matures on April 29, 2022. The Company elected to use a 24-week Covered Period, per the SBA Paycheck Protection Program guidelines,
which ended on October 14, 2020.
The
Company could apply for loan forgiveness in an amount equal to the sum of the following costs incurred by the Company:
1)
payroll costs;
2)
any payment of interest on covered mortgage obligations;
3)
any payment on a covered rent obligation; and
4)
any covered utility payment
The
Company received notification from the Small Business Administration (“SBA”), dated August 17, 2021, notifying it that $689,974
in principal and $8,847
in interest was forgiven under the guidelines
of the Paycheck Protection Program. As of March 31, 2022, the current balance is $26,536
with $33 in interest payable for which
forgiveness will not occur.
Note
8 - Common Stock Warrants
COMMON
STOCK WARRANTS
A
summary of the Company’s warrant issuance activity and related information for the three months ended March 31, 2022
and 2021 is as follows:
SCHEDULE
OF ISSUANCE OF WARRANTS
| | |
Shares | | |
Weighted Average Exercise Price | | |
Weighted Average Remaining Contractual Life | |
| Outstanding and exercisable at December 31, 2020 | |
| 413,423,972 | | |
$ | 0.02 | | |
| 10.30 | |
| Expired | |
| - | | |
| - | | |
| - | |
| Exercised | |
| - | | |
| - | | |
| - | |
| Outstanding and exercisable at March 31, 2021 | |
| 413,423,972 | | |
$ | 0.10 | | |
| 9.24 | |
| | |
| | | |
| | | |
| | |
| Outstanding at December 31, 2021 | |
| 406,301,497 | | |
| 0.04 | | |
| 8.17 | |
Expired | |
| (20,411,346 | ) | |
| 0.33 | | |
| - | |
| Exercised | |
| (83,579,296 | ) | |
| 0.01 | | |
| - | |
| Granted | |
| 84,579,296 | | |
| 0.01 | | |
| 4.88 | |
| Outstanding and exercisable at March 31, 2022 | |
| 386,890,151 | | |
$ | 0.02 | | |
| 7.57 | |
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 | | |
| 3,732,289 | | |
$ | 0.06 | | |
$ | 0.014 | | |
$ | 0.062 | | |
| 5
years | | |
| 1.62 | | |
| 187.79 | |
| Granted for inducement agreement | |
| 1/20/2022 | | |
| 372,289 | | |
$ | 0.07 | | |
$ | 0.014 | | |
$ | 0.064 | | |
| 5
years | | |
| 1.62 | | |
| 187.85 | |
| Granted for inducement agreement | |
| 1/20/2022 | | |
| 187,201 | | |
$ | 0.07 | | |
$ | 0.014 | | |
$ | 0.064 | | |
| 5
years | | |
| 1.62 | | |
| 187.85 | |
| Granted for inducement agreement | |
| 1/24/2022 | | |
| 374,403 | | |
$ | 0.05 | | |
$ | 0.014 | | |
$ | 0.047 | | |
| 5
years | | |
| 1.53 | | |
| 188.01 | |
| Granted for inducement agreement | |
| 1/25/2022 | | |
| 3,744,031 | | |
$ | 0.05 | | |
$ | 0.014 | | |
$ | 0.048 | | |
| 5
years | | |
| 1.56 | | |
| 188.00 | |
| Granted for inducement agreement | |
| 2/02/2022 | | |
| 3,740,509 | | |
$ | 0.05 | | |
$ | 0.014 | | |
$ | 0.044 | | |
| 5
years | | |
| 1.60 | | |
| 188.25 | |
| Granted for inducement agreement | |
| 2/04/2022 | | |
| 6,934,785 | | |
$ | 0.04 | | |
$ | 0.014 | | |
$ | 0.043 | | |
| 5
years | | |
| 1.78 | | |
| 188.33 | |
| Granted for inducement agreement | |
| 2/04/2022 | | |
| 13,869,643 | | |
$ | 0.04 | | |
$ | 0.014 | | |
$ | 0.043 | | |
| 5
years | | |
| 1.78 | | |
| 188.33 | |
| Granted for services provided | |
| 2/09/2022 | | |
| 1,000,000 | | |
$ | 0.03 | | |
$ | 0.014 | | |
$ | 0.031 | | |
| 5 years | | |
| 1.82 | | |
| 188.69 | |
| Granted for inducement agreement | |
| 2/22/2022 | | |
| 41,608,884 | | |
$ | 0.03 | | |
$ | 0.014 | | |
$ | 0.032 | | |
| 5
years | | |
| 1.85 | | |
| 188.59 | |
| Granted for inducement agreement | |
| 2/22/2022 | | |
| 693,477 | | |
$ | 0.03 | | |
$ | 0.014 | | |
$ | 0.032 | | |
| 5
years | | |
| 1.85 | | |
| 188.59 | |
| Granted for inducement agreement | |
| 3/21/2022 | | |
| 8,321,785 | | |
$ | 0.03 | | |
$ | 0.014 | | |
$ | 0.027 | | |
| 5
years | | |
| 2.33 | | |
| 194.01 | |
The
fair value of warrants issued during the three months ended March 31, 2022 totaled approximately $3,000,000 which 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
9 - Subsequent Events
SUBSEQUENT EVENTS
As of May
3, 2022, an additional 3,650,685
Series A Preferred Stock was converted into Common
Stock at the request of certain Series A Preferred Stockholders.