10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number 001-32518

 Nuo Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	23-3011702
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

207A Perry Parkway, Suite 1
Gaithersburg, MD 20877

(Address of Principal Executive Offices) (Zip Code)

(240) 499-2680

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐	Accelerated Filer  ☐
Non-accelerated Filer ☐	Smaller Reporting Company ☒   Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check make whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Yes ☒   No ☐

APPLICABLE ONLY TO CORPORATE ISSUERS

As of November 12, 2018, the number of shares outstanding of the registrant’s common stock, $0.0001 par value, was 23,722,400.

TABLE OF CONTENTS

NUO THERAPEUTICS, INC.
 
TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3. Quantitative and Qualitative Disclosures About Market Risk	24
Item 4. Controls and Procedures	24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults Upon Senior Securities	25
Item 4. Mine Safety Disclosures	25
Item 5. Other Information	25
Item 6. Exhibits	25
Signatures	26
Exhibit Index	27

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

NUO THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2018			December 31, 2017
ASSETS
Current assets
Cash and cash equivalents	$	250,171		$	693,515
Accounts and other receivable, net		254,553			114,331
Inventory, net		34,066			35,590
Prepaid expenses and other current assets		75,049			341,671
Total current assets		613,839			1,185,107
Property and equipment, net		130,684			223,616
Deferred costs and other assets		15,316			15,316
Total assets	$	759,839		$	1,424,039
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable	$	481,000		$	380,280
Accrued expenses and liabilities		314,482			556,557
Accrued interest payable		1,506			-
Convertible notes, net		16,667			-
Derivative liabilities		528,003			-
Total current liabilities		1,341,658			936,837
Other liabilities		-			4,331
Total liabilities		1,341,658			941,168
Commitments and contingencies (Note 8)
Stockholders' equity (deficit)
Preferred stock; $0.0001 par value, 1,000,000 authorized, 29,038 issued and outstanding; liquidation value of $29,038,000		3			3
Common stock; $0.0001 par value, 100,000,000 authorized and 23,722,400 issued and outstanding as of September 30, 2018; 31,500,000 authorized and 22,722,400 issued and outstanding as of December 31, 2017		2,372			2,272
Additional paid-in capital		22,000,902			21,155,404
Accumulated deficit		(22,585,096	)		(20,674,808	)
Total stockholders' equity (deficit)		(581,819	)		482,871
Total liabilities and stockholders' equity (deficit)	$	759,839		$	1,424,039

The accompanying notes are an integral part of these consolidated financial statements.

1

NUO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months ended September 30, 2018			Three Months ended September 30, 2017
Revenue
Product sales	$	65,280		$	122,087
Royalties		195,000			40,109
Total revenue		260,280			162,196
Costs of revenue
Costs of sales		44,856			263,993
Total costs of revenue		44,856			263,993
Gross profit (loss)		215,424			(101,797	)
Operating expenses
Sales and marketing		16,856			162,867
Research and development		95,486			299,477
General and administrative		514,876			811,034
Total operating expenses		627,218			1,273,378
Loss from operations		(411,794	)		(1,375,175	)
Other income (expense)
Interest, net		(18,253	)		(3,900	)
Fair value of derivatives in excess of convertible notes		(234,824	)		-
Change in fair value of derivative liabilities		3,997			-
Other		10,996			2,176
Total other income (expense)		(238,084	)		(1,724	)
Net loss	$	(649,878	)	$	(1,376,899	)
Loss per common share
Basic	$	(0.03	)	$	(0.09	)
Diluted	$	(0.03	)	$	(0.09	)
Weighted average common shares outstanding
Basic		23,722,400			15,852,764
Diluted		23,722,400			15,852,764

 The accompanying notes are an integral part of these consolidated financial statements.

2

NUO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Nine Months ended September 30, 2018			Nine Months ended September 30, 2017
Revenue
Product sales	$	270,375		$	382,884
Royalties		288,157			140,655
Total revenue		558,532			523,539
Costs of revenue
Costs of sales		132,083			811,451
Total costs of revenue		132,083			811,451
Gross profit (loss)		426,449			(287,912	)
Operating expenses
Sales and marketing		98,907			537,248
Research and development		493,588			1,008,377
General and administrative		1,496,138			3,058,046
Impairment of goodwill		-			2,079,284
Total operating expenses		2,088,633			6,682,955
Loss from operations		(1,662,184	)		(6,970,867	)
Other income (expense)
Interest, net		(18,620	)		(11,738	)
Fair value of derivatives in excess of convertible notes		(234,824)			-
Change in fair value of derivative liabilities		3,997			-
Other		1,343			1,045
Total other income (expense)		(248,104	)		(10,693	)
Net loss	$	(1,910,288	)	$	(6,981,560	)
Loss per common share
Basic	$	(0.08	)	$	(0.59	)
Diluted	$	(0.08	)	$	(0.59	)
Weighted average common shares outstanding
Basic		23,128,993			11,924,035
Diluted		23,128,993			11,924,035

 The accompanying notes are an integral part of these consolidated financial statements.

3

NUO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Nine Months Ended September 30,
	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,910,288	)	$	(6,981,560	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		76,994			868,570
Fair value of derivatives in excess of convertible notes		234,824			-
Change in fair value of derivative liabilities		(3,997	)		-
Impairment of goodwill		-			2,079,284
Stock-based compensation		5,724			42,306
Bad debt recovery		(239,660	)		(97,115	)
Increase in allowance for inventory obsolescence		6,464			5,101
Loss (gain) on the disposal of fixed assets		13,938			(1,205	)
Amortization of debt discount		16,667			-
Changes in operating assets and liabilities:
Accounts and other receivable		99,438			227,785
Inventory		(4,940	)		718
Prepaid expenses and other current assets		266,622			(33,047	)
Other assets		-			90,625
Accounts payable		100,720			41,852
Accrued expenses and liabilities		79,175			118,866
Accrued interest		1,506			-
Other liabilities		(4,331	)		(64,440	)
Net cash used in operating activities		(1,261,144	)		(3,702,260	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment		2,000			1,914
Net cash provided by investing activities		2,000			1,914
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		500,000			3,000,000
Proceeds from convertible notes, net		315,800			-
Net cash provided by financing activities		815,800			3,000,000
Net decrease in cash, cash equivalents and restricted cash		(443,344	)		(700,346	)
Cash, cash equivalents and restricted cash at beginning of period		693,515			2,673,526
Cash, cash equivalents and restricted cash at end of period	$	250,171		$	1,973,180
Supplemental cash flow information
Interest expense paid in cash	$	-		$	9,812
Income taxes paid in cash	$	-		$	-
Non-cash investing and financing activities
Recognition of derivative liabilities related to convertible debt	$	532,000		$	-
Accrued cost related to issuance of common stock	$	-		$	77,500
Issuance of options to settle accrued compensation liabilities	$	321,250		$	-
Debt discount related to issuance of warrants	$	18,624		$	-

 The accompanying notes are an integral part of these consolidated financial statements.

4

NUO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Description of Business and Bankruptcy Proceedings

Description of Business

Nuo Therapeutics, Inc. (“Nuo Therapeutics,” the “Company,” “we,” “us,” or “our”) is a biomedical company marketing its products primarily within the U.S. We commercialize innovative cell-based technologies that harness the regenerative capacity of the human body to trigger natural healing. The use of autologous (from self) biological therapies for tissue repair and regeneration is part of a transformative clinical strategy designed to improve long term recovery in complex chronic conditions with significant unmet medical needs.

Currently, our commercial offering consists solely of the Aurix point of care technology for the safe and efficient separation of autologous blood to produce a platelet based therapy for the chronic wound care market. Prior to May 5, 2016 (the “Effective Date”), the effective date of the Company’s emergence from bankruptcy under a confirmed Plan of Reorganization (See Note 6), we had two distinct platelet rich plasma (“PRP”) devices: the Aurix® System for wound care, and the Angel® concentrated Platelet Rich Plasma (“cPRP”) System for orthopedics markets. Prior to the Effective Date, Arthrex, Inc. (“Arthrex”) was our exclusive distributor for Angel. Pursuant to the Plan of Reorganization, on May 5, 2016, the Company assigned its rights, title and interest in and to the existing license agreement with Arthrex to Deerfield Management Company, L.P. and its affiliates (“Deerfield”), as well as rights to collect royalty payments thereunder.

Note 2 – Liquidity and Summary of Significant Accounting Principles

Liquidity

Our operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, dependence on significant customers, lack of operating history, uncertainty of future profitability and possible fluctuations in financial results. Since our inception, we have financed our operations by raising debt, issuing equity and equity-linked instruments, and executing licensing arrangements, and to a lesser extent by generating royalties and product revenues.  We have incurred, and continue to incur, recurring losses and negative cash flows.  As of September 30, 2018, we have negative working capital and a shareholder deficit.  During the quarter ended September 30, 2017, we withdrew our attempted registered offering and related refinancing of our Series A preferred stock, and exercised our rights under the Backstop Commitment in full.  As a result of that exercise, we issued an aggregate of 12,800,000 shares of common stock (the "Backstop Shares") for gross proceeds of approximately $3.0 million, which more than doubled the number of our outstanding shares of common stock. In June 2018, the Company issued 1,000,000 shares of common stock for gross proceeds of $0.5 million pursuant to a May 28, 2018 securities purchase agreement with Rohto Pharmaceutical Co., Ltd. (“Rohto”). In September 2018, the Company issued two convertible notes for net proceeds of approximately $0.3 million and related stock purchase warrants, which are convertible into and exercisable for common stock as further described in Note 6 – Convertible Notes and Stock Purchase Warrants, and entered into a royalty buyout agreement with the licensee of the Aldeflour product for proceeds of approximately $0.2 million to be received in the fourth quarter of 2018. The convertible notes impose onerous interest and penalty provisions on the Company. At September 30, 2018, we had cash and cash equivalents on hand of approximately $0.25 million, and $0.35 million of convertible notes payable.

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

We believe based on the operating cash requirements and capital expenditures expected for the next twelve months, that our current resources, projected revenue from sales of Aurix and projected receipt of the consideration from the Aldeflour royalty buyout and the agreements with Rohto executed in October 2018 (see Note 9 – Subsequent Events), are insufficient to support our operations beyond the next 90 days.  As such, we believe that substantial doubt about our ability to continue as a going concern exists.

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

5

If we are unable to secure sufficient capital to fund our operating activities or we are unable to increase revenues significantly, we may be forced to further delay the completion of, or significantly reduce the scope of, our current business plan, delay the pursuit of commercial insurance reimbursement for our wound treatment technologies, and postpone the hiring of new personnel.   Moreover, if we are unable within the next 90 days to secure sufficient capital to fund our ongoing operating activities, we will likely be required to cease operations.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). In our opinion, the accompanying unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations and cash flows. The consolidated balance sheet at December 31, 2017, has been derived from audited financial statements of the Company as of that date. The interim unaudited consolidated results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules and regulations prescribed by the SEC. We believe that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited interim consolidated financial statements are read in conjunction with the audited financial statements and notes previously included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned and controlled subsidiary Aldagen, Inc. (“Aldagen”). All significant inter-company accounts and transactions are eliminated in consolidation.

Use of Estimates

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

Credit Concentration

We generate accounts receivable from the sale of our product. In addition, other receivables consist primarily of (i) a receivable for the royalty buyout by the licensee of Aldeflour as of September 30, 2018, and (ii) royalties due for sales of Aldeflour and a settlement amount for a prior value added tax receivable due from the contract manufacturer of the prior Angel product line as of December 31, 2017. Customers or other receivables balances in excess of 10% of total receivables at September 30, 2018 and December 31, 2017 were as follows:

	September 30, 2018			December 31, 2017
Customer A		-	%		72	%
Customer B		76	%		12	%

Revenue from significant customers exceeding 10% of total revenues for the periods presented was as follows:

	Three Months ended September 30, 2018			Three Months ended September 30, 2017
Customer A		75	%		25	%
Customer B		-	%		13	%
Customer C		-	%		11	%

6

	Nine Months ended September 30, 2018			Nine Months ended September 30, 2017
Customer A		52	%		27	%
Customer B		-	%		11	%

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

Cash Equivalents

We consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. We maintain our cash and cash equivalents in the form of money market deposit accounts and qualifying money market funds, and checking accounts with financial institutions that we believe are credit worthy.

Accounts Receivables, net

We generate accounts receivables from the sale of our products. We provide for an allowance against receivables for estimated losses that may result from a customer’s inability or unwillingness to pay. The allowance for doubtful accounts is estimated primarily based upon historical write-off percentages, known problem accounts, and current economic conditions. Accounts are written off against the allowance for doubtful accounts when we determine that amounts are not collectable. Recoveries of previously written-off accounts are recorded when collected. At September 30, 2018, we maintained an allowance for doubtful accounts of approximately $2,000. At December 31, 2017, we maintained an allowance for doubtful accounts of approximately $306,000 as we fully reserved for a value added tax receivable. Effective with an executed settlement agreement as of March 29, 2018, we recognized a bad debt recovery of approximately $240,000 and received the settlement amount in April 2018.

Inventory, net

Our inventory is produced by third-party manufacturers and consists of raw materials and finished goods. Inventory cost is determined on a first-in, first-out basis and is stated at the lower of cost or net realizable value. We maintain an inventory of kits, reagents, and other disposables that have shelf-lives that generally range from 18 months to two years.

As of September 30, 2018, our inventory consisted of approximately $30,000 of finished goods and $20,000 of raw materials. As of December 31, 2017, our inventory consisted of approximately $40,000 of finished goods and $18,000 of raw materials.

We provide for an allowance against inventory for estimated losses that may result in excess and obsolete inventory (i.e., from the expiration of products). Our allowance for expired inventory is estimated based upon the inventory’s remaining shelf-life and our anticipated ability to sell such inventory, which is estimated using historical usage and future forecasts, within its remaining shelf life. At September 30, 2018 and December 31, 2017, the Company maintained an allowance for expired and excess and obsolete inventory of approximately $16,000 and $23,000, respectively. Expired products are segregated and used for demonstration purposes only; the Company records the associated expense for this reserve to cost of sales in the consolidated statements of operations.

Property and Equipment, net

Property and equipment is stated at cost less accumulated depreciation and is depreciated, using the straight-line method, over its estimated useful life ranging from one to six years. Leasehold improvements are amortized, using the straight-line method, over the lesser of the expected lease term or its estimated useful life ranging from one to three years. Amortization of leasehold improvements is included in depreciation expense. Maintenance and repairs are charged to operations as incurred. When assets are disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in other income (expense).

Centrifuges may be sold or placed at no charge with customers. Depreciation expense for centrifuges that are available for sale or placed at no charge with customers are charged to cost of sales. Depreciation expense for centrifuges used for sales and marketing and other internal purposes are charged to general and administrative expenses.

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability measurement and estimating of undiscounted cash flows is done at the lowest possible level for which we can identify assets. If such assets are considered to be impaired, impairment is recognized as the amount by which the carrying amount of assets exceeds the fair value of the assets.

7

Revenue Recognition

Prior to January 1, 2018, revenues were recognized when the four basic criteria for recognition were met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) consideration is fixed or determinable; and (4) collectability is reasonably assured. The Company adopted new accounting guidance for revenue recognition effective January 1, 2018 which did not have a material impact on the Company’s financial statements.

Beginning January 1, 2018, the Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers; (ii) identification of distinct performance obligations in the contract; (iii) determination of contract transaction price; (iv) allocation of contract transaction price to the performance obligations; and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation. The Company recognizes revenues upon the satisfaction of its performance obligations (upon transfer of control of promised goods or services to customers) in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

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

License Agreement with Rohto

The Company’s license agreement with Rohto (See Note 3 – Distribution, Licensing and Collaboration Arrangements) contains multiple promises that include the delivery of a “functional” license and other ancillary activities such as maintaining its intellectual property and providing regulatory support and training to Rohto. The Company has determined that the ancillary activities do not constitute distinct promises and, accordingly, the Company combined the ancillary activities with the delivered license as a single performance obligation.  The Company recognized the total non-contingent transaction price of $3.0 million as revenue when the functional license was delivered to Rohto.  Other contingent elements of transaction price, such as contingent fees and sales-based royalties related to the supply and future sale of the product, would be recognized as revenue if and when the contingencies are satisfied.  See Note 9 – Subsequent Events for information on the pending termination of the Company’s license agreement with Rohto.

Segments and Geographic Information

Approximately 75% and 25% of our total revenue was generated outside of the United States for the three months ended September 30, 2018 and 2017, respectively, and approximately 52% and 27% of our total revenue was generated outside the United States for the nine months ended September 30, 2018 and 2017, respectively. All revenue generated outside the United States is attributable to royalty revenue.

Stock-Based Compensation

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

Stock-based compensation for awards granted to non-employees is periodically re-measured as the underlying awards vest. The Company recognizes an expense for such awards throughout the performance period as the services are provided by the non-employees, based on the fair value of these options and warrants at each reporting period. The fair value of stock options and compensatory warrants issued to service providers utilizes the same methodology with the exception of the expected term. For awards to non-employees, the Company estimates that the options or warrants will be held for the full term.

The Company adopted new accounting guidance on January 1, 2017 related to stock-based compensation arrangements. Under the new guidance, excess tax benefits and tax deficiencies related to stock-based compensation awards are recognized as income tax expenses or benefits in the income statement, and excess tax benefits are classified along with other income tax cash flows in the operating activities section of the condensed consolidated statement of cash flows. Additionally, the Company elected to account for forfeitures of stock-based awards as they occur, as opposed to estimating those prior to their occurrence. The adoption of this new guidance did not have a material impact on the Company's consolidated financial statements in any period.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax rate changes are reflected in income during the period such changes are enacted. All of our tax years remain subject to examination by the tax authorities.

8

The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income before taxes. There were no such items in 2018 and 2017.

Earnings (Loss) per Share

Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding (including contingently issuable shares when the contingencies have been resolved) during the period.

For periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive. For periods of net income, and when the effects are not anti-dilutive, diluted earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of shares outstanding (including contingently issuable shares when the contingencies have been resolved) plus the impact of all potential dilutive common shares, consisting primarily of common stock options and stock purchase warrants using the treasury stock method, and convertible debt using the if-converted method. 

All of the Company’s outstanding stock options and warrants were considered anti-dilutive for the three and nine months ended September 30, 2018 and 2017. The total number of anti-dilutive shares underlying common stock options and warrants exercisable for common stock, which have been excluded from the computation of diluted loss per share for the periods presented, was as follows:

	Nine months ended September 30, 2018		Nine months ended September 30, 2017
Shares underlying:
Common stock options		1,291,876		1,111,250
Stock purchase warrants		6,646,666		6,180,000

Reclassifications

Certain reclassification have been made to the prior year financial statements to conform to the current year presentation, including the addition of restricted cash to cash and cash equivalents on the consolidated statements of cash flows as a result of the adoption of new accounting guidance.

Recently Adopted Accounting Standards

The Company adopted new accounting guidance for revenue recognition effective January 1, 2018 using the modified retrospective approach which did not have a material impact on the Company's financial statements.

In November 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) amending the presentation of restricted cash within the consolidated statements of cash flows. The new guidance requires that restricted cash be added to cash and cash equivalents on the consolidated statements of cash flows. The Company adopted this ASU on January 1, 2018 on a retrospective basis with the following impacts to our consolidated statements of cash flows for the nine months ended September 30, 2017:

	Previously Reported		Adjustment			As Revised
Net cash provided by investing activities	$	5,409	$	(3,495	)	$	1,914

Following is a summary of cash, cash equivalents and restricted cash:

	September 30, 2018		December 31, 2017		September 30, 2017		December 31, 2016
Cash and cash equivalents	$	250,171	$	693,515	$	1,923,172	$	2,620,023
Restricted cash		-		-		50,008		53,503
Cash, cash equivalents and restricted cash	$	250,171	$	693,515	$	1,973,180	$	2,673,526

In January 2017, the FASB issued guidance intended to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Under the existing guidance, in computing the implied fair value of goodwill under Step 2, an entity is required to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities), following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The guidance also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity is required to adopt the new guidance on a prospective basis. The new guidance is effective for the Company for its annual or any interim goodwill impairment tests for fiscal years beginning after December 15, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We adopted this pronouncement effective January 1, 2017; the adoption did not have a material impact to our consolidated financial statements upon adoption since goodwill was not considered impaired with the adoption of Accounting Standards Update 2017-04. However, when we performed our interim goodwill impairment test, comparing the fair value of our one reporting unit with its carrying amount as of June 30, 2017, the carrying amount exceeded our reporting unit's fair value by approximately $2.8 million. As a result we recognized a non-cash goodwill impairment charge of approximately $2.1 million to write-down goodwill to its estimated fair value of zero as of June 30, 2017.

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In July 2017, the FASB issued guidance intended to simplify the accounting for certain financial instruments with down round features. The amendments require companies to disregard the down round features when assessing whether the instrument is indexed to its own stock for purposes of determining liability or equity classification. The Company adopted this guidance with no impact on the financial statements as of July 1, 2018.

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

Note 3 – Distribution, Licensing and Collaboration Arrangements

Distribution and License Agreement with Rohto

See Note 9 – Subsequent Events for information on the pending termination of the Amended Exclusive License and Distribution Agreement (as defined below).

In January 2015, we granted to Rohto Pharmaceutical Co., Ltd. (“Rohto”) a royalty bearing, nontransferable, exclusive license, with limited right to sublicense, to use certain of the Company’s intellectual property for the development, import, use, manufacturing, marketing, sale and distribution for all wound care and topical dermatology applications of the Aurix System and related intellectual property and know-how in human and veterinary medicine in Japan in exchange for an upfront payment from Rohto of $3.0 million. The related agreement (the “Exclusive License and Distribution Agreement”) also contemplated additional royalty payments as described below and an additional future cash payment if and when the pricing event has occurred as described below. In connection with and effective as of the entering into the Rohto agreement, we amended an existing licensing and distribution agreement with Millennia Holdings, Inc. (“Millennia”) to terminate it and allow us to transfer the exclusivity rights from Millennia to Rohto. In connection with this amendment we paid a one-time, non-refundable fee of $1.5 million to Millennia upon our receipt of the $3.0 million upfront payment from Rohto, and we are required to make certain future payments to Millennia if we receive the milestone payment from Rohto as well as future royalty payments based upon net sales in Japan. The Millennia agreement, as amended, specifies that it automatically terminates upon termination of the Exclusive License and Distribution Agreement.

On May 28, 2018, the Company entered into an amendment (the “Amendment”) to the Exclusive License and Distribution Agreement, reflecting the following material revisions:

● The milestone payment that Rohto was obligated to make upon achievement of the pricing event was reduced from $1,000,000 to $300,000, and the definition of the pricing event was expanded to include a second trigger. As a result of the Amendment, the pricing event occurs on the earlier of (a) achievement of the National Health Insurance system (“NHI”) reimbursement price for the licensed product in Japan and (b) achievement of NHI reimbursement for the treatment by treating clinicians of patients using the licensed product in Japan in the field of use.

● The royalty payment structure was amended. Previously, the royalty was 9% of net sales. This was amended to provide that the royalty would be 9% of net sales so long as Rohto uses any Nuo patent, and 5% of net sales if Rohto does not use any Nuo patent and in certain other circumstances described in the Amendment. The royalty payment obligation expires at the later of December 31, 2029 or the expiration of the relevant Nuo patent. The two relevant patents have expiration dates in 2019 and 2032.

The Exclusive License and Distribution Agreement, as so amended, is referred to herein as the “Amended License and Distribution Agreement".  See Note 9 – Subsequent Events for information on the pending termination of the Amended Exclusive License and Distribution Agreement.

Collaboration Agreement with Restorix Health

On March 22, 2016, we entered into a Collaboration Agreement (the “Collaboration Agreement”) with Restorix Health (“Restorix”), pursuant to which we agreed to provide Restorix with certain limited geographic exclusivity benefits over a defined period of time for the usage of the Aurix System in up to 30 of the approximately 200 hospital outpatient wound care clinics with which Restorix has a management contract (the “RXH Partner Hospitals”), in exchange for Restorix making minimum commitments of patients enrolled in three prospective clinical research studies primarily consisting of patient data collection (the “Protocols”) necessary to maintain exclusivity under the Collaboration Agreement. The initial term of the Collaboration Agreement expired in March 2018 and has so far not been extended by the parties.

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Pursuant to the Collaboration Agreement, the Company agreed to provide: (i) clinical support services by its clinical staff as reasonably agreed between the Company and Restorix as necessary and appropriate, (ii) reasonable and necessary support regarding certain reimbursement activities, (iii) coverage of Institutional Review Board (“IRB”) fees and payment to Restorix for certain training costs subject to certain limitations and (iv) community-focused public relations materials for participating RXH Partner Hospitals to promote the use of Aurix and participation in the Protocols. Pursuant to the Collaboration Agreement, Restorix agreed to: (i) provide access and support as reasonably necessary and appropriate at up to 30 RXH Partner Hospitals to identify and enroll patients into the Protocols, including senior executive level support and leadership to the collaboration and its enrollment goals and (ii) reasonably assist the Company to correct through a query process, any patient data submitted having incomplete or inaccurate data fields. 

Pursuant to the Collaboration Agreement and subject to the satisfaction of certain conditions, during the term of the Collaboration Agreement: (i) Restorix had site specific geographic exclusivity for usage of Aurix in connection with treatment of patients in the Protocols within a 30 mile radius of each RXH Partner Hospital, and (ii) other than with respect to existing CED sites, the Company did not provide corporate exclusivity with any other wound management company operating in excess of 19 wound care facilities for any similar arrangement.

Under the Collaboration Agreement, the Company was required to pay Restorix or the RXH Partner Hospital, as the case may be, a per patient data collection (administrative) fee upon full completion and delivery of a patient data set. In addition, the Company was responsible for payment of any IRB fees necessary to conduct the Protocols and enroll patients, and to pay Restorix a training cost stipend per site. Each RXH Partner Hospital paid the Company the then-current product price ($700 in 2018) as set forth in the Collaboration Agreement.

Boyalife Distribution Agreement

Effective as of May 5, 2016, the Company and Boyalife Hong Kong Ltd. (“Boyalife”), an entity affiliated with the Company’s significant shareholder, Boyalife Investment Fund I, Inc., entered into an Exclusive License and Distribution Agreement (the “Boyalife Distribution Agreement”) with an initial term of five years, unless the agreement is terminated earlier in accordance with its terms.  Under this agreement, Boyalife received a non-transferable, exclusive license, with limited right to sublicense, to use certain of the Company’s intellectual property relating to its Aurix System for the purposes and in the territory specified below.  Under the agreement, Boyalife is entitled to import, use for development, promote, market, sell and distribute the Aurix Products in greater China (China, Hong Kong, Taiwan and Macau) for all regenerative medicine applications, including but not limited to wound care and topical dermatology applications in human and veterinary medicine.  “Aurix Products” are defined as the combination of devices to produce a wound dressing from the patient’s blood - as of May 5, 2016 consisting of centrifuge, wound dressing kit and reagent kit.  Under the Boyalife Distribution Agreement, Boyalife is obligated to pay the Company (a) $500,000 within 90 days of approval of the Aurix Products by the China Food and Drug Administration (“CFDA”), but no earlier than December 31, 2018, and (b) a distribution fee per wound dressing kit and reagent kit of $40, payable quarterly, subject to an agreement by the parties to discuss in good faith the appropriate distribution fee if the pricing of such kits exceeds the current general pricing in greater China.   Under the agreement, Boyalife is entitled, with the Company’s approval (not to be unreasonably withheld or delayed) to procure devices from a third party in order to assemble them with devices supplied by the Company to make the Aurix Products.  Boyalife also has a right of first refusal with respect to the Aurix Products in specified countries in the Asia Pacific region excluding Japan and India, exercisable in exchange for a payment of no greater than $250,000 in the aggregate.  If Boyalife files a new patent application for a new invention relating to wound dressings, the Aurix Products or the Company’s technology, Boyalife will grant the Company a free, non-exclusive license to use such patent application outside greater China during the term of the Boyalife Distribution Agreement.

Note 4 – Receivables

Accounts and other receivables, net consisted of the following:

	September 30, 2018			December 31, 2017
Trade receivables	$	61,528		$	64,387
Other receivables		195,000			355,839
		256,528			420,226
Less allowance for doubtful accounts		(1,975	)		(305,895	)
Accounts and other receivables, net	$	254,553		$	114,331

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Other receivables at December 31, 2017 primarily consisted of an agreed settlement amount on the prior value added tax receivable due from the contract manufacturer of the former Angel product line which was received in April 2018 and a quarter end royalty receivable for the Aldeflour product. Other receivables at September 30, 2018 consisted of a royalty buyout receivable from the licensee of the Aldeflour product. The allowance for doubtful accounts at September 30, 2018 of approximately $2,000 reflects the estimated reserve for trade receivables and the December 31, 2017 allowance reflects a full reserve against the value added tax receivable. A bad debt recovery of approximately $240,000 was recognized concurrent with the execution of the settlement agreement with the contract manufacturer in the nine months ended September 30, 2018.

Note 5 – Property and Equipment

Property and equipment, net consisted of the following:

	September 30, 2018			December 31, 2017
Medical equipment	$	393,156		$	401,719
Office equipment		38,104			48,888
Software		257,619			257,619
Manufacturing equipment		15,640			34,899
Leasehold improvements		19,215			19,215
		723,734			762,340
Less accumulated depreciation and amortization		(593,050	)		(538,724	)
Property and equipment, net	$	130,684		$	223,616

Depreciation expense of property and equipment was approximately $77,000 and $230,000 for the nine months ended September 30, 2018 and 2017, respectively. Depreciation expense of property and equipment was approximately $25,000 and $51,000 for the three months ended September 30, 2018 and 2017, respectively.

Note 6 – Convertible Notes and Stock Purchase Warrants

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

The purchase agreements contain certain representations, warranties and covenants by, among and for the benefit of the respective parties. The purchase agreements also provide for customary indemnification of the Investors by the Company.

The notes mature nine months from the date of issuance (June 17, 2019) and, in addition to any original issue discount, accrue interest at a rate of 12% per year. The Company may prepay the notes, in whole or in part, for 130% of outstanding principal and interest ending on the date that is 90 days following the date of issuance, and for 145% of outstanding principal and interest at any time commencing on the date that is 91 days following the date of issuance and ending on the date that is 180 days following the date of issuance, but only if the Company is not then in default under the notes. Beginning on the date that is 181 days following the date of issuance, the Company may no longer prepay the notes. The maturity date of the note issued to EMA may be extended up to one year beyond the original maturity date at the option of EMA.

After six months from the date of issuance, the Investors may convert the notes, at any time, in whole or in part, into shares of the Company’s common stock, at a conversion price corresponding to a 40% discount to the average of the two lowest trading prices of the common stock during the 25 trading days prior to the conversion, subject to certain adjustments and price-protection provisions contained in the notes, including full-ratchet anti-dilution protection in the case of dilutive issuances of securities that do not meet the requirements of “exempt issuances” as defined in the notes. The Company is required to maintain authorized and unissued shares of its common stock equal to seven times the number issuable upon conversion of the notes. Each note contains potential additional discounts to the conversion price upon the occurrence of an event of default or specified other events related to the trading status of the Company’s common stock (which would result in a higher number of shares issued upon conversion). The notes include certain event of default provisions, a default interest rate of 24% per year and certain penalties for specified breaches that would be added to the principal amount of the relevant note. Upon the occurrence of an event of default, an Investor may require the Company to redeem their note (or convert it into shares of common stock) at 150% of the outstanding principal balance plus accrued and unpaid interest. The notes also restrict the Company’s ability to make distributions to its shareholders, repurchase its shares, borrow funds, or sell its assets (with limited exceptions).

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

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

The warrants are treated as equity and the fair market value at issuance of approximately $18,000 was recorded as a credit to additional paid-in-capital based on the relative fair values of the debt and warrant at issuance.  The notes were evaluated and found to have a bifurcated embedded conversion option requiring the variable conversion option to be recorded at fair market value at issuance and each quarterly reporting period.  The embedded conversion option at issuance was valued at $532,000 using a Monte Carlo analysis with the following assumptions: 2.46% risk free interest rate, 364% volatility over a nine-month period, 0.75 year term, a dividend yield of 0%, and the 40% discount to market price conversion price formula.  As the fair market value of the embedded liability exceeds the net proceeds received, the difference is recorded as a loss in the income statement under fair value of derivatives in excess of convertible notes.  The full $350,000 face value of the note is reflected as a discount at note issuance and is being amortized as interest expense via the straight line method which closely approximates the effective interest method given the short nine-month term of the notes.

Note 7 – Equity and Stock-Based Compensation

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

Series A Preferred Stock

On May 5, 2016 (the “Effective Date”), the effective date of the Company’s emergence from bankruptcy under a confirmed Plan of Reorganization (the “Plan of Reorganization”), the Company filed a Certificate of Designations of Series A Preferred Stock with the Delaware Secretary of State, designating 29,038 shares of the Company’s undesignated preferred stock, par value $0.0001 per share, as Series A Preferred Stock (the “Series A Preferred Stock”). On the Effective Date, the Company issued 29,038 shares of Series A Preferred Stock to Deerfield in accordance with the Plan of Reorganization pursuant to the exemption from the registration requirements of the Securities Act provided by Section 1145 of the Bankruptcy Code. Deerfield did not receive any shares of common stock or other equity interests in the Company.

The Series A Preferred Stock has no stated maturity date, is not convertible or redeemable, and carries a liquidation preference of $29,038,000, which is required to be paid to holders of such Series A Preferred Stock before any payments are made with respect to shares of common stock (and other capital stock that is not issued on parity or senior to the Series A Preferred Stock) upon a liquidation or change in control transaction.  For so long as Series A Preferred Stock is outstanding, the holders of Series A Preferred Stock have the right to nominate and elect one member of the Board of Directors.   The Series A Preferred Stock has voting rights, voting with the common stock as a single class, with each share of Series A Preferred Stock having the right to five votes, which currently represents approximately one percent (1%) of the voting rights of the capital stock of the Company.  The holders of Series A Preferred Stock have the right to approve certain transactions and incurrences of debt. Among other restrictions, the Certificate of Designations for our Series A Preferred Stock limits the Company’s ability to (i) issue securities that are senior or pari passu with the Series A Preferred Stock, (ii) incur debt other than for working capital purposes not in excess of $3.0 million, (iii) issue securities that are junior to the Series A Preferred Stock and that provide certain consent rights to the holders of such junior securities in connection with a liquidation or contain certain liquidation preferences, (iv) pay dividends on or purchase shares of its capital stock, and (v) change the authorized number of members of its Board of Directors to a number other than five, in each case without the consent of holders representing at least two-thirds of the outstanding shares of Series A Preferred Stock. The Series A Preferred Stock is classified in equity.

Common Stock

On May 28, 2018, the Company sold 1,000,000 common shares for $500,000 to Rohto. See Note 7 – Convertible Notes for information on the issuance of notes convertible into common stock in September 2018.

Stock Purchase Warrants

As part of the Plan of Reorganization, the Company also issued warrants to purchase 6,180,000 shares of unregistered common stock to certain investors participating in the recapitalization of the Company. The warrants terminate on May 5, 2021 and are currently exercisable at exercise prices ranging from $0.50 per share to $0.75 per share. The number of shares of common stock underlying a warrant and its exercise price are subject to customary adjustments upon subdivisions, combinations, payment of stock dividends, reclassifications, reorganizations and consolidations. The warrants are classified in equity. 

See Note 6 – Convertible Notes for information on the issuance of warrants to purchase an aggregate of 466,666 shares of unregistered common stock to the convertible note investors in September 2018.

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Stock-Based Compensation

In July 2016, the Board of Directors approved the Company’s 2016 Omnibus Incentive Plan (the “2016 Omnibus Plan”), and on August 4, 2016, the Board amended such plan to include an evergreen provision, intended to increase the maximum number of shares issuable under the Omnibus Plan on the first day of each fiscal year (starting on January 1, 2017) by an amount equal to six percent (6%) of the shares reserved as of the last day of the preceding fiscal year, provided that the aggregate number of all such increases may not exceed 1,000,000 shares. As of November 21, 2016, holders of a majority of our capital stock executed a written consent adopting and approving the 2016 Omnibus Plan, as amended and restated, which provides for the Company to grant equity and cash incentive awards to officers, directors and employees of, and consultants to, the Company and its subsidiaries. We were authorized to issue up to 1,685,400 shares of common stock under the 2016 Omnibus Plan as of September 30, 2018. 

A summary of stock option activity under the 2016 Omnibus Plan during the nine months ended September 30, 2018 is presented below: 

Stock Options – 2016 Omnibus Plan	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2018		861,250		$	1.04		8.57	$	-
Granted		815,626			0.40		7.00	$	-
Exercised		-			-
Forfeited or expired		(385,000	)	$	1.10		-	$	-
Outstanding at September 30, 2018		1,291,876		$	0.62		7.20	$	-
Exercisable at September 30, 2018		1,260,210		$	0.61		7.19	$	-

There were 815,626 stock options granted under the 2016 Omnibus Plan during the nine months ended September 30, 2018 to settle accrued compensation liabilities with the Company’s officers and directors. The fair value of these stock options granted and immediately vested during the nine months ended September 30, 2018 was approximately $51,000. As the options issued were to related parties, the $321,250 of settled liabilities was credited to additional paid-in-capital. No stock options were exercised during the nine months ended September 30, 2018. As of September 30, 2018, there was approximately $1,000 of total unrecognized compensation cost related to non-vested stock options, and that cost was expected to be recognized over a weighted-average period of 0.25 years.

The Company recorded stock-based compensation expense in the periods presented as follows:

	Three Months ended September 30, 2018		Three Months ended September 30, 2017
Sales and marketing	$	-	$	1,392
Research and development		721		2,978
General and administrative		649		9,965
	$	1,370	$	14,335

	Nine Months ended September 30, 2018		Nine Months ended September 30, 2017
Sales and marketing	$	-	$	3,906
Research and development		2,766		9,201
General and administrative		2,958		29,199
	$	5,724	$	42,306

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Note 8 – Commitments and Contingencies

As of the Effective Date, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with certain accredited investors who acquired common shares in accordance with the Plan of Reorganization (the “Recapitalization Investors”).  The Registration Rights Agreement provides certain resale registration rights to the Recapitalization Investors with respect to the common shares they received.  Pursuant to the Registration Rights Agreement, the Company filed, and has to update periodically, a registration statement with the U.S. Securities and Exchange Commission that covers the resale of all shares of common stock issued to the Investors on the Effective Date until such time as such shares have been sold or may be sold without registration or restriction pursuant to Rule 144 under the Securities Act, subject to the Company's ability to suspend sales under the registration statement in certain circumstances. As the Company does not qualify for forward incorporation by reference, the Company has caused the suspension of sales under the registration statement pending the filing and effectiveness of a post-effective amendment containing updated financial information.

Our primary office and warehouse facilities are located in Gaithersburg, Maryland, and comprise approximately 12,000 square feet. The facilities fall under two leases with monthly rent, including our share of certain annual operating costs and taxes, at approximately $18,000 in total per month and expiring in September 2019. Effective August 1, 2018, we executed a first amendment to the more significant of the lease agreements permitting the deferral of a portion of the monthly rent until the final three months of the lease period and totaling approximately $100,000.

In addition, we subleased an approximately 2,100 square foot facility in Nashville, Tennessee, which was utilized as a commercial operations office. The sublease was approximately $4,000 per month excluding our share of annual operating expenses, and was due to expire April 30, 2018. Effective January 28, 2018, we executed a sublease termination agreement which terminated our obligations remaining on the sublease in exchange for our forfeiture of the approximately $4,000 security deposit on the sublease.

We also leased a 16,300 square foot facility located in Durham, North Carolina. Monthly rent, including our share of certain annual operating costs and taxes, was approximately $22,000 per month and the lease was due to expire on December 31, 2018. As a result of our discontinuance of the ALD-401 clinical trial, the Company ceased use of the facility in Durham, North Carolina on July 31, 2014, and sublet the facility beginning August 1, 2014. The sublease rent was approximately $14,000 per month and was also due to expire on December 31, 2018. Due to non-payment on the lease subsequent to December 31, 2017, we were in default on the lease since year end. Effective June 29, 2018, we executed a lease termination agreement which terminated all of our remaining financial obligations under the lease in exchange for release of the approximately $32,000 security deposit on the lease and a one-time payment of $26,000.

Note 9 – Subsequent Events

On October 24, 2018, the Company entered into an Agreement for Sale of Intellectual Property (the “IP Sale Agreement”) and a License and Service Agreement (the “Service Agreement” and collectively the “Agreements”) with Rohto.

The IP Sale Agreement provides for the sale to Rohto of the intellectual property under license pursuant to the Amended License and Distribution Agreement (consisting of two of our patents in Japan, our know-how in Japan and trademarks for Aurix and AutoloGel in Japan). The IP Sale Agreement provides that, upon the completion of such transfers and payments, the Amended License and Distribution Agreement will be terminated. Under the IP Sale Agreement, we are subject to a five-year non-compete in Japan.

Under the Service Agreement, we agreed to the sale of a patent application in Brazil, the grant of a royalty free license to our know how in the Field of Use in Brazil and India, and the grant of a royalty-free non-exclusive license to the use of our device patent in the Field of Use in the United States, Canada and Mexico. The latter license becomes effective if and only if we cease our business with respect to the Aurix System or grant a non-exclusive license to a third party to use the device patent in the Field of Use in the United States, Canada and Mexico. The “Field of Use” is defined as the use of the Aurix System and the modified medical device being developed by Rohto under the Japan patents sold to Rohto for all wound care and topical dermatology applications in human and animal medicine. Under the Service Agreement, we are subject to a non-compete in Brazil and India.

The aggregate consideration receivable under the Agreements is $750,000, with $500,000 received on November 8, 2018 and the balance due within 15 days of the delivery by us of the executed documents necessary to effect the transfer of the relevant intellectual property rights to Rohto.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of operations of Nuo Therapeutics, Inc. ("Nuo Therapeutics," the "Company," "we," "us," or "our") should be read in conjunction with the financial statements and related notes appearing elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2017 (the “Annual Report”), filed with the U.S. Securities and Exchange Commission, or the Commission on April 16, 2018. 

Special Note Regarding Forward Looking Statements

Some of the information in this Quarterly Report (including this section) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “the facts suggest,” “will,” “will be,” “will continue,” “will likely result,” “could,” “may” and words of similar import. These statements reflect the Company’s current view of future events and are subject to certain risks and uncertainties as noted in this Quarterly Report and in other reports filed by us with the Securities and Exchange Commission, including Forms 8-K, 10-Q, and 10-K. These risks and uncertainties include, among others, the following:

● significant uncertainty surrounding continuation of the Coverage with Evidence Development, or CED, program due to an absence of resources sufficient to conduct the current CED program in any realistic time frame;

● significant uncertainty surrounding an agreed path forward for Aurix as an accessible product option for physicians treating Medicare beneficiaries with chronic wounds – in the absence of such a path, the Company will likely have to cease operations;

● the possibility that a more comprehensive and definitive analysis of the wound healing data described under "Recent Developments - Status of CED Studies" could come to materially different conclusions than the results of our limited and preliminary analysis described therein

● the continuing rapid depletion of our cash resources, our need for immediate and substantial additional financing (without which we face liquidation) and our ability to obtain that financing, including in light of our outstanding convertible notes, Series A preferred stock and the low share price and significant volatility with respect to our common stock - if we were required to liquidate today, the holders of our common stock would not receive any consideration for their common stock;

● the fact that we have no significant assets left to monetize other than the Aurix System itself;

● our limited sources of working capital;

● whether the Centers for Medicare & Medicaid Services, or CMS, will increase the standard national payment rate for physicians for the use of Aurix so that it will provide an adequate payment to physicians to increase such use sufficiently;

● our history of losses and expectation that, even if we were to obtain sufficient financing immediately to continue operating, we will incur losses in the foreseeable future;

● our limited operating experience;

● acceptance of our products by the medical community and patients, especially in light of uncertainties surrounding CED programs in general;

● our ability to obtain adequate reimbursement from third-party payors;

● whether the advisory opinion issued in response to a petition to the Office of Inspector General, or OIG, of the Department of Health and Human Services, or DHHS, effectively permitting the petitioning hospital to reduce or waive Medicare patients’ 20% co-payment with respect to the Aurix CED program in certain cases, will in fact cause other healthcare providers to make similar waivers;

● whether CMS will continue to consider their treatment of the geometric mean cost of the services underlying the Aurix System, or Aurix, to be comparable to the geometric mean cost of Ambulatory Payment Classification ("APC 5054") in the future;

● our ability to maintain classification of Aurix as APC 5054;

● whether CMS will continue to maintain the current national average reimbursement rate of $1,568 per Aurix treatment, and, more generally, our ability to be reimbursed at a profitable national average rate per application in the future;

● uncertainties surrounding the price at which our common stock will continue trading on the OTC market (with such price having declined substantially) and the limited trading volume or liquidity of our common stock - as a result of our decrease in net tangible assets below the required threshold for trading on OTCQX, our common stock moved to the OTCQB market effective June 7, 2018, which could further restrict liquidity and our ability to raise capital through equity issuances;

● our reliance on several single source suppliers and our ability to source raw materials at affordable costs;

● our ability to protect our intellectual property;

● our compliance with governmental regulations;

● the success of our clinical study protocols under our CED program;

● our ability to contract with healthcare providers;

● our ability to successfully sell and market the Aurix System (as defined below);

● our ability to attract and retain key personnel; and

● our ability to successfully pursue strategic collaborations to help develop, support or commercialize our products.

Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results could differ materially from those anticipated in these forward-looking statements. 

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In addition to the risks identified under the heading “Risk Factors” in our Annual Report and the other filings referenced above, other sections of this report may include additional factors which could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business, or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

The Company undertakes no obligation and does not intend to update, revise or otherwise publicly release any revisions to its forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events.

Business Overview

We are a regenerative therapies company developing and marketing the Aurix product for chronic wound care primarily within the U.S. We commercialize innovative cell-based technologies that harness the regenerative capacity of the human body to trigger natural healing. The use of autologous (from self) biological therapies for tissue repair and regeneration is part of a transformative clinical strategy designed to improve long-term recovery in inherently complex chronic conditions with significant unmet medical needs.

Our current commercial offering consists of a point of care technology for the safe and efficient separation of autologous (i.e., the patient’s own) blood to produce a platelet based therapy for the chronic wound care market (“Aurix” or the “Aurix System”). The U.S. Food and Drug Administration, or FDA, cleared the Aurix System for marketing in 2007 as a device under Section 510(k) of the Federal Food, Drug, and Cosmetic Act, or FDCA. Aurix is the only platelet derived product cleared by the FDA for chronic wound care use and is indicated for most exuding wounds. The advanced wound care market, within which Aurix competes, is composed of advanced wound care dressings, wound care devices, and wound care biologics.

A 2012 Medicare National Coverage Determination, or NCD, from the Centers for Medicare & Medicaid Services, or CMS, reversed a twenty year old non-coverage decision for autologous blood derived products used in wound care; this NCD allows for Medicare coverage under the Coverage with Evidence Development, or CED, program.

We have been conducting clinical studies for Aurix under this CED program. Under the CED program, CMS provides reimbursement for items or services on the condition that they be furnished in approved clinical protocols or in the collection of additional clinical data. Current sales outside of the Federal Supply Schedule and Medicare reimbursement are practically limited to patients participating in certain Company-sponsored clinical studies approved by CMS under the CED program.

Recent Developments 

Status of CED program

On October 22, 2018, Company’s management met with representatives of CMS’ Coverage and Analysis Group (CAG) to discuss the status of the three study protocols (for diabetic foot ulcers, venous leg ulcers and pressure ulcers) totaling 2,200 patients under the Company’s CED program. The Company presented to CAG its view that completion of the studies to full enrollment was no longer considered practical and that completion of the CED studies as presently structured was untenable. The Company discussed with CAG a variety of difficulties and limitations that have arisen during the conduct of the CED program that have contributed to slow enrollment, closure of study sites, and concerns about overall data integrity.

While the Company views completion of the CED protocols as presently designed as not feasible, it has conducted a preliminary and limited internal analysis of wound healing data using the currently available patients and datasets. Of the 297 patient randomizations as of October 15, 2018, 269 patients (9 remain on study and 19 were either never treated or without any data) across the three study protocols were considered suitable for analysis in essentially a modified intent to treat population. The results of this limited preliminary internal analysis were as follows:

● Diabetic foot ulcers constituted the largest share of the evaluable patients with 121. Complete healing, as defined in the protocol, was found to be statistically significant in the Aurix arm versus the usual and customary care control arm.

● Neither the venous leg ulcer nor pressure ulcer protocols were found to have any statistically significant differences in complete wound healing.

Other protocol endpoints (e.g., wound healing trajectories, validated quality of life measures) have not yet been analyzed in any substantive manner. The Company expressed to CAG its intention to pursue publication of the relevant data in a peer-reviewed scientific journal should CMS reopen the national coverage determination (NCD) for Aurix. The Company cautions that its analysis to date was limited and preliminary, and subject to independent review and analysis of the related datasets. A more comprehensive and definitive analysis could come to materially different conclusions.

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However, on the basis of the limited and preliminary internal analysis, the Company expressed to CAG its view that the data on diabetic foot ulcers, when viewed in conjunction with analyses in prior publications, support a conclusion that Aurix is reasonable and necessary for Medicare beneficiaries, and that the Company was therefore prepared to initiate a formal request to reopen the NCD.

The Company also discussed with CAG the general conditions it believed would be necessary to adjust the data collection efforts for venous leg and pressure ulcers to allow a robust set of evaluable data to be collected in a reasonable time frame. The Company reiterated its view that Aurix can be an effective wound management product option for clinicians treating these difficult etiologies.  During the meeting the Company was joined by the principal investigator at the CED study site responsible for slightly in excess of 25% of total study enrollment. He communicated to CAG that pressure ulcers have essentially no viable treatment options and that Aurix is a notably effective product in treating these wounds.

The Company communicated to CAG that, in the absence of an agreed path forward for Aurix as an accessible product option for physicians treating Medicare beneficiaries with chronic wounds, the Company will likely proceed to cease operations and the CED effort would be officially terminated due to an absence of resources sufficient to conduct and conclude the current CED program in any realistic time frame. The Company can provide no assurance that CMS will respond in a manner that the Company views as practical and executable given overall constraints on available resources or in a timeframe necessary for the Company to avoid a cessation of business operations.

Sale of Intellectual Property and License and Service Agreement with Rohto

We refer to Note 3 – Distribution, Licensing and Collaboration Arrangements for a description of our amended license and distribution agreement (“Amended License and Distribution Agreement”) with Rohto Pharmaceutical Co., Ltd. (“Rohto”), which description is incorporated herein by reference.

On October 24, 2018, the Company entered into an Agreement for Sale of Intellectual Property (the “IP Sale Agreement”) and a License and Service Agreement (the “Service Agreement” and collectively the “Agreements”) with Rohto.

The IP Sale Agreement provides for the sale to Rohto of the intellectual property under license pursuant to the Amended License and Distribution Agreement (consisting of two Nuo patents in Japan, Nuo know-how in Japan and trademarks for Aurix and AutoloGel in Japan). The IP Sale Agreement provides that, upon the completion of such transfers and payments, the Amended License and Distribution Agreement will be terminated. Under the IP Sale Agreement, we are subject to a five-year non-compete in Japan.

Under the Service Agreement, we agreed to the sale of a patent application in Brazil, the grant of a royalty free license to our know how in the Field of Use in Brazil and India, and the grant of a royalty-free non-exclusive license to the use of our device patent in the Field of Use in the United States, Canada and Mexico. The latter license becomes effective if and only if we cease our business with respect to the Aurix System or grant a non-exclusive license to a third party to use the device patent in the Field of Use in the United States, Canada and Mexico. The “Field of Use” is defined as the use of the Aurix System and the modified medical device being developed by Rohto under the Japan patents sold to Rohto for all wound care and topical dermatology applications in human and animal medicine. Under the Service Agreement, we are subject to a non-compete in Brazil and India.

The aggregate consideration receivable under the Agreements is $750,000, with $500,000 received on November 8, 2018 and the balance due within 15 days of the delivery by us of the executed documents necessary to effect the transfer of the relevant intellectual property rights to Rohto.

Aldeflour Royalty Buyout

On September 28, 2018, Aldagen, Inc. (“Aldagen”), a wholly owned subsidiary of the Company, entered into a first amendment (the “Amendment”) to the existing license agreement (the “License Agreement”) with STEMCELL Technologies Canada, Inc. (previously known as STEMCELL Technologies, Inc.) (“STEMCELL”) to provide for the buyout by STEMCELL of the remaining royalty obligations under the License Agreement in exchange for a payment of $195,000. Upon receipt of the payments of $100,000 on October 31, 2018 and $95,000 by December 15, 2018, STEMCELL will have a fully paid up, irrevocable and royalty free license to the intellectual property under the License Agreement for the Aldeflour product currently sold by STEMCELL. Aldagen additionally agreed to the transfer of the Aldeflour trademark to STEMCELL upon receipt of the final payment described above.

Issuance of Convertible Notes and Warrants

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

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The purchase agreements contain certain representations, warranties and covenants by, among and for the benefit of the respective parties. The purchase agreements also provide for customary indemnification of the Investors by the Company.

The notes mature nine months from the date of issuance (June 17, 2019) and, in addition to any original issue discount, accrue interest at a rate of 12% per year. The Company may prepay the notes, in whole or in part, for 130% of outstanding principal and interest ending on the date that is 90 days following the date of issuance, and for 145% of outstanding principal and interest at any time commencing on the date that is 91 days following the date of issuance and ending on the date that is 180 days following the date of issuance, but only if the Company is not then in default under the notes. Beginning on the date that is 181 days following the date of issuance, the Company may no longer prepay the notes. The maturity date of the note issued to EMA may be extended up to one year beyond the original maturity date at the option of EMA.

After six months from the date of issuance, the Investors may convert the notes, at any time, in whole or in part, into shares of the Company’s common stock, at a conversion price corresponding to a 40% discount to the average of the two lowest trading prices of the common stock during the 25 trading days prior to the conversion, subject to certain adjustments and price-protection provisions contained in the notes, including full-ratchet anti-dilution protection in the case of dilutive issuances of securities that do not meet the requirements of “exempt issuances” as defined in the notes. The Company is required to maintain authorized and unissued shares of its common stock equal to seven times the number issuable upon conversion of the notes. Each note contains potential additional discounts to the conversion price upon the occurrence of an event of default or specified other events related to the trading status of the Company’s common stock (which would result in a higher number of shares issued upon conversion).

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

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

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

Results of Operations

Comparison of Three Months Ended September 30, 2018 and 2017

The amounts presented in this comparison section are rounded to the nearest thousand.

Revenue and Gross Profit 

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

	Three months ended September 30, 2018			Three months ended September 30, 2017
Product sales	$	65,000		$	122,000
Royalties		195,000			40,000
Total revenues		260,000			162,000
Product cost of sales		45,000			264,000
Total cost of sales		45,000			264,000
Gross profit (loss)	$	215,000		$	(102,000	)
Gross margin %		83	%		(63	)%

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Revenues increased by $98,000 to $260,000 comparing the three months ended September 30, 2018 to the three months ended September 30, 2017. The increase was primarily attributable to a $155,000 increase in royalty revenue for the three months ended September 30, 2018 in connection with the Aldeflour royalty buyout described above under “Recent Developments – Aldeflour Royalty Buyout.” As a result of the Aldeflour royalty buyout, the Company will no longer be receiving related royalties. The effect of the royalty buyout accrual was partially offset by a $57,000 decrease in Aurix product sales. Aurix revenues declined primarily due to lower enrollment in the CED study protocols (and resulting fewer treatments) as the Company's limited resources impacted viability perceptions.  Management believes quarterly Aurix revenues will remain insufficient to cover operating expenses until such time as CED enrollment can be substantially increased and/or alternative non-CED Aurix revenues can be established. Please refer to “Recent Developments – Status of CED Program” above.

Overall gross profit increased $317,000 to $215,000 while overall gross margin increased to 83% from (63)%, comparing the three months ended September 30, 2018 to the three months ended September 30, 2017. The increase in gross profit primarily reflects (i) approximately $155,000 of increased royalty revenue (with no associated cost) in the quarter ended September 30, 2018 due to the Aldeflour royalty buyout described above; and (ii) the effect of non-cash amortization expense recorded in the quarter ended September 30, 2017 relating to (x) approximately $183,000 of intangible technology assets and (y) approximately $30,000 for a prepaid royalty. As all intangible assets were considered impaired as of December 31, 2017, no amortization expense was recognized in the three months ended September 30, 2018.

Operating Expenses

Total operating expenses decreased approximately $646,000 to approximately $627,000 comparing the three months ended September 30, 2018 to the three months ended September 30, 2017. The decrease was primarily due to decreases across substantially all expense components from reduced headcount and numerous cost saving initiatives. A discussion of the various components of operating expenses follows below.

Sales and Marketing

Sales and marketing expenses decreased approximately $146,000 (90%) to approximately $17,000 comparing the three months ended September 30, 2018 to the three months ended September 30, 2017. The decrease was primarily due to elimination of the remaining direct sales personnel early in the first quarter 2018.

Research and Development

Research and development expenses decreased approximately $204,000 (68%) to approximately $95,000 comparing the three months ended September 30, 2018 to the three months ended September 30, 2017. The decrease was primarily due to (i) reduced headcount in the clinical affairs area and corresponding lower compensation expenses, (ii) no depreciation expense in the three months ended September 30, 2018 as software costs are now fully depreciated, and (iii) decreased clinical affairs costs for reduced CED activity.

General and Administrative

General and administrative expenses decreased approximately $296,000 (36%) to $515,000 comparing the three months ended September 30, 2018 to the three months ended September 30, 2017. The decrease was primarily due to (i) lower compensation expense due to reduced headcount, and (ii) lower professional fees including legal expenses and (iii) decreased depreciation expenses which were partially offset by a bad debt recovery in the three months ended September 30, 2017.

Other Income (Expense)

Other expense, net increased by approximately $236,000 to approximately $238,000 comparing the three months ended September 30, 2018 to the three months ended September 30, 2017.  The increase was primarily due to the approximately $231,000 change in fair value of derivative liabilities.

Comparison of Nine Months Ended September 30, 2018 and 2017

The amounts presented in this comparison section are rounded to the nearest thousand.

Revenue and Gross Profit 

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

	Nine months ended September 30, 2018			Nine months ended September 30, 2017
Product sales	$	270,000		$	383,000
Royalties		288,000			141,000
Total revenues		558,000			524,000
Product cost of sales		132,000			812,000
Total cost of sales		132,000			812,000
Gross profit (loss)	$	426,000		$	(288,000	)
Gross margin %		76	%		(55	)%

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Revenues increased by $34,000 to $558,000 comparing the nine months ended September 30, 2018 to the nine months ended September 30, 2017. The increase was primarily attributable to (i) a $147,000 increase in royalties for the nine months ended September 30, 2018 as a result of and in connection with the Aldeflour royalty buyout described above under “Recent Developments – Aldeflour Royalty Buyout.” As a result of the Aldeflour royalty buyout, the Company will no longer be receiving related royalties. The effect of the third quarter 2018 accrual was partially offset by a $113,000 decrease in Aurix product sales.  Aurix revenues declined primarily due to lower enrollment in the CED study protocols (and resulting fewer treatments) as the Company's limited resources have impacted viability perceptions.  Management believes quarterly Aurix revenues will remain insufficient to cover operating expenses until such time as CED enrollment can be substantially increased and/or alternative non-CED Aurix revenues can be established. Please refer to “Recent Developments – Status of CED Program” above.

Overall gross profit increased $714,000 to $426,000 while overall gross margin increased to 76% from (55)%, comparing the nine months ended September 30, 2018 to the nine months ended September 30, 2017. The increase in gross profit primarily reflects (i) approximately $147,000 of increased royalty revenue (with no associated cost) in the nine months ended September 30, 2018 due to the Aldeflour royalty buyout described above; and (ii) the effect of non-cash amortization expense recorded in the nine months ended September 30, 2017 relating to (x) approximately $548,000 of intangible technology assets and (y) approximately $91,000 for a prepaid royalty. As all intangible assets were considered impaired as of December 31, 2017, no amortization expense was recognized in the nine months ended September 30, 2018.

Operating Expenses

Total operating expenses decreased approximately $4,594,000 to approximately $2,089,000 comparing the nine months ended September 30, 2018 to the nine months ended September 30, 2017. The decrease was due to (i) the $2.1 million goodwill impairment charge recognized in the nine months ended September 30, 2017 and (ii) decreases across substantially all expense components from reduced headcount and numerous cost saving initiatives. A discussion of the various components of operating expenses follows below.

Sales and Marketing

Sales and marketing expenses decreased approximately $438,000 (82%) to $99,000 comparing the nine months ended September 30, 2018 to the nine months ended September 30, 2017. The decrease was primarily due to the elimination of the remaining direct sales personnel early in the first quarter 2018.

Research and Development

Research and development expenses decreased approximately $515,000 (51%) to approximately $494,000 comparing the nine months ended September 30, 2018 to the nine months ended September 30, 2017. The decrease was primarily due to (i) reduced headcount in the Clinical Affairs area and corresponding lower compensation expenses, (ii) no depreciation expense in the nine months ended September 30, 2018 as software costs are now fully depreciated, and (iii) decreased clinical affairs costs for reduced CED activity.

General and Administrative

General and administrative expenses decreased approximately $1,562,000 (51%) to approximately $1,496,000 comparing the nine months ended September 30, 2018 to the nine months ended September 30, 2017. The decrease was primarily due to (i) lower compensation expense due to reduced headcount, (ii) lower professional fees including legal expenses, (iii) decreased depreciation expenses, and (iv) an increase in bad debt recoveries in the nine months ended September 30, 2018

Impairment of Goodwill 

As a result of events and circumstances in the three months ended June 30, 2017, including a sustained reduction in our stock price, we determined that it was more likely than not that our fair value was reduced below the carrying value of our net equity, requiring an impairment test as of June 30, 2017. We compared our carrying value to our fair value as reflected by our June 30, 2017 market capitalization and concluded that our carrying value exceeded our fair value by approximately $2.8 million. Consequently, we recognized a non-cash goodwill impairment charge of approximately $2.1 million to write-down goodwill to its estimated fair value of zero as of June 30, 2017.

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Other Income (Expense)

Other expense, net increased by approximately $237,000 to approximately $248,000 comparing the nine months ended September 30, 2018 to the nine months ended September 30, 2017.  The increase was primarily due to the approximately $231,000 change in fair value of derivative liabilities.

Liquidity and Capital Resources

We are rapidly depleting our cash resources and our ability to continue to operate is in immediate jeopardy. Please refer to “Recent Developments – Status of CED Program” above.

For the nine months ended September 30, 2018, we incurred net losses from operations of approximately $1.9 million. At September 30, 2018, we had cash and cash equivalents of approximately $0.25 million, total current assets of approximately $0.6 million and total current liabilities of approximately $1.3 million. As of November 12, 2018, we had cash and cash equivalents of approximately $0.6 million.

We have a history of losses and are not currently profitable. As a result of the application of fresh-start accounting on the date we emerged from bankruptcy protection in May 2016, our retained earnings (deficit) was zero and our total stockholders’ equity was approximately $17.9 million on such date. As of September 30, 2018, our accumulated deficit was approximately $22.6 million and our stockholders' deficit was approximately $0.6 million.

During the quarter ended September 30, 2017, we withdrew our attempted registered offering and related refinancing of our Series A Preferred Stock, and exercised our rights under the May 5, 2016 backstop commitment in full.  As a result, we issued an aggregate of 12,800,000 shares of common stock for gross proceeds of approximately $3.0 million, which more than doubled the number of our outstanding shares of common stock. In June 2018, we issued an additional 1,000,000 shares of common stock for gross proceeds of $0.5 million pursuant to a securities purchase agreement with Rohto.  In September 2018, we issued two convertible notes for net proceeds of approximately $0.3 million, and related stock purchase warrants, which are convertible into and exercisable for common stock as further described above under “Recent Developments – Issuance of Convertible Notes and Warrants” (which description is incorporated herein by reference). The convertible notes impose onerous interest and penalty provisions on the Company. We also entered into a royalty buyout agreement with the licensee of the Aldeflour product for proceeds of approximately $0.2 million to be received in the fourth quarter of 2018. Finally, on October 24, 2018, we entered into an Agreement for Sale of Intellectual Property (the “IP Sale Agreement”) and a License and Service Agreement (the “Service Agreement” and collectively the “Agreements”) with Rohto, as further described above under “Recent Developments - Sale of Intellectual Property and License and Service Agreement with Rohto,” which description is incorporated herein by reference.

At September 30, 2018, we had cash and cash equivalents on hand of approximately $0.25 million and $0.35 million of convertible notes payable. The notes mature nine months from the date of issuance (June 17, 2019) and, in addition to any original issue discount, accrue interest at a rate of 12% per year. The Company may prepay the notes, in whole or in part, for 130% of outstanding principal and interest ending on the date that is 90 days following the date of issuance, and for 145% of outstanding principal and interest at any time commencing on the date that is 91 days following the date of issuance and ending on the date that is 180 days following the date of issuance, but only if the Company is not then in default under the notes. Beginning on the date that is 181 days following the date of issuance, the Company may no longer prepay the notes. The maturity date of the note issued to EMA may be extended up to one year beyond the original maturity date at the option of EMA.

Our continuing losses and depleted cash resources raise substantial doubt about our ability to continue as a going concern, and we need to raise substantial additional funds immediately in order to continue to conduct our business.  If we are unable within the next 90 days to secure sufficient capital to fund our ongoing operating activities, we will likely be required to cease operations and liquidate our assets. If we were required to liquidate today, the holders of our common stock would not receive any consideration for their common stock as a result of the liquidation preference of the holder of our Series A Preferred Stock.

Even assuming we succeed in raising sufficient additional funds in the near future to avoid a cessation of business operations, we expect to incur losses and negative operating cash flows in the foreseeable future. We may never generate sufficient revenues to achieve and maintain profitability. Historically, we have financed our operations through a combination of the sale of debt, equity and equity-linked securities, licensing, royalty, and product revenues. We will no longer have the benefit of royalty revenues from the Aldeflour product as a result of the Aldeflour royalty buyout described above under “Recent Developments – Aldeflour Royalty Buyout,” which description is incorporated herein by reference. Until we can generate a sufficient amount of revenues to finance our cash requirements, which we may never do, we need to finance future cash needs.  It is substantially uncertain whether we will be able to obtain such financing on satisfactory terms or at all.

Any equity financings may cause further substantial dilution to our stockholders and could involve the issuance of securities with rights senior to the common stock. Any allowed debt financings (which are severely restricted under the terms of the convertible notes and the Certificate of Designations for our Series A Preferred Stock) may require us to comply with additional onerous financial covenants and restrict our business operations. Our ability to complete additional financings is dependent on, among other things, market reception of the Company and perceived likelihood of success of our business model, the state of the capital markets at the time of any proposed equity or debt offering, state of the credit markets at the time of any proposed loan financing, and on the relevant transaction terms, among other things. We may not be able to obtain additional capital as required to finance our efforts, through equity or debt financings, other transactions, or any combination thereof, on satisfactory terms or at all. Additionally, any such financing, if at all obtained, may not be adequate to meet our capital needs and to support our operations.   

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Even assuming we succeed in raising substantial additional funds immediately to avoid liquidation, if we are unable to secure sufficient capital to fund our operating activities beyond the immediate future or we are unable to increase revenues significantly over that time period, we may be forced to further delay the completion of, or significantly reduce the scope of, our current business plan, delay the pursuit of commercial insurance reimbursement for our wound treatment technologies, and postpone the hiring of new personnel.   If we are unable to secure sufficient capital to fund our operating activities and are unable to increase revenues significantly, we will likely be required to cease operations.

Our business is subject to certain risks and uncertainties including those described in "Item 1.A Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017.

Cash Flows

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

	Nine months ended September 30, 2018			Nine months ended September 30, 2017
Cash flows used in operating activities	$	(1.3	)	$	(3.7	)
Cash flows used in investing activities	$	-		$	-
Cash flow provided by financing activities	$	0.8		$	3.0

Operating Activities

Cash used in operating activities for the nine months ended September 30, 2018 of approximately $1.3 million primarily reflects our net loss of approximately $1.9 million adjusted by (i) approximately $0.2 million change in fair value of derivative liabilities, (ii) approximately $0.1 million of depreciation expense, and (iii) an approximately $0.5 million increase for changes in operating assets and liabilities partially offset by an approximate $0.2 million bad debt recovery.

Cash used in operating activities for the nine months ended September 30, 2017 of approximately $3.7 million primarily reflects our net loss of approximately $7.0 million adjusted by (i) approximately $2.1 million for the impairment of goodwill, (ii) approximately $0.9 million of depreciation and amortization expense and (iii) an approximate $0.4 million increase for changes in operating assets and liabilities partially offset by an approximate $0.1 million bad debt recovery.

Investing Activities

We did not have any material investing activities for the nine months ended September 30, 2018 and 2017. 

Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2018 of $0.8 million represents the sale of 1,000,000 shares of common stock to Rohto for net proceeds of $0.5 million in June 2018 and net proceeds of approximately $0.3 million from the issuance of two convertible notes in September 2018.

Cash provided by financing activities for the nine months ended September 30, 2017 consisted of $3.0 million in gross proceeds from the call of the Backstop Commitment in full. 

Inflation

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

Off-Balance Sheet Arrangements

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

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Critical Accounting Policies

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

Use of Estimates

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

Revenue Recognition

Prior to January 1, 2018, revenues were recognized when the four basic criteria for recognition were met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) consideration is fixed or determinable; and (4) collectability is reasonably assured. The Company adopted new accounting guidance for revenue recognition effective January 1, 2018 which did not have a material impact on the Company’s financial statements. Beginning January 1, 2018, the Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers; (ii) identification of distinct performance obligations in the contract; (iii) determination of contract transaction price; (iv) allocation of contract transaction price to the performance obligations; and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation. The Company recognizes revenues upon the satisfaction of its performance obligations (upon transfer of control of promised goods or services to customers) in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

We provide for the sale of our products, including disposable processing sets and supplies to customers. Revenue from the sale of products is recognized upon shipment of products to the customers. We do not maintain a reserve for returned products as in the past those returns have not been material and are not expected to be material in the future.

Percentage-based fees on licensee sales of covered products are generally recorded as products are sold by licensees and are reflected as royalties in the condensed consolidated statements of operations. Direct costs associated with product sales and royalty revenues are recorded at the time that revenue is recognized.

In July 2017, the FASB issued guidance intended to simplify the accounting for certain financial instruments with down round features. The amendments require companies to disregard the down round features when assessing whether the instrument is indexed to its own stock for purposes of determining liability or equity classification. The Company adopted this guidance as of July 1, 2018.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable. 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management has carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of September 30, 2018. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our recent reduction in staff may affect our ability to conduct our operations and other functions effectively, which may materially affect our internal control over financial reporting in future periods.

24

PART II
 
OTHER INFORMATION

Item 1. Legal Proceedings.

Not Applicable. 

Item 1A. Risk Factors.

Not Applicable.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

None. 

Item 3.    Defaults Upon Senior Securities.

None.

Item 4.    Mine Safety Disclosures.

Not applicable. 

Item 5.    Other Information.

None.

Item 6.    Exhibits.

The exhibits listed in the accompanying Exhibit Index are furnished as part of this Report.

Exhibit Number	Description
4.1	12% Convertible Promissory Note issued to Auctus Fund, LLC originally filed on Form 8-K with the Securities and Exchange Commission on September 21, 2018 is hereby incorporated by reference.
4.2	12% Convertible Promissory Note issued to EMA Financial, LLC originally filed on Form 8-K with the Securities and Exchange Commission on September 21, 2018 is hereby incorporated by reference.
4.3	Form of Warrant originally filed on Form 8-K with the Securities and Exchange Commission on September 21, 2018 is hereby incorporated by reference.
10.1	Securities Purchase Agreement between Nuo Therapeutics, Inc. and Auctus Fund LLC originally filed on Form 8-K with the Securities and Exchange Commission on September 21, 2018 is hereby incorporated by reference.
10.2	Securities Purchase Agreement between Nuo Therapeutics, Inc. and EMA Financial LLC originally filed on Form 8-K with the Securities and Exchange Commission on September 21, 2018 is hereby incorporated by reference.
10.3	First Amendment to License Agreement between Aldagen, Inc. and STEMCELL Technologies Canada, Inc. originally filed on Form 8-K with the Securities and Exchange Commission on October 2, 2018 is hereby incorporated by reference.
10.4	Agreement for Sale of Intellectual Property between Nuo Therapeutics, Inc. and Rohto Pharmaceutical Co., Ltd. originally filed on Form 8-K with the Securities and Exchange Commission on October 26, 2018 is hereby incorporated by reference.
10.5	License and Service Agreement between Nuo Therapeutics, Inc. and Rohto Pharmaceutical Co., Ltd. originally filed on Form 8-K with the Securities and Exchange Commission on October 26, 2018 is hereby incorporated by reference.
31	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from Nuo Therapeutics, Inc. Form 10-Q for the quarter ended September 30, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at September 30, 2018 and December 31, 2017, (ii) Consolidated Statements of Operations for the three and nine month periods ended September 30, 2018 and 2017, (iii) Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2018 and 2017 and (iv)  Notes to the Unaudited Consolidated Financial Statements.

25

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NUO THERAPEUTICS, INC.
Date: November 16, 2018
By:	/s/ David E. Jorden
	David E. Jorden Chief Executive Officer and Chief Financial Officer
	(Principal Executive Officer and Principal Financial Officer)

26

EXHIBIT INDEX

Exhibit Number	Description
4.1	12% Convertible Promissory Note issued to Auctus Fund, LLC originally filed on Form 8-K with the Securities and Exchange Commission on September 21, 2018 is hereby incorporated by reference.
4.2	12% Convertible Promissory Note issued to EMA Financial, LLC originally filed on Form 8-K with the Securities and Exchange Commission on September 21, 2018 is hereby incorporated by reference.
4.3	Form of Warrant originally filed on Form 8-K with the Securities and Exchange Commission on September 21, 2018 is hereby incorporated by reference.
10.1	Securities Purchase Agreement between Nuo Therapeutics, Inc. and Auctus Fund LLC originally filed on Form 8-K with the Securities and Exchange Commission on September 21, 2018 is hereby incorporated by reference.
10.2	Securities Purchase Agreement between Nuo Therapeutics, Inc. and EMA Financial LLC originally filed on Form 8-K with the Securities and Exchange Commission on September 21, 2018 is hereby incorporated by reference.
10.3	First Amendment to License Agreement between Aldagen, Inc. and STEMCELL Technologies Canada, Inc. originally filed on Form 8-K with the Securities and Exchange Commission on October 2, 2018 is hereby incorporated by reference.
10.4	Agreement for Sale of Intellectual Property between Nuo Therapeutics, Inc. and Rohto Pharmaceutical Co., Ltd. originally filed on Form 8-K with the Securities and Exchange Commission on October 26, 2018 is hereby incorporated by reference.
10.5	License and Service Agreement between Nuo Therapeutics, Inc. and Rohto Pharmaceutical Co., Ltd. originally filed on Form 8-K with the Securities and Exchange Commission on October 26, 2018 is hereby incorporated by reference.
31	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from Nuo Therapeutics, Inc. Form 10-Q for the quarter ended September 30, 2018, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at September 30, 2018 and December 31, 2017, (ii) Consolidated Statements of Operations for the three and nine month periods ended September 30, 2018 and 2017, (iii) Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2018 and 2017 and (iv)  Notes to the Unaudited Consolidated Financial Statements.

27

EX-31

Exhibit 31

Certification of Principal Executive and Principal Financial Officer Pursuant to Exchange Act Rule

13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, David E. Jorden, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Nuo Therapeutics, Inc.;

2. Based on my knowledge, this 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 such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 16, 2018
 

/s/ David E. Jorden
David E. Jorden
Chief Executive Officer and Chief Financial Officer

(Principal Executive Officer and Principal Financial Officer)

A signed original of this written statement has been provided to Nuo Therapeutics, Inc. and will be retained by Nuo Therapeutics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32

Certification of Principal Executive and Principal Financial Officer Pursuant to

18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. §1350 and in connection with the Quarterly Report on Form 10-Q of Nuo Therapeutics, Inc. (the “Company”) for the period ended September 30, 2018 (the “Report”), I, David E. Jorden, Chief Executive Officer and Chief Financial Officer of the Company, hereby certify that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 16, 2018

/s/ David E. Jorden

David E. Jorden

Chief Executive Officer and Chief Financial Officer

(Principal Executive Officer and Principal Financial Officer)

A signed original of this written statement has been provided to Nuo Therapeutics, Inc. and will be retained by Nuo Therapeutics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2018	Nov. 12, 2018
Document Information [Line Items]
Entity Registrant Name	Nuo Therapeutics, Inc.
Entity Central Index Key	0001091596
Trading Symbol	aurx
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		23,722,400
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Current assets
Cash and cash equivalents	$ 250,171	$ 693,515
Accounts and other receivable, net	254,553	114,331
Inventory, net	34,066	35,590
Prepaid expenses and other current assets	75,049	341,671
Total current assets	613,839	1,185,107
Property and equipment, net	130,684	223,616
Deferred costs and other assets	15,316	15,316
Total assets	759,839	1,424,039
Current liabilities
Accounts payable	481,000	380,280
Accrued expenses and liabilities	314,482	556,557
Accrued interest payable	1,506
Convertible notes, net	16,667
Derivative liabilities	528,003
Total current liabilities	1,341,658	936,837
Other liabilities		4,331
Total liabilities	1,341,658	941,168
Commitments and contingencies (Note 8)
Stockholders' equity (deficit)
Preferred stock; $0.0001 par value, 1,000,000 authorized, 29,038 issued and outstanding; liquidation value of $29,038,000	3	3
Common stock; $0.0001 par value, 100,000,000 authorized and 23,722,400 issued and outstanding as of September 30, 2018; 31,500,000 authorized and 22,722,400 issued and outstanding as of December 31, 2017	2,372	2,272
Additional paid-in capital	22,000,902	21,155,404
Accumulated deficit	(22,585,096)	(20,674,808)
Total stockholders' equity (deficit)	(581,819)	482,871
Total liabilities and stockholders' equity (deficit)	$ 759,839	$ 1,424,039

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.001
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares issued (in shares)	29,038	29,038
Preferred stock, shares outstanding (in shares)	29,038	29,038
Preferred stock, liquidation value	$ 29,038,000	$ 29,038,000
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized (in shares)	100,000,000	31,500,000
Common stock, shares issued (in shares)	23,722,400	22,722,400
Common stock, shares outstanding (in shares)	23,722,400	22,722,400

XML

Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Revenue:
Revenue	$ 260,280	$ 162,196	$ 558,532	$ 523,539
Costs of revenue
Costs of sales	44,856	263,993	132,083	811,451
Total costs of revenue	44,856	263,993	132,083	811,451
Gross profit (loss)	215,424	(101,797)	426,449	(287,912)
Operating expenses
Sales and marketing	16,856	162,867	98,907	537,248
Research and development	95,486	299,477	493,588	1,008,377
General and administrative	514,876	811,034	1,496,138	3,058,046
Total operating expenses	627,218	1,273,378	2,088,633	6,682,955
Loss from operations	(411,794)	(1,375,175)	(1,662,184)	(6,970,867)
Impairment of goodwill				2,079,284
Other income (expense)
Interest, net	(18,253)	(3,900)	(18,620)	(11,738)
Fair value of derivatives in excess of convertible notes	(234,824)		(234,824)
Change in fair value of derivative liabilities	3,997		3,997
Other	10,996	2,176	1,343	1,045
Total other income (expense)	(238,084)	(1,724)	(248,104)	(10,693)
Net loss	$ (649,878)	$ (1,376,899)	$ (1,910,288)	$ (6,981,560)
Loss per common share
Basic (in dollars per share)	$ (0.03)	$ (0.09)	$ (0.08)	$ (0.59)
Diluted (in dollars per share)	$ (0.03)	$ (0.09)	$ (0.08)	$ (0.59)
Weighted average common shares outstanding
Basic (in shares)	23,722,400	15,852,764	23,128,993	11,924,035
Diluted (in shares)	23,722,400	15,852,764	23,128,993	11,924,035
Product [Member]
Revenue:
Revenue	$ 65,280	$ 122,087	$ 270,375	$ 382,884
Royalty [Member]
Revenue:
Revenue	$ 195,000	$ 40,109	$ 288,157	$ 140,655

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (1,910,288)	$ (6,981,560)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	76,994	868,570
Fair value of derivatives in excess of convertible notes	234,824
Change in fair value of derivative liabilities	(3,997)
Impairment of goodwill		2,079,284
Stock-based compensation	5,724	42,306
Bad debt recovery	(239,660)	(97,115)
Increase in allowance for inventory obsolescence	6,464	5,101
Loss (gain) on the disposal of fixed assets	13,938	(1,205)
Amortization of debt discount	16,667
Changes in operating assets and liabilities:
Accounts and other receivable	99,438	227,785
Inventory	(4,940)	718
Prepaid expenses and other current assets	266,622	(33,047)
Other assets		90,625
Accounts payable	100,720	41,852
Accrued expenses and liabilities	79,175	118,866
Accrued interest	1,506
Other liabilities	(4,331)	(64,440)
Net cash used in operating activities	(1,261,144)	(3,702,260)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment	2,000	1,914
Net cash provided by investing activities	2,000	1,914
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	500,000	3,000,000
Proceeds from convertible notes, net	315,800
Net cash provided by financing activities	815,800	3,000,000
Net decrease in cash, cash equivalents and restricted cash	(443,344)	(700,346)
Cash, cash equivalents and restricted cash at beginning of period	693,515	2,673,526
Cash, cash equivalents and restricted cash at end of period	250,171	1,973,180
Supplemental cash flow information
Interest expense paid in cash		9,812
Income taxes paid in cash
Recognition of derivative liabilities related to convertible debt	532,000
Accrued cost related to issuance of common stock		77,500
Issuance of options to settle accrued compensation liabilities	321,250
Debt discount related to issuance of warrants	$ 18,624

XML

Note 1 - Description of Business and Bankruptcy Proceedings

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Nature of Operations [Text Block]

Note

1

– Description of Business and Bankruptcy Proceedings

Description of Business

Nuo Therapeutics, Inc. (“Nuo Therapeutics,” the “Company,” “we,” “us,” or “our”) is a biomedical company marketing its products primarily within the U.S. We commercialize innovative cell-based technologies that harness the regenerative capacity of the human body to trigger natural healing. The use of autologous (from self) biological therapies for tissue repair and regeneration is part of a transformative clinical strategy designed to improve long term recovery in complex chronic conditions with significant unmet medical needs.

Currently, our commercial offering consists solely of the Aurix point of care technology for the safe and efficient separation of autologous blood to produce a platelet based therapy for the chronic wound care market. Prior to

May 5, 2016 (

the “Effective Date”), the effective date of the Company’s emergence from bankruptcy under a confirmed Plan of Reorganization (See Note

6

), we had

two

distinct platelet rich plasma (“PRP”) devices: the Aurix® System for wound care, and the Angel® concentrated Platelet Rich Plasma (“cPRP”) System for orthopedics markets. Prior to the Effective Date, Arthrex, Inc. (“Arthrex”) was our exclusive distributor for Angel. Pursuant to the Plan of Reorganization, on

May 5, 2016,

the Company assigned its rights, title and interest in and to the existing license agreement with Arthrex to Deerfield Management Company, L.P. and its affiliates (“Deerfield”), as well as rights to collect royalty payments thereunder.

XML

Note 2 - Liquidity and Summary of Significant Accounting Principles

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Significant Accounting Policies [Text Block]

Note

2

– Liquidity and Summary of Significant Accounting Principles

Liquidity

Our operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, dependence on significant customers, lack of operating history, uncertainty of future profitability and possible fluctuations in financial results. Since our inception, we have financed our operations by raising debt, issuing equity and equity-linked instruments, and executing licensing arrangements, and to a lesser extent by generating royalties and product revenues.  We have incurred, and continue to incur, recurring losses and negative cash flows.  As of

September 30, 2018,

we have negative working capital and a shareholder deficit.  During the quarter ended

September 30, 2017,

we withdrew our attempted registered offering and related refinancing of our Series A preferred stock, and exercised our rights under the Backstop Commitment in full.  As a result of that exercise, we issued an aggregate of

12,800,000

shares of common stock (the "Backstop Shares") for gross proceeds of approximately

$3.0

million, which more than doubled the number of our outstanding shares of common stock. In

June 2018,

the Company issued

1,000,000

shares of common stock for gross proceeds of

$0.5

million pursuant to a

May 28, 2018

securities purchase agreement with Rohto Pharmaceutical Co., Ltd. (“Rohto”). In

September 2018,

the Company issued

two

convertible notes for net proceeds of approximately

$0.3

million and related stock purchase warrants, which are convertible into and exercisable for common stock as further described in Note

6

–

Convertible Notes and Stock Purchase Warrants

, and entered into a royalty buyout agreement with the licensee of the Aldeflour product for proceeds of approximately

$0.2

million to be received in the

fourth

quarter of

2018.

The convertible notes impose onerous interest and penalty provisions on the Company. At

September 30, 2018,

we had cash and cash equivalents on hand of approximately

$0.25

million, and

$0.35

million of convertible notes payable.

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

We believe based on the operating cash requirements and capital expenditures expected for the next

twelve

months, that our current resources, projected revenue from sales of Aurix and projected receipt of the consideration from the Aldeflour royalty buyout and the agreements with Rohto executed in

October 2018 (

see Note

9

–

Subsequent Events

), are insufficient to support our operations beyond the next

90

days.  As such, we believe that substantial doubt about our ability to continue as a going concern exists.

Even assuming we succeed in raising sufficient additional funds in the near future to avoid a cessation of business operations, we require additional capital and will seek to continue financing our operations with external capital for the foreseeable future.   Any equity financings

may

cause further substantial dilution to our stockholders and could involve the issuance of securities with rights senior to the common stock. Any allowed debt financings (which are severely restricted under the terms of the convertible notes and the Certificate of Designations for our Series A Preferred Stock)

may

require us to comply with additional onerous financial covenants and restrict our business operations. Our ability to complete additional financings is dependent on, among other things, market reception of the Company and perceived likelihood of success of our business model, the state of the capital markets at the time of any proposed equity or debt offering, state of the credit markets at the time of any proposed loan financing, and on the relevant transaction terms, among other things. We

may

not

be able to obtain additional capital as required to finance our efforts, through equity or debt financings, other transactions or any combination thereof, on satisfactory terms or at all. Additionally, any such financing, if at all obtained,

may

not

be adequate to meet our capital needs and to support our operations.

If we are unable to secure sufficient capital to fund our operating activities or we are unable to increase revenues significantly, we

may

be forced to further delay the completion of, or significantly reduce the scope of, our current business plan, delay the pursuit of commercial insurance reimbursement for our wound treatment technologies, and postpone the hiring of new personnel.   Moreover, if we are unable within the next

90

 days to secure sufficient capital to fund our ongoing operating activities, we will likely be required to cease operations.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do

not

include all the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). In our opinion, the accompanying unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations and cash flows. The consolidated balance sheet at

December 31, 2017,

has been derived from audited financial statements of the Company as of that date. The interim unaudited consolidated results of operations are

not

necessarily indicative of the results that

may

occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules and regulations prescribed by the SEC. We believe that the disclosures provided herein are adequate to make the information presented

not

misleading when these unaudited interim consolidated financial statements are read in conjunction with the audited financial statements and notes previously included in the Company’s Annual Report on Form

10

-K for the year ended

December 31, 2017.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned and controlled subsidiary Aldagen, Inc. (“Aldagen”). All significant inter-company accounts and transactions are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but

not

limited to, stock-based compensation, allowance for inventory obsolescence, allowance for doubtful accounts, contingent liabilities, fair value and depreciable lives of long-lived assets (including property and equipment, intangible assets and goodwill), deferred taxes and associated valuation allowance and the classification of our long-term debt. Actual results could differ from those estimates.

Credit Concentration

We generate accounts receivable from the sale of our product. In addition, other receivables consist primarily of (i) a receivable for the royalty buyout by the licensee of Aldeflour as of

September 30, 2018,

and (ii) royalties due for sales of Aldeflour and a settlement amount for a prior value added tax receivable due from the contract manufacturer of the prior Angel product line as of

December 31, 2017.

Customers or other receivables balances in excess of

10%

of total receivables at

September 30, 2018

and

December 31, 2017

were as follows:

	September 30, 2018			December 31, 2017
Customer A		-	%		72	%
Customer B		76	%		12	%

Revenue from significant customers exceeding

10%

of total revenues for the periods presented was as follows:

	Three Months ended September 30, 2018			Three Months ended September 30, 2017
Customer A		75	%		25	%
Customer B		-	%		13	%
Customer C		-	%		11	%

	Nine Months ended September 30, 2018			Nine Months ended September 30, 2017
Customer A		52	%		27	%
Customer B		-	%		11	%

Historically, we have used single suppliers for several components of the Aurix product line. We outsource the manufacturing of various product components to contract manufacturers. While we believe these manufacturers demonstrate competency, reliability and stability, there is

no

assurance that

one

or more of them will

not

experience an interruption or inability to provide us with the products needed to satisfy customer demand. Additionally, while most of the components of Aurix are generally readily available on the open market, a reagent, bovine thrombin, is available exclusively through Pfizer, with whom we have an established vendor relationship.

Cash Equivalents

We consider all highly liquid instruments purchased with an original maturity of

three

months or less to be cash equivalents. We maintain our cash and cash equivalents in the form of money market deposit accounts and qualifying money market funds, and checking accounts with financial institutions that we believe are credit worthy.

Accounts Receivables, net

We generate accounts receivables from the sale of our products. We provide for an allowance against receivables for estimated losses that

may

result from a customer’s inability or unwillingness to pay. The allowance for doubtful accounts is estimated primarily based upon historical write-off percentages, known problem accounts, and current economic conditions. Accounts are written off against the allowance for doubtful accounts when we determine that amounts are

not

collectable. Recoveries of previously written-off accounts are recorded when collected. At

September 30, 2018,

we maintained an allowance for doubtful accounts of approximately

$2,000.

At

December 31, 2017,

we maintained an allowance for doubtful accounts of approximately

$306,000

as we fully reserved for a value added tax receivable. Effective with an executed settlement agreement as of

March 

29,

2018,

we recognized a bad debt recovery of approximately

$240,000

and received the settlement amount in

April 2018.

Inventory, net

Our inventory is produced by

third

-party manufacturers and consists of raw materials and finished goods. Inventory cost is determined on a

first

-in,

first

-out basis and is stated at the lower of cost or net realizable value. We maintain an inventory of kits, reagents, and other disposables that have shelf-lives that generally range from

18

months to

two

years.

As of

September 30, 2018,

our inventory consisted of approximately

$30,000

of finished goods and

$20,000

of raw materials. As of

December 31, 2017,

our inventory consisted of approximately

$40,000

of finished goods and

$18,000

of raw materials.

We provide for an allowance against inventory for estimated losses that

may

result in excess and obsolete inventory (i.e., from the expiration of products). Our allowance for expired inventory is estimated based upon the inventory’s remaining shelf-life and our anticipated ability to sell such inventory, which is estimated using historical usage and future forecasts, within its remaining shelf life. At

September 30, 2018

and

December 31, 2017,

the Company maintained an allowance for expired and excess and obsolete inventory of approximately

$16,000

and

$23,000,

respectively. Expired products are segregated and used for demonstration purposes only; the Company records the associated expense for this reserve to cost of sales in the consolidated statements of operations.

Property and Equipment, net

Property and equipment is stated at cost less accumulated depreciation and is depreciated, using the straight-line method, over its estimated useful life ranging from

one

to

six

years. Leasehold improvements are amortized, using the straight-line method, over the lesser of the expected lease term or its estimated useful life ranging from

one

to

three

years. Amortization of leasehold improvements is included in depreciation expense. Maintenance and repairs are charged to operations as incurred. When assets are disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in other income (expense).

Centrifuges

may

be sold or placed at

no

charge with customers. Depreciation expense for centrifuges that are available for sale or placed at

no

charge with customers are charged to cost of sales. Depreciation expense for centrifuges used for sales and marketing and other internal purposes are charged to general and administrative expenses.

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability measurement and estimating of undiscounted cash flows is done at the lowest possible level for which we can identify assets. If such assets are considered to be impaired, impairment is recognized as the amount by which the carrying amount of assets exceeds the fair value of the assets.

Revenue Recognition

Prior to

January 1, 2018,

revenues were recognized when the

four

basic criteria for recognition were met: (

1

) persuasive evidence of an arrangement exists; (

2

) delivery has occurred or services have been rendered; (

3

) consideration is fixed or determinable; and (

4

) collectability is reasonably assured. The Company adopted new accounting guidance for revenue recognition effective

January 1, 2018

which did

not

have a material impact on the Company’s financial statements.

Beginning

January 1, 2018,

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

We provide for the sale of our products, including disposable processing sets and supplies to customers. Revenue from the sale of products is recognized upon shipment of products to the customers. We do

not

maintain a reserve for returned products, as in the past those returns have

not

been material and are

not

expected to be material in the future. Percentage-based fees on licensee sales of covered products are generally recorded as products are sold by licensees, and are reflected as royalties in the consolidated statements of operations. Direct costs associated with product sales and royalty revenues are recorded at the time that revenue is recognized.

License Agreement with Rohto

The Company’s license agreement with Rohto (See Note

3

– Distribution, Licensing and Collaboration Arrangements

) contains multiple promises that include the delivery of a “functional” license and other ancillary activities such as maintaining its intellectual property and providing regulatory support and training to Rohto. The Company has determined that the ancillary activities do

not

constitute distinct promises and, accordingly, the Company combined the ancillary activities with the delivered license as a single performance obligation.  The Company recognized the total non-contingent transaction price of

$3.0

million as revenue when the functional license was delivered to Rohto.  Other contingent elements of transaction price, such as contingent fees and sales-based royalties related to the supply and future sale of the product, would be recognized as revenue if and when the contingencies are satisfied.  See Note

9

– Subsequent Events

for information on the pending termination of the Company’s license agreement with Rohto.

Segments and Geographic Information

Approximately

75%

and

25%

of our total revenue was generated outside of the United States for the

three

months ended

September 30, 2018

and

2017,

respectively, and approximately

52%

and

27%

of our total revenue was generated outside the United States for the

nine

months ended

September 30, 2018

and

2017,

respectively. All revenue generated outside the United States is attributable to royalty revenue.

Stock-Based Compensation

The fair value of employee stock options is measured at the date of grant. Expected volatilities for the

2016

Omnibus Plan options are based on the equally weighted average historical volatility from

five

comparable public companies with an expected term consistent with ours. Expected years until exercise represents the period of time that options are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company estimated that the dividend rate on its common stock will be zero.

Stock-based compensation for awards granted to non-employees is periodically re-measured as the underlying awards vest. The Company recognizes an expense for such awards throughout the performance period as the services are provided by the non-employees, based on the fair value of these options and warrants at each reporting period. The fair value of stock options and compensatory warrants issued to service providers utilizes the same methodology with the exception of the expected term. For awards to non-employees, the Company estimates that the options or warrants will be held for the full term.

The Company adopted new accounting guidance on

January 1, 2017

related to stock-based compensation arrangements. Under the new guidance, excess tax benefits and tax deficiencies related to stock-based compensation awards are recognized as income tax expenses or benefits in the income statement, and excess tax benefits are classified along with other income tax cash flows in the operating activities section of the condensed consolidated statement of cash flows. Additionally, the Company elected to account for forfeitures of stock-based awards as they occur, as opposed to estimating those prior to their occurrence. The adoption of this new guidance did

not

have a material impact on the Company's consolidated financial statements in any period.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than

not

that some portion or all of the deferred tax assets will

not

be realized. Tax rate changes are reflected in income during the period such changes are enacted. All of our tax years remain subject to examination by the tax authorities.

The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income before taxes. There were

no

such items in

2018

and

2017.

Earnings (Loss) per Share

Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding (including contingently issuable shares when the contingencies have been resolved) during the period.

For periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive. For periods of net income, and when the effects are

not

anti-dilutive, diluted earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of shares outstanding (including contingently issuable shares when the contingencies have been resolved) plus the impact of all potential dilutive common shares, consisting primarily of common stock options and stock purchase warrants using the treasury stock method, and convertible debt using the if-converted method. 

All of the Company’s outstanding stock options and warrants were considered anti-dilutive for the

three

and

nine

months ended

September 30, 2018

and

2017.

The total number of anti-dilutive shares underlying common stock options and warrants exercisable for common stock, which have been excluded from the computation of diluted loss per share for the periods presented, was as follows:

	Nine months ended September 30, 2018		Nine months ended September 30, 2017
Shares underlying:
Common stock options		1,291,876		1,111,250
Stock purchase warrants		6,646,666		6,180,000

Reclassifications

Certain reclassification have been made to the prior year financial statements to conform to the current year presentation, including the addition of restricted cash to cash and cash equivalents on the consolidated statements of cash flows as a result of the adoption of new accounting guidance.

Recently Adopted Accounting

Standards

The Company adopted new accounting guidance for revenue recognition effective

January 

1,

2018

using the modified retrospective approach which did

not

have a material impact on the Company's financial statements.

In

November 2016,

the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) amending the presentation of restricted cash within the consolidated statements of cash flows. The new guidance requires that restricted cash be added to cash and cash equivalents on the consolidated statements of cash flows. The Company adopted this ASU on

January 

1,

2018

on a retrospective basis with the following impacts to our consolidated statements of cash flows for the

nine

months ended

September 30, 2017:

	Previously Reported		Adjustment			As Revised
Net cash provided by investing activities	$	5,409	$	(3,495	)	$	1,914

Following is a summary of cash, cash equivalents and restricted cash:

	September 30, 2018		December 31, 2017		September 30, 2017		December 31, 2016
Cash and cash equivalents	$	250,171	$	693,515	$	1,923,172	$	2,620,023
Restricted cash		-		-		50,008		53,503
Cash, cash equivalents and restricted stock	$	250,171	$	693,515	$	1,973,180	$	2,673,526

In

January 2017,

the FASB issued guidance intended to simplify the subsequent measurement of goodwill by eliminating Step

2

from the goodwill impairment test. Under the existing guidance, in computing the implied fair value of goodwill under Step

2,

an entity is required to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities), following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The guidance also eliminates the requirements for any reporting unit with a

zero

or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step

2

of the goodwill impairment test. An entity is required to adopt the new guidance on a prospective basis. The new guidance is effective for the Company for its annual or any interim goodwill impairment tests for fiscal years beginning after

December 15, 2021.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

We adopted this pronouncement effective

January 1, 2017;

the adoption did

not

have a material impact to our consolidated financial statements upon adoption since goodwill was

not

considered impaired with the adoption of Accounting Standards Update

2017

-

04.

However, when we performed our interim goodwill impairment test, comparing the fair value of our

one

reporting unit with its carrying amount as of

June 30, 2017,

the carrying amount exceeded our reporting unit's fair value by approximately

$2.8

 million. As a result we recognized a non-cash goodwill impairment charge of approximately

$2.1

 million to write-down goodwill to its estimated fair value of

zero

as of

June 

30,

 

2017.

In

July 2017,

the FASB issued guidance intended to simplify the accounting for certain financial instruments with down round features. The amendments require companies to disregard the down round features when assessing whether the instrument is indexed to its own stock for purposes of determining liability or equity classification. The Company adopted this guidance with

no

impact on the financial statements as of

July 1, 2018.

We have evaluated all other issued and unadopted Accounting Standards Updates and believe the adoption of these standards will

not

have a material impact on our results of operations, financial position, or cash flows.

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Note 3 - Distribution, Licensing and Collaboration Arrangements

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Distributors and License Agreement [Text Block]

Note

3

– Distribution, Licensing and Collaboration Arrangements

Distribution and License Agreement with Rohto

See Note

9

–

Subsequent Events

for information on the pending termination of the Amended Exclusive License and Distribution Agreement (as defined below).

In

January 2015,

we granted to Rohto Pharmaceutical Co., Ltd. (“Rohto”) a royalty bearing, nontransferable, exclusive license, with limited right to sublicense, to use certain of the Company’s intellectual property for the development, import, use, manufacturing, marketing, sale and distribution for all wound care and topical dermatology applications of the Aurix System and related intellectual property and know-how in human and veterinary medicine in Japan in exchange for an upfront payment from Rohto of

$3.0

million. The related agreement (the “Exclusive License and Distribution Agreement”) also contemplated additional royalty payments as described below and an additional future cash payment if and when the pricing event has occurred as described below. In connection with and effective as of the entering into the Rohto agreement, we amended an existing licensing and distribution agreement with Millennia Holdings, Inc. (“Millennia”) to terminate it and allow us to transfer the exclusivity rights from Millennia to Rohto. In connection with this amendment we paid a

one

-time, non-refundable fee of

$1.5

million to Millennia upon our receipt of the

$3.0

million upfront payment from Rohto, and we are required to make certain future payments to Millennia if we receive the milestone payment from Rohto as well as future royalty payments based upon net sales in Japan. The Millennia agreement, as amended, specifies that it automatically terminates upon termination of the Exclusive License and Distribution Agreement.

On

May 28, 2018,

the Company entered into an amendment (the “Amendment”) to the Exclusive License and Distribution Agreement, reflecting the following material revisions:

● The milestone payment that Rohto was obligated to make upon achievement of the pricing event was reduced from $1,000,000 to $300,000, and the definition of the pricing event was expanded to include a second trigger. As a result of the Amendment, the pricing event occurs on the earlier of (a) achievement of the National Health Insurance system (“NHI”) reimbursement price for the licensed product in Japan and (b) achievement of NHI reimbursement for the treatment by treating clinicians of patients using the licensed product in Japan in the field of use.

● The royalty payment structure was amended. Previously, the royalty was 9% of net sales. This was amended to provide that the royalty would be 9% of net sales so long as Rohto uses any Nuo patent, and 5% of net sales if Rohto does not use any Nuo patent and in certain other circumstances described in the Amendment. The royalty payment obligation expires at the later of December 31, 2029 or the expiration of the relevant Nuo patent. The two relevant patents have expiration dates in 2019 and 2032.

The Exclusive License and Distribution Agreement, as so amended, is referred to herein as the “Amended License and Distribution Agreement".  See Note

9

–

Subsequent Events

for information on the pending termination of the Amended Exclusive License and Distribution Agreement.

Collaboration Agreement with Restorix Health

On

March 22, 2016,

we entered into a Collaboration Agreement (the “Collaboration Agreement”) with Restorix Health (“Restorix”), pursuant to which we agreed to provide Restorix with certain limited geographic exclusivity benefits over a defined period of time for the usage of the Aurix System in up to

30

of the approximately

200

hospital outpatient wound care clinics with which Restorix has a management contract (the “RXH Partner Hospitals”), in exchange for Restorix making minimum commitments of patients enrolled in

three

prospective clinical research studies primarily consisting of patient data collection (the “Protocols”) necessary to maintain exclusivity under the Collaboration Agreement. The initial term of the Collaboration Agreement expired in

March 2018

and has so far

not

been extended by the parties.

Pursuant to the Collaboration Agreement, the Company agreed to provide: (i) clinical support services by its clinical staff as reasonably agreed between the Company and Restorix as necessary and appropriate, (ii) reasonable and necessary support regarding certain reimbursement activities, (iii) coverage of Institutional Review Board (“IRB”) fees and payment to Restorix for certain training costs subject to certain limitations and (iv) community-focused public relations materials for participating RXH Partner Hospitals to promote the use of Aurix and participation in the Protocols. Pursuant to the Collaboration Agreement, Restorix agreed to: (i) provide access and support as reasonably necessary and appropriate at up to

30

RXH Partner Hospitals to identify and enroll patients into the Protocols, including senior executive level support and leadership to the collaboration and its enrollment goals and (ii) reasonably assist the Company to correct through a query process, any patient data submitted having incomplete or inaccurate data fields. 

Pursuant to the Collaboration Agreement and subject to the satisfaction of certain conditions, during the term of the Collaboration Agreement: (i) Restorix had site specific geographic exclusivity for usage of Aurix in connection with treatment of patients in the Protocols within a

30

mile radius of each RXH Partner Hospital, and (ii) other than with respect to existing CED sites, the Company did

not

provide corporate exclusivity with any other wound management company operating in excess of

19

wound care facilities for any similar arrangement.

Under the Collaboration Agreement, the Company was required to pay Restorix or the RXH Partner Hospital, as the case

may

be, a per patient data collection (administrative) fee upon full completion and delivery of a patient data set. In addition, the Company was responsible for payment of any IRB fees necessary to conduct the Protocols and enroll patients, and to pay Restorix a training cost stipend per site. Each RXH Partner Hospital paid the Company the then-current product price (

$700

in

2018

) as set forth in the Collaboration Agreement.

Boyalife Distribution Agreement

Effective as of

May 5, 2016,

the Company and Boyalife Hong Kong Ltd. (“Boyalife”), an entity affiliated with the Company’s significant shareholder, Boyalife Investment Fund I, Inc., entered into an Exclusive License and Distribution Agreement (the “Boyalife Distribution Agreement”) with an initial term of

five

years, unless the agreement is terminated earlier in accordance with its terms.  Under this agreement, Boyalife received a non-transferable, exclusive license, with limited right to sublicense, to use certain of the Company’s intellectual property relating to its Aurix System for the purposes and in the territory specified below.  Under the agreement, Boyalife is entitled to import, use for development, promote, market, sell and distribute the Aurix Products in greater China (China, Hong Kong, Taiwan and Macau) for all regenerative medicine applications, including but

not

limited to wound care and topical dermatology applications in human and veterinary medicine.  “Aurix Products” are defined as the combination of devices to produce a wound dressing from the patient’s blood - as of

May 5, 2016

consisting of centrifuge, wound dressing kit and reagent kit.  Under the Boyalife Distribution Agreement, Boyalife is obligated to pay the Company (a)

$500,000

within

90

days of approval of the Aurix Products by the China Food and Drug Administration (“CFDA”), but

no

earlier than

December 31, 2018,

and (b) a distribution fee per wound dressing kit and reagent kit of

$40,

payable quarterly, subject to an agreement by the parties to discuss in good faith the appropriate distribution fee if the pricing of such kits exceeds the current general pricing in greater China.   Under the agreement, Boyalife is entitled, with the Company’s approval (

not

to be unreasonably withheld or delayed) to procure devices from a

third

party in order to assemble them with devices supplied by the Company to make the Aurix Products.  Boyalife also has a right of

first

refusal with respect to the Aurix Products in specified countries in the Asia Pacific region excluding Japan and India, exercisable in exchange for a payment of

no

greater than

$250,000

in the aggregate.  If Boyalife files a new patent application for a new invention relating to wound dressings, the Aurix Products or the Company’s technology, Boyalife will grant the Company a free, non-exclusive license to use such patent application outside greater China during the term of the Boyalife Distribution Agreement.

XML

Note 4 - Receivables

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note

4

– Receivables

Accounts and other receivables, net consisted of the following:

	September 30, 2018			December 31, 2017
Trade receivables	$	61,528		$	64,387
Other receivables		195,000			355,839
		256,528			420,226
Less allowance for doubtful accounts		(1,975	)		(305,895	)
Accounts and other receivables, net	$	254,553		$	114,331

Other receivables at

December 31, 2017

primarily consisted of an agreed settlement amount on the prior value added tax receivable due from the contract manufacturer of the former Angel product line which was received in

April 2018

and a quarter end royalty receivable for the Aldeflour product. Other receivables at

September 30, 2018

consisted of a royalty buyout receivable from the licensee of the Aldeflour product. The allowance for doubtful accounts at

September 30, 2018

of approximately

$2,000

reflects the estimated reserve for trade receivables and the

December 31, 2017

allowance reflects a full reserve against the value added tax receivable. A bad debt recovery of approximately

$240,000

was recognized concurrent with the execution of the settlement agreement with the contract manufacturer in the

nine

months ended

September 30, 2018.

XML

Note 5 - Property and Equipment

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

Note

5

 – Property and Equipment

Property and equipment, net consisted of the following:

	September 30, 2018			December 31, 2017
Medical equipment	$	393,156		$	401,719
Office equipment		38,104			48,888
Software		257,619			257,619
Manufacturing equipment		15,640			34,899
Leasehold improvements		19,215			19,215
		723,734			762,340
Less accumulated depreciation and amortization		(593,050	)		(538,724	)
Property and equipment, net	$	130,684		$	223,616

Depreciation expense of property and equipment was approximately

$77,000

 and

$230,000

 for the

nine

months ended

September 

30,

2018

and

2017,

respectively. Depreciation expense of property and equipment was approximately

$25,000

 and

$51,000

 for the

three

months ended

September 

30,

2018

and

2017,

respectively.

XML

Note 6 - Convertible Notes and Stock Purchase Warrants

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Convertible Debt Disclosure [Text Block]

Note

6

– Convertible Notes and Stock Purchase Warrants

On

September 17, 2018,

the Company entered into securities purchase agreements with Auctus Fund, LLC (“Auctus”) and EMA Financial, LLC (“EMA” and, collectively with Auctus, the “Investors”) for the issuance and sale to the Investors of

12%

convertible promissory notes, each in the principal amount of

$175,000,

for an aggregate purchase price of

$315,800

(reflecting a combined

$34,200

in original issue discount and transaction fees). On

September 17, 2018,

the Company issued the notes to the Investors. Pursuant to the purchase agreements, the Company also issued to each Investor a warrant exercisable to purchase

233,333

shares of the Company’s common stock, for an aggregate of

466,666

shares of common stock, subject to adjustment as referenced below.

The purchase agreements contain certain representations, warranties and covenants by, among and for the benefit of the respective parties. The purchase agreements also provide for customary indemnification of the Investors by the Company.

The notes mature

nine

months from the date of issuance (

June 17, 2019)

and, in addition to any original issue discount, accrue interest at a rate of

12%

per year. The Company

may

prepay the notes, in whole or in part, for

130%

of outstanding principal and interest ending on the date that is

90

days following the date of issuance, and for

145%

of outstanding principal and interest at any time commencing on the date that is

91

days following the date of issuance and ending on the date that is

180

days following the date of issuance, but only if the Company is

not

then in default under the notes. Beginning on the date that is

181

days following the date of issuance, the Company

may

no

longer prepay the notes. The maturity date of the note issued to EMA

may

be extended up to

one

year beyond the original maturity date at the option of EMA.

After

six

months from the date of issuance, the Investors

may

convert the notes, at any time, in whole or in part, into shares of the Company’s common stock, at a conversion price corresponding to a

40%

discount to the average of the

two

lowest trading prices of the common stock during the

25

trading days prior to the conversion, subject to certain adjustments and price-protection provisions contained in the notes, including full-ratchet anti-dilution protection in the case of dilutive issuances of securities that do

not

meet the requirements of “exempt issuances” as defined in the notes. The Company is required to maintain authorized and unissued shares of its common stock equal to

seven

times the number issuable upon conversion of the notes. Each note contains potential additional discounts to the conversion price upon the occurrence of an event of default or specified other events related to the trading status of the Company’s common stock (which would result in a higher number of shares issued upon conversion). The notes include certain event of default provisions, a default interest rate of

24%

per year and certain penalties for specified breaches that would be added to the principal amount of the relevant note. Upon the occurrence of an event of default, an Investor

may

require the Company to redeem their note (or convert it into shares of common stock) at

150%

of the outstanding principal balance plus accrued and unpaid interest. The notes also restrict the Company’s ability to make distributions to its shareholders, repurchase its shares, borrow funds, or sell its assets (with limited exceptions).

The warrants are exercisable at any time, at an exercise price per share equal to

$0.15,

subject to certain adjustments and price protection provisions (including full ratchet anti-dilution protection) contained in the warrants. The warrants have

five

-year terms.

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

The warrants are treated as equity and the fair market value at issuance of approximately

$18,000

was recorded as a credit to additional paid-in-capital based on the relative fair values of the debt and warrant at issuance.  The notes were evaluated and found to have a bifurcated embedded conversion option requiring the variable conversion option to be recorded at fair market value at issuance and each quarterly reporting period.  The embedded conversion option at issuance was valued at

$532,000

using a Monte Carlo analysis with the following assumptions:

2.46%

risk free interest rate,

364%

volatility over a

nine

-month period,

0.75

year term, a dividend yield of

0%,

and the

40%

discount to market price conversion price formula.  As the fair market value of the embedded liability exceeds the net proceeds received, the difference is recorded as a loss in the income statement under fair value of derivatives in excess of convertible notes.  The full

$350,000

 face value of the note is reflected as a discount at note issuance and is being amortized as interest expense via the straight line method which closely approximates the effective interest method given the short

nine

-month term of the notes.

XML

Note 7 - Equity and Stock-based Compensation

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

Note

7

– Equity and Stock-Based Compensation

Under the Second Amended and Restated Certificate of Incorporation of the Company, as amended, it has the authority to issue a total of

101,000,000

shares of capital stock, consisting of: (i)

100,000,000

shares of common stock and

1,000,000

shares of preferred stock, par value

$0.0001

per share, which will have such rights, powers and preferences as the board of directors of the Company (the “Board of Directors”) shall determine.

Series A Preferred Stock

On

May 5, 2016 (

the “Effective Date”), the effective date of the Company’s emergence from bankruptcy under a confirmed Plan of Reorganization (the “Plan of Reorganization”), the Company filed a Certificate of Designations of Series A Preferred Stock with the Delaware Secretary of State, designating

29,038

shares of the Company’s undesignated preferred stock, par value

$0.0001

per share, as Series A Preferred Stock (the “Series A Preferred Stock”). On the Effective Date, the Company issued

29,038

shares of Series A Preferred Stock to Deerfield in accordance with the Plan of Reorganization pursuant to the exemption from the registration requirements of the Securities Act provided by Section

1145

of the Bankruptcy Code. Deerfield did

not

receive any shares of common stock or other equity interests in the Company.

The Series A Preferred Stock has

no

stated maturity date, is

not

convertible or redeemable, and carries a liquidation preference of

$29,038,000,

which is required to be paid to holders of such Series A Preferred Stock before any payments are made with respect to shares of common stock (and other capital stock that is

not

issued on parity or senior to the Series A Preferred Stock) upon a liquidation or change in control transaction.  For so long as Series A Preferred Stock is outstanding, the holders of Series A Preferred Stock have the right to nominate and elect

one

member of the Board of Directors.   The Series A Preferred Stock has voting rights, voting with the common stock as a single class, with each share of Series A Preferred Stock having the right to

five

votes, which currently represents approximately

one

percent (

1%

) of the voting rights of the capital stock of the Company.  The holders of Series A Preferred Stock have the right to approve certain transactions and incurrences of debt. Among other restrictions, the Certificate of Designations for our Series A Preferred Stock limits the Company’s ability to (i) issue securities that are senior or

pari passu

with the Series A Preferred Stock, (ii) incur debt other than for working capital purposes

not

in excess of

$3.0

million, (iii) issue securities that are junior to the Series A Preferred Stock and that provide certain consent rights to the holders of such junior securities in connection with a liquidation or contain certain liquidation preferences, (iv) pay dividends on or purchase shares of its capital stock, and (v) change the authorized number of members of its Board of Directors to a number other than five, in each case without the consent of holders representing at least

two

-thirds of the outstanding shares of Series A Preferred Stock. The Series A Preferred Stock is classified in equity.

Common Stock

On

May 28, 2018,

the Company sold

1,000,000

common shares for

$500,000

to Rohto. See Note

7

–

Convertible Notes

for information on the issuance of notes convertible into common stock in

September 2018.

Stock Purchase Warrants

As part of the Plan of Reorganization, the Company also issued warrants to purchase

6,180,000

shares of unregistered common stock to certain investors participating in the recapitalization of the Company. The warrants terminate on

May 5, 2021

and are currently exercisable at exercise prices ranging from

$0.50

per share to

$0.75

per share. The number of shares of common stock underlying a warrant and its exercise price are subject to customary adjustments upon subdivisions, combinations, payment of stock dividends, reclassifications, reorganizations and consolidations. The warrants are classified in equity. 

See Note

6

–

Convertible Notes

for information on the issuance of warrants to purchase an aggregate of

466,666

shares of unregistered common stock to the convertible note investors in

September 2018.

Stock-Based Compensation

In

July 2016,

the Board of Directors approved the Company’s

2016

Omnibus Incentive Plan (the

“2016

Omnibus Plan”), and on

August 4, 2016,

the Board amended such plan to include an evergreen provision, intended to increase the maximum number of shares issuable under the Omnibus Plan on the

first

day of each fiscal year (starting on

January 1, 2017)

by an amount equal to

six

percent (

6%

) of the shares reserved as of the last day of the preceding fiscal year, provided that the aggregate number of all such increases

may

not

exceed

1,000,000

shares. As of

November 21, 2016,

holders of a majority of our capital stock executed a written consent adopting and approving the

2016

Omnibus Plan, as amended and restated, which provides for the Company to grant equity and cash incentive awards to officers, directors and employees of, and consultants to, the Company and its subsidiaries. We were authorized to issue up to

1,685,400

shares of common stock under the

2016

Omnibus Plan as of

September 

30,

2018.

 

A summary of stock option activity under the

2016

Omnibus Plan during the

nine

months ended

September 30, 2018

is presented below:

Stock Options – 2016 Omnibus Plan	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2018		861,250		$	1.04		8.57	$	-
Granted		815,626			0.40		7.00	$	-
Exercised		-			-
Forfeited or expired		(385,000	)	$	1.10		-	$	-
Outstanding at September 30, 2018		1,291,876		$	0.62		7.20	$	-
Exercisable at September 30, 2018		1,260,210		$	0.61		7.19	$	-

There were

815,626

stock options granted under the

2016

Omnibus Plan during the

nine

months ended

September 30, 2018

to settle accrued compensation liabilities with the Company’s officers and directors. The fair value of these stock options granted and immediately vested during the

nine

months ended

September 30, 2018

was approximately

$51,000.

As the options issued were to related parties, the

$321,250

of settled liabilities was credited to additional paid-in-capital.

No

stock options were exercised during the

nine

months ended

September 30, 2018.

As of

September 30, 2018,

there was approximately

$1,000

of total unrecognized compensation cost related to non-vested stock options, and that cost was expected to be recognized over a weighted-average period of

0.25

years.

The Company recorded stock-based compensation expense in the periods presented as follows:

	Three Months ended September 30, 2018		Three Months ended September 30, 2017
Sales and marketing	$	-	$	1,392
Research and development		721		2,978
General and administrative		649		9,965
	$	1,370	$	14,335

	Nine Months ended September 30, 2018		Nine Months ended September 30, 2017
Sales and marketing	$	-	$	3,906
Research and development		2,766		9,201
General and administrative		2,958		29,199
	$	5,724	$	42,306

XML

Note 8 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

Note 

8

– Commitments and Contingencies

As of the Effective Date, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with certain accredited investors who acquired common shares in accordance with the Plan of Reorganization (the “Recapitalization Investors”).  The Registration Rights Agreement provides certain resale registration rights to the Recapitalization Investors with respect to the common shares they received.  Pursuant to the Registration Rights Agreement, the Company filed, and has to update periodically, a registration statement with the U.S. Securities and Exchange Commission that covers the resale of all shares of common stock issued to the Investors on the Effective Date until such time as such shares have been sold or

may

be sold without registration or restriction pursuant to Rule

144

under the Securities Act, subject to the Company's ability to suspend sales under the registration statement in certain circumstances. As the Company does

not

qualify for forward incorporation by reference, the Company has caused the suspension of sales under the registration statement pending the filing and effectiveness of a post-effective amendment containing updated financial information.

Our primary office and warehouse facilities are located in Gaithersburg, Maryland, and comprise approximately

12,000

square feet. The facilities fall under

two

leases with monthly rent, including our share of certain annual operating costs and taxes, at approximately

$18,000

in total per month and expiring in

September 2019.

Effective

August 1, 2018,

we executed a

first

amendment to the more significant of the lease agreements permitting the deferral of a portion of the monthly rent until the final

three

months of the lease period and totaling approximately

$100,000.

In addition, we subleased an approximately

2,100

square foot facility in Nashville, Tennessee, which was utilized as a commercial operations office. The sublease was approximately

$4,000

per month excluding our share of annual operating expenses, and was due to expire

April 

30,

2018.

Effective

January 28, 2018,

we executed a sublease termination agreement which terminated our obligations remaining on the sublease in exchange for our forfeiture of the approximately

$4,000

security deposit on the sublease.

We also leased a

16,300

square foot facility located in Durham, North Carolina. Monthly rent, including our share of certain annual operating costs and taxes, was approximately

$22,000

per month and the lease was due to expire on

December 31, 2018.

As a result of our discontinuance of the ALD-

401

clinical trial, the Company ceased use of the facility in Durham, North Carolina on

July 31, 2014,

and sublet the facility beginning

August 1, 2014.

The sublease rent was approximately

$14,000

per month and was also due to expire on

December 31, 2018.

Due to non-payment on the lease subsequent to

December 31, 2017,

we were in default on the lease since year end. Effective

June 29, 2018,

we executed a lease termination agreement which terminated all of our remaining financial obligations under the lease in exchange for release of the approximately

$32,000

security deposit on the lease and a

one

-time payment of

$26,000.

XML

Note 9 - Subsequent Events

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Subsequent Events [Text Block]

Note

9

– Subsequent Events

On

October 24, 2018,

the Company entered into an Agreement for Sale of Intellectual Property (the “IP Sale Agreement”) and a License and Service Agreement (the “Service Agreement” and collectively the “Agreements”) with Rohto.

The IP Sale Agreement provides for the sale to Rohto of the intellectual property under license pursuant to the Amended License and Distribution Agreement (consisting of

two

 of our patents in Japan, our know-how in Japan and trademarks for Aurix and AutoloGel in Japan). The IP Sale Agreement provides that, upon the completion of such transfers and payments, the Amended License and Distribution Agreement will be terminated. Under the IP Sale Agreement, we are subject to a

five

-year non-compete in Japan.

Under the Service Agreement, we agreed to the sale of a patent application in Brazil, the grant of a royalty free license to our know how in the Field of Use in Brazil and India, and the grant of a royalty-free non-exclusive license to the use of our device patent in the Field of Use in the United States, Canada and Mexico. The latter license becomes effective if and only if we cease our business with respect to the Aurix System or grant a non-exclusive license to a

third

party to use the device patent in the Field of Use in the United States, Canada and Mexico. The “Field of Use” is defined as the use of the Aurix System and the modified medical device being developed by Rohto under the Japan patents sold to Rohto for all wound care and topical dermatology applications in human and animal medicine. Under the Service Agreement, we are subject to a non-compete in Brazil and India.

The aggregate consideration receivable under the Agreements is

$750,000,

with

$500,000

received on

November 8, 2018

and the balance due within

15

days of the delivery by us of the executed documents necessary to effect the transfer of the relevant intellectual property rights to Rohto.

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Accounting Policies [Abstract]

Liquidity, Policy [Policy Text Block]

Liquidity

Our operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, dependence on significant customers, lack of operating history, uncertainty of future profitability and possible fluctuations in financial results. Since our inception, we have financed our operations by raising debt, issuing equity and equity-linked instruments, and executing licensing arrangements, and to a lesser extent by generating royalties and product revenues.  We have incurred, and continue to incur, recurring losses and negative cash flows.  As of

September 30, 2018,

we have negative working capital and a shareholder deficit.  During the quarter ended

September 30, 2017,

we withdrew our attempted registered offering and related refinancing of our Series A preferred stock, and exercised our rights under the Backstop Commitment in full.  As a result of that exercise, we issued an aggregate of

12,800,000

shares of common stock (the "Backstop Shares") for gross proceeds of approximately

$3.0

million, which more than doubled the number of our outstanding shares of common stock. In

June 2018,

the Company issued

1,000,000

shares of common stock for gross proceeds of

$0.5

million pursuant to a

May 28, 2018

securities purchase agreement with Rohto Pharmaceutical Co., Ltd. (“Rohto”). In

September 2018,

the Company issued

two

convertible notes for net proceeds of approximately

$0.3

million and related stock purchase warrants, which are convertible into and exercisable for common stock as further described in Note

6

–

Convertible Notes and Stock Purchase Warrants

, and entered into a royalty buyout agreement with the licensee of the Aldeflour product for proceeds of approximately

$0.2

million to be received in the

fourth

quarter of

2018.

The convertible notes impose onerous interest and penalty provisions on the Company. At

September 30, 2018,

we had cash and cash equivalents on hand of approximately

$0.25

million, and

$0.35

million of convertible notes payable.

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

We believe based on the operating cash requirements and capital expenditures expected for the next

twelve

months, that our current resources, projected revenue from sales of Aurix and projected receipt of the consideration from the Aldeflour royalty buyout and the agreements with Rohto executed in

October 2018 (

see Note

9

–

Subsequent Events

), are insufficient to support our operations beyond the next

90

days.  As such, we believe that substantial doubt about our ability to continue as a going concern exists.

Even assuming we succeed in raising sufficient additional funds in the near future to avoid a cessation of business operations, we require additional capital and will seek to continue financing our operations with external capital for the foreseeable future.   Any equity financings

may

cause further substantial dilution to our stockholders and could involve the issuance of securities with rights senior to the common stock. Any allowed debt financings (which are severely restricted under the terms of the convertible notes and the Certificate of Designations for our Series A Preferred Stock)

may

require us to comply with additional onerous financial covenants and restrict our business operations. Our ability to complete additional financings is dependent on, among other things, market reception of the Company and perceived likelihood of success of our business model, the state of the capital markets at the time of any proposed equity or debt offering, state of the credit markets at the time of any proposed loan financing, and on the relevant transaction terms, among other things. We

may

not

be able to obtain additional capital as required to finance our efforts, through equity or debt financings, other transactions or any combination thereof, on satisfactory terms or at all. Additionally, any such financing, if at all obtained,

may

not

be adequate to meet our capital needs and to support our operations.

If we are unable to secure sufficient capital to fund our operating activities or we are unable to increase revenues significantly, we

may

be forced to further delay the completion of, or significantly reduce the scope of, our current business plan, delay the pursuit of commercial insurance reimbursement for our wound treatment technologies, and postpone the hiring of new personnel.   Moreover, if we are unable within the next

90

 days to secure sufficient capital to fund our ongoing operating activities, we will likely be required to cease operations.

Basis of Accounting, Policy [Policy Text Block]

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do

not

include all the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). In our opinion, the accompanying unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations and cash flows. The consolidated balance sheet at

December 31, 2017,

has been derived from audited financial statements of the Company as of that date. The interim unaudited consolidated results of operations are

not

necessarily indicative of the results that

may

occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules and regulations prescribed by the SEC. We believe that the disclosures provided herein are adequate to make the information presented

not

misleading when these unaudited interim consolidated financial statements are read in conjunction with the audited financial statements and notes previously included in the Company’s Annual Report on Form

10

-K for the year ended

December 31, 2017.

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned and controlled subsidiary Aldagen, Inc. (“Aldagen”). All significant inter-company accounts and transactions are eliminated in consolidation.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but

not

limited to, stock-based compensation, allowance for inventory obsolescence, allowance for doubtful accounts, contingent liabilities, fair value and depreciable lives of long-lived assets (including property and equipment, intangible assets and goodwill), deferred taxes and associated valuation allowance and the classification of our long-term debt. Actual results could differ from those estimates.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Credit Concentration

We generate accounts receivable from the sale of our product. In addition, other receivables consist primarily of (i) a receivable for the royalty buyout by the licensee of Aldeflour as of

September 30, 2018,

and (ii) royalties due for sales of Aldeflour and a settlement amount for a prior value added tax receivable due from the contract manufacturer of the prior Angel product line as of

December 31, 2017.

Customers or other receivables balances in excess of

10%

of total receivables at

September 30, 2018

and

December 31, 2017

were as follows:

	September 30, 2018			December 31, 2017
Customer A		-	%		72	%
Customer B		76	%		12	%

Revenue from significant customers exceeding

10%

of total revenues for the periods presented was as follows:

	Three Months ended September 30, 2018			Three Months ended September 30, 2017
Customer A		75	%		25	%
Customer B		-	%		13	%
Customer C		-	%		11	%

	Nine Months ended September 30, 2018			Nine Months ended September 30, 2017
Customer A		52	%		27	%
Customer B		-	%		11	%

Historically, we have used single suppliers for several components of the Aurix product line. We outsource the manufacturing of various product components to contract manufacturers. While we believe these manufacturers demonstrate competency, reliability and stability, there is

no

assurance that

one

or more of them will

not

experience an interruption or inability to provide us with the products needed to satisfy customer demand. Additionally, while most of the components of Aurix are generally readily available on the open market, a reagent, bovine thrombin, is available exclusively through Pfizer, with whom we have an established vendor relationship.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash Equivalents

We consider all highly liquid instruments purchased with an original maturity of

three

months or less to be cash equivalents. We maintain our cash and cash equivalents in the form of money market deposit accounts and qualifying money market funds, and checking accounts with financial institutions that we believe are credit worthy.

Receivables, Policy [Policy Text Block]

Accounts Receivables, net

We generate accounts receivables from the sale of our products. We provide for an allowance against receivables for estimated losses that

may

result from a customer’s inability or unwillingness to pay. The allowance for doubtful accounts is estimated primarily based upon historical write-off percentages, known problem accounts, and current economic conditions. Accounts are written off against the allowance for doubtful accounts when we determine that amounts are

not

collectable. Recoveries of previously written-off accounts are recorded when collected. At

September 30, 2018,

we maintained an allowance for doubtful accounts of approximately

$2,000.

At

December 31, 2017,

we maintained an allowance for doubtful accounts of approximately

$306,000

as we fully reserved for a value added tax receivable. Effective with an executed settlement agreement as of

March 

29,

2018,

we recognized a bad debt recovery of approximately

$240,000

and received the settlement amount in

April 2018.

Inventory, Policy [Policy Text Block]

Inventory, net

Our inventory is produced by

third

-party manufacturers and consists of raw materials and finished goods. Inventory cost is determined on a

first

-in,

first

-out basis and is stated at the lower of cost or net realizable value. We maintain an inventory of kits, reagents, and other disposables that have shelf-lives that generally range from

18

months to

two

years.

As of

September 30, 2018,

our inventory consisted of approximately

$30,000

of finished goods and

$20,000

of raw materials. As of

December 31, 2017,

our inventory consisted of approximately

$40,000

of finished goods and

$18,000

of raw materials.

We provide for an allowance against inventory for estimated losses that

may

result in excess and obsolete inventory (i.e., from the expiration of products). Our allowance for expired inventory is estimated based upon the inventory’s remaining shelf-life and our anticipated ability to sell such inventory, which is estimated using historical usage and future forecasts, within its remaining shelf life. At

September 30, 2018

and

December 31, 2017,

the Company maintained an allowance for expired and excess and obsolete inventory of approximately

$16,000

and

$23,000,

respectively. Expired products are segregated and used for demonstration purposes only; the Company records the associated expense for this reserve to cost of sales in the consolidated statements of operations.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment, net

Property and equipment is stated at cost less accumulated depreciation and is depreciated, using the straight-line method, over its estimated useful life ranging from

one

to

six

years. Leasehold improvements are amortized, using the straight-line method, over the lesser of the expected lease term or its estimated useful life ranging from

one

to

three

years. Amortization of leasehold improvements is included in depreciation expense. Maintenance and repairs are charged to operations as incurred. When assets are disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in other income (expense).

Centrifuges

may

be sold or placed at

no

charge with customers. Depreciation expense for centrifuges that are available for sale or placed at

no

charge with customers are charged to cost of sales. Depreciation expense for centrifuges used for sales and marketing and other internal purposes are charged to general and administrative expenses.

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability measurement and estimating of undiscounted cash flows is done at the lowest possible level for which we can identify assets. If such assets are considered to be impaired, impairment is recognized as the amount by which the carrying amount of assets exceeds the fair value of the assets.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

Prior to

January 1, 2018,

revenues were recognized when the

four

basic criteria for recognition were met: (

1

) persuasive evidence of an arrangement exists; (

2

) delivery has occurred or services have been rendered; (

3

) consideration is fixed or determinable; and (

4

) collectability is reasonably assured. The Company adopted new accounting guidance for revenue recognition effective

January 1, 2018

which did

not

have a material impact on the Company’s financial statements.

Beginning

January 1, 2018,

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

We provide for the sale of our products, including disposable processing sets and supplies to customers. Revenue from the sale of products is recognized upon shipment of products to the customers. We do

not

maintain a reserve for returned products, as in the past those returns have

not

been material and are

not

expected to be material in the future. Percentage-based fees on licensee sales of covered products are generally recorded as products are sold by licensees, and are reflected as royalties in the consolidated statements of operations. Direct costs associated with product sales and royalty revenues are recorded at the time that revenue is recognized.

License Agreement with Rohto

The Company’s license agreement with Rohto (See Note

3

– Distribution, Licensing and Collaboration Arrangements

) contains multiple promises that include the delivery of a “functional” license and other ancillary activities such as maintaining its intellectual property and providing regulatory support and training to Rohto. The Company has determined that the ancillary activities do

not

constitute distinct promises and, accordingly, the Company combined the ancillary activities with the delivered license as a single performance obligation.  The Company recognized the total non-contingent transaction price of

$3.0

million as revenue when the functional license was delivered to Rohto.  Other contingent elements of transaction price, such as contingent fees and sales-based royalties related to the supply and future sale of the product, would be recognized as revenue if and when the contingencies are satisfied.  See Note

9

– Subsequent Events

for information on the pending termination of the Company’s license agreement with Rohto.

Segment Reporting, Policy [Policy Text Block]

Segments and Geographic Information

Approximately

75%

and

25%

of our total revenue was generated outside of the United States for the

three

months ended

September 30, 2018

and

2017,

respectively, and approximately

52%

and

27%

of our total revenue was generated outside the United States for the

nine

months ended

September 30, 2018

and

2017,

respectively. All revenue generated outside the United States is attributable to royalty revenue.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

The fair value of employee stock options is measured at the date of grant. Expected volatilities for the

2016

Omnibus Plan options are based on the equally weighted average historical volatility from

five

comparable public companies with an expected term consistent with ours. Expected years until exercise represents the period of time that options are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company estimated that the dividend rate on its common stock will be zero.

Stock-based compensation for awards granted to non-employees is periodically re-measured as the underlying awards vest. The Company recognizes an expense for such awards throughout the performance period as the services are provided by the non-employees, based on the fair value of these options and warrants at each reporting period. The fair value of stock options and compensatory warrants issued to service providers utilizes the same methodology with the exception of the expected term. For awards to non-employees, the Company estimates that the options or warrants will be held for the full term.

The Company adopted new accounting guidance on

January 1, 2017

related to stock-based compensation arrangements. Under the new guidance, excess tax benefits and tax deficiencies related to stock-based compensation awards are recognized as income tax expenses or benefits in the income statement, and excess tax benefits are classified along with other income tax cash flows in the operating activities section of the condensed consolidated statement of cash flows. Additionally, the Company elected to account for forfeitures of stock-based awards as they occur, as opposed to estimating those prior to their occurrence. The adoption of this new guidance did

not

have a material impact on the Company's consolidated financial statements in any period.

Income Tax, Policy [Policy Text Block]

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than

not

that some portion or all of the deferred tax assets will

not

be realized. Tax rate changes are reflected in income during the period such changes are enacted. All of our tax years remain subject to examination by the tax authorities.

The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income before taxes. There were

no

such items in

2018

and

2017.

Earnings Per Share, Policy [Policy Text Block]

Earnings (Loss) per Share

Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding (including contingently issuable shares when the contingencies have been resolved) during the period.

For periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive. For periods of net income, and when the effects are

not

anti-dilutive, diluted earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of shares outstanding (including contingently issuable shares when the contingencies have been resolved) plus the impact of all potential dilutive common shares, consisting primarily of common stock options and stock purchase warrants using the treasury stock method, and convertible debt using the if-converted method. 

All of the Company’s outstanding stock options and warrants were considered anti-dilutive for the

three

and

nine

months ended

September 30, 2018

and

2017.

The total number of anti-dilutive shares underlying common stock options and warrants exercisable for common stock, which have been excluded from the computation of diluted loss per share for the periods presented, was as follows:

	Nine months ended September 30, 2018		Nine months ended September 30, 2017
Shares underlying:
Common stock options		1,291,876		1,111,250
Stock purchase warrants		6,646,666		6,180,000

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain reclassification have been made to the prior year financial statements to conform to the current year presentation, including the addition of restricted cash to cash and cash equivalents on the consolidated statements of cash flows as a result of the adoption of new accounting guidance.

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting

Standards

The Company adopted new accounting guidance for revenue recognition effective

January 

1,

2018

using the modified retrospective approach which did

not

have a material impact on the Company's financial statements.

In

November 2016,

the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) amending the presentation of restricted cash within the consolidated statements of cash flows. The new guidance requires that restricted cash be added to cash and cash equivalents on the consolidated statements of cash flows. The Company adopted this ASU on

January 

1,

2018

on a retrospective basis with the following impacts to our consolidated statements of cash flows for the

nine

months ended

September 30, 2017:

	Previously Reported		Adjustment			As Revised
Net cash provided by investing activities	$	5,409	$	(3,495	)	$	1,914

Following is a summary of cash, cash equivalents and restricted cash:

	September 30, 2018		December 31, 2017		September 30, 2017		December 31, 2016
Cash and cash equivalents	$	250,171	$	693,515	$	1,923,172	$	2,620,023
Restricted cash		-		-		50,008		53,503
Cash, cash equivalents and restricted stock	$	250,171	$	693,515	$	1,973,180	$	2,673,526

In

January 2017,

the FASB issued guidance intended to simplify the subsequent measurement of goodwill by eliminating Step

2

from the goodwill impairment test. Under the existing guidance, in computing the implied fair value of goodwill under Step

2,

an entity is required to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities), following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The guidance also eliminates the requirements for any reporting unit with a

zero

or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step

2

of the goodwill impairment test. An entity is required to adopt the new guidance on a prospective basis. The new guidance is effective for the Company for its annual or any interim goodwill impairment tests for fiscal years beginning after

December 15, 2021.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

We adopted this pronouncement effective

January 1, 2017;

the adoption did

not

have a material impact to our consolidated financial statements upon adoption since goodwill was

not

considered impaired with the adoption of Accounting Standards Update

2017

-

04.

However, when we performed our interim goodwill impairment test, comparing the fair value of our

one

reporting unit with its carrying amount as of

June 30, 2017,

the carrying amount exceeded our reporting unit's fair value by approximately

$2.8

 million. As a result we recognized a non-cash goodwill impairment charge of approximately

$2.1

 million to write-down goodwill to its estimated fair value of

zero

as of

June 

30,

 

2017.

In

July 2017,

the FASB issued guidance intended to simplify the accounting for certain financial instruments with down round features. The amendments require companies to disregard the down round features when assessing whether the instrument is indexed to its own stock for purposes of determining liability or equity classification. The Company adopted this guidance with

no

impact on the financial statements as of

July 1, 2018.

We have evaluated all other issued and unadopted Accounting Standards Updates and believe the adoption of these standards will

not

have a material impact on our results of operations, financial position, or cash flows.

XML

Note 2 - Liquidity and Summary of Significant Accounting Principles (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	September 30, 2018			December 31, 2017
Customer A		-	%		72	%
Customer B		76	%		12	%

	Three Months ended September 30, 2018			Three Months ended September 30, 2017
Customer A		75	%		25	%
Customer B		-	%		13	%
Customer C		-	%		11	%

	Nine Months ended September 30, 2018			Nine Months ended September 30, 2017
Customer A		52	%		27	%
Customer B		-	%		11	%

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Nine months ended September 30, 2018		Nine months ended September 30, 2017
Shares underlying:
Common stock options		1,291,876		1,111,250
Stock purchase warrants		6,646,666		6,180,000

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

	Previously Reported		Adjustment			As Revised
Net cash provided by investing activities	$	5,409	$	(3,495	)	$	1,914

Reconciliation of Balance of Cash, Cash Equivalents, and Restricted Cash [Table Text Block]

	September 30, 2018		December 31, 2017		September 30, 2017		December 31, 2016
Cash and cash equivalents	$	250,171	$	693,515	$	1,923,172	$	2,620,023
Restricted cash		-		-		50,008		53,503
Cash, cash equivalents and restricted stock	$	250,171	$	693,515	$	1,973,180	$	2,673,526

XML

Note 4 - Receivables (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	September 30, 2018			December 31, 2017
Trade receivables	$	61,528		$	64,387
Other receivables		195,000			355,839
		256,528			420,226
Less allowance for doubtful accounts		(1,975	)		(305,895	)
Accounts and other receivables, net	$	254,553		$	114,331

XML

Note 5 - Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Property, Plant and Equipment [Table Text Block]

	September 30, 2018			December 31, 2017
Medical equipment	$	393,156		$	401,719
Office equipment		38,104			48,888
Software		257,619			257,619
Manufacturing equipment		15,640			34,899
Leasehold improvements		19,215			19,215
		723,734			762,340
Less accumulated depreciation and amortization		(593,050	)		(538,724	)
Property and equipment, net	$	130,684		$	223,616

XML

Note 7 - Equity and Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2018

Notes Tables

Share-based Compensation, Stock Options, Activity [Table Text Block]

Stock Options – 2016 Omnibus Plan	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2018		861,250		$	1.04		8.57	$	-
Granted		815,626			0.40		7.00	$	-
Exercised		-			-
Forfeited or expired		(385,000	)	$	1.10		-	$	-
Outstanding at September 30, 2018		1,291,876		$	0.62		7.20	$	-
Exercisable at September 30, 2018		1,260,210		$	0.61		7.19	$	-

Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan [Table Text Block]

	Three Months ended September 30, 2018		Three Months ended September 30, 2017
Sales and marketing	$	-	$	1,392
Research and development		721		2,978
General and administrative		649		9,965
	$	1,370	$	14,335

	Nine Months ended September 30, 2018		Nine Months ended September 30, 2017
Sales and marketing	$	-	$	3,906
Research and development		2,766		9,201
General and administrative		2,958		29,199
	$	5,724	$	42,306

XML

Note 1 - Description of Business and Bankruptcy Proceedings (Details Textual)	May 05, 2016
Platelet Rich Plasma (PRP) [Member]
Number of Products Produced	2

XML

Note 2 - Liquidity and Summary of Significant Accounting Principles (Details Textual) - USD ($)				1 Months Ended	3 Months Ended			6 Months Ended	9 Months Ended
	Sep. 17, 2018	May 28, 2018	Mar. 29, 2018	Jun. 30, 2018	Dec. 31, 2018	Sep. 30, 2018	Sep. 30, 2017	Jun. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017	Dec. 31, 2016
Stock Issued During Period, Shares, New Issues		1,000,000		1,000,000			12,800,000
Proceeds from Issuance of Common Stock		$ 500,000		$ 500,000			$ 3,000,000		$ 500,000	$ 3,000,000
Proceeds from Convertible Debt									315,800
Cash and Cash Equivalents, at Carrying Value, Ending Balance						$ 250,171	$ 1,923,172		250,171	$ 1,923,172	$ 693,515	$ 2,620,023
Debt, Long-term and Short-term, Combined Amount, Total				$ 0
Allowance for Doubtful Accounts Receivable, Ending Balance						2,000			2,000		306,000
Allowance for Doubtful Accounts Receivable, Recoveries			$ 240,000						240,000
Inventory, Finished Goods, Gross, Total						30,000			30,000		40,000
Inventory, Raw Materials, Gross, Total						20,000			20,000		18,000
Inventory Valuation Reserves, Ending Balance						$ 16,000			$ 16,000		$ 23,000
Percentage of Revenues Generated Outside of United States						75.00%	25.00%		52.00%	27.00%
Income Tax Examination, Penalties and Interest Expense, Total									$ 0	$ 0
Number of Reporting Units									1
Goodwill, Carrying Amount Exceeding Fair Value								$ 2,800,000
Goodwill, Impairment Loss								2,100,000
Goodwill, Ending Balance								$ 0
License [Member]
Contract with Customer, Liability, Revenue Recognized									$ 3,000,000
Minimum [Member]
Inventory Shelf Life									1 year 180 days
Property, Plant and Equipment, Useful Life									1 year
Minimum [Member] | Leasehold Improvements [Member]
Property, Plant and Equipment, Useful Life									1 year
Maximum [Member]
Inventory Shelf Life									2 years
Property, Plant and Equipment, Useful Life									6 years
Maximum [Member] | Leasehold Improvements [Member]
Property, Plant and Equipment, Useful Life									3 years
Scenario, Forecast [Member]
Proceeds from Royalty Buyout Agreement					$ 200,000
Convertible Promissory Notes 12% [Member]
Proceeds from Convertible Debt	$ 315,800
Convertible Notes Payable, Total						$ 350,000			$ 350,000

XML

Note 2 - Liquidity and Summary of Significant Accounting Principles - Summary of Concentration Risk (Details) - Customer Concentration Risk [Member]	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Accounts Receivable [Member] | Customer A [Member]
Concentration percentage					72.00%
Accounts Receivable [Member] | Customer B [Member]
Concentration percentage			76.00%		12.00%
Sales Revenue, Net [Member] | Customer A [Member]
Concentration percentage	75.00%	25.00%	52.00%	27.00%
Sales Revenue, Net [Member] | Customer B [Member]
Concentration percentage		13.00%		11.00%
Sales Revenue, Net [Member] | Customer C [Member]
Concentration percentage		11.00%

XML

Note 2 - Liquidity and Summary of Significant Accounting Principles - Anti-dilutive Securities Excluded From the Computation of Diluted Earnings (Loss) Per Share (Details) - shares	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Employee Stock Option [Member]
Anti-dilutive securities (in shares)	1,291,876	1,111,250
Warrant [Member]
Anti-dilutive securities (in shares)	6,646,666	6,180,000

XML

Note 2 - Liquidity and Summary of Significant Accounting Principles - Adoption of ASU 2016-18 (Details) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Net cash provided by investing activities	$ 2,000	$ 1,914
Previously Reported [Member]
Net cash provided by investing activities		5,409
Restatement Adjustment [Member] | Accounting Standards Update 2014-09 [Member]
Net cash provided by investing activities		$ (3,495)

XML

Note 2 - Liquidity and Summary of Significant Accounting Principles - Summary of Cash, Cash Equivalents and Restricted Cash (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017	Sep. 30, 2017	Dec. 31, 2016
Cash and cash equivalents	$ 250,171	$ 693,515	$ 1,923,172	$ 2,620,023
Restricted cash			50,008	53,503
Cash, cash equivalents and restricted stock	$ 250,171	$ 693,515	$ 1,973,180	$ 2,673,526

XML

Note 3 - Distribution, Licensing and Collaboration Arrangements (Details Textual)				1 Months Ended
	May 28, 2018 USD ($)	May 27, 2018 USD ($)	May 05, 2016 USD ($) $ / item	Jan. 31, 2015 USD ($)	Sep. 30, 2018 USD ($)
Distribution Agreement with Boyalife [Member] | Affiliated Entity [Member]
License Agreement, Original Term			5 years
Due from Related Parties, Current, Total			$ 500,000
Maximum Payment on Right Excercisable			$ 250,000
Distribution Agreement with Boyalife [Member] | Affiliated Entity [Member] | Aurix System [Member]
Distribution Fee per Unit Sold | $ / item			40
Restorix Distribution Agreement [Member]
Current Product Price					$ 700
Rohto Pharmaceutical Co., Ltd [Member]
Distribution and License Agreement, Milestone Payment	$ 300,000	$ 1,000,000
Royalty Payment, Percent of Net Sales		9.00%
Royalty Payment, Percent of Net Sales When Using a Nuo Patent	9.00%
Royalty Payment, Percent of Net Sales Not Using a Nuo Patent	5.00%
Rohto Pharmaceutical Co., Ltd [Member]
Proceeds from License Fees Received				$ 3,000,000
Millennia Holdings, Inc [Member]
Payments for Terminated Licenses				$ 1,500,000

XML

Note 4 - Receivables (Details Textual) - USD ($)		9 Months Ended
	Mar. 29, 2018	Sep. 30, 2018	Dec. 31, 2017
Allowance for Doubtful Accounts Receivable, Current, Ending Balance		$ 1,975	$ 305,895
Allowance for Doubtful Accounts Receivable, Recoveries	$ 240,000	240,000
Trade Accounts Receivable [Member]
Allowance for Doubtful Accounts Receivable, Current, Ending Balance		$ 2,000

XML

Note 4 - Receivables - Accounts and Other Receivable, Net (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Accounts receivable, gross	$ 256,528	$ 420,226
Less allowance for doubtful accounts	(1,975)	(305,895)
Accounts and other receivables, net	254,553	114,331
Trade Accounts Receivable [Member]
Accounts receivable, gross	61,528	64,387
Less allowance for doubtful accounts	(2,000)
Other Receivables [Member]
Accounts receivable, gross	$ 195,000	$ 355,839

XML

Note 5 - Property and Equipment (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Depreciation, Total			$ 77,000	$ 230,000
Depreciation, Depletion and Amortization, Total	$ 25,000	$ 51,000	$ 76,994	$ 868,570

XML

Note 5 - Property and Equipment - Property and Equipment, Net (Details) - USD ($)	Sep. 30, 2018	Dec. 31, 2017
Property, plant, and equipment, gross	$ 723,734	$ 762,340
Less accumulated depreciation and amortization	(593,050)	(538,724)
Property and equipment, net	130,684	223,616
Medical Equipment [Member]
Property, plant, and equipment, gross	393,156	401,719
Office Equipment [Member]
Property, plant, and equipment, gross	38,104	48,888
Technology Equipment [Member]
Property, plant, and equipment, gross	257,619	257,619
Manufacturing Equipment [Member]
Property, plant, and equipment, gross	15,640	34,899
Leasehold Improvements [Member]
Property, plant, and equipment, gross	$ 19,215	$ 19,215

XML

Note 6 - Convertible Notes and Stock Purchase Warrants (Details Textual) - USD ($)		9 Months Ended
	Sep. 17, 2018	Sep. 30, 2018	Sep. 30, 2017
Proceeds from Convertible Debt		$ 315,800
Warrants Issued to Investors [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	466,666
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 0.15
Warrants and Rights Outstanding, Term		5 years
Adjustments to Additional Paid in Capital, Warrant Issued	$ 18,000
Embedded Derivative, Fair Value of Embedded Derivative Liability	$ 532,000
Warrants Issued to Investors [Member] | Measurement Input, Risk Free Interest Rate [Member]
Embedded Derivative Liability, Measurement Input	0.0246
Warrants Issued to Investors [Member] | Measurement Input, Price Volatility [Member]
Embedded Derivative Liability, Measurement Input	3.64
Warrants Issued to Investors [Member] | Measurement Input, Expected Term [Member]
Embedded Derivative Liability, Measurement Input	0.75
Warrants Issued to Investors [Member] | Measurement Input, Expected Dividend Rate [Member]
Embedded Derivative Liability, Measurement Input	0
Warrants Issued to Investors [Member] | Measurement Input, Discount Rate [Member]
Embedded Derivative Liability, Measurement Input	0.4
Warrants Issued to Investors [Member] | Auctus Fund, LLC [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	233,333
Convertible Promissory Notes 12% [Member]
Debt Instrument, Interest Rate, Stated Percentage	12.00%
Proceeds from Convertible Debt	$ 315,800
Payments of Debt Issuance Costs	$ 34,200
Debt Instrument, Term	270 days
Debt Instrument, Covenant, Prepayment of Outstanding Principal and Interest, Percentage, After 90 Days from Date of Issuance	130.00%
Debt Instrument, Covenant, Prepayment of Outstanding Principal and Interest, Percentage, Starting After 91 Days and Ending at 180 Days from Date of Issuance	145.00%
Debt Instrument, Covenant, Threshold Period After Date of Issuance for Convertible Notes to No Longer Qualify for Prepayment	181 days
Debt Instrument, Convertible, Period After Date of Issuance	180 days
Debt Instrument, Convertible, Conversion Price, Percentage Discount of Common Stock Trading Price	40.00%
Debt Instrument, Covenant, Number of Times that Authorized and Unissued Common Stock Shares Must Be Greater Than the Number of Shares Issuable Upon Note Conversion	7
Debt Instrument, Debt Default, Interest Rate, Stated Percentage	24.00%
Debt Instrument, Debt Default, Repayment Amount of Outstanding Principal Plus Accrued and Unpaid Interest, Percentage	150.00%
Debt Instrument, Unamortized Discount, Total	$ 350,000
Convertible Promissory Notes 12% [Member] | EMA Financial, LLC [Member] | Maximum [Member]
Debt Instrument, Extension Term	1 year
Convertible Promissory Notes 12% [Member] | Auctus Fund, LLC [Member]
Debt Instrument, Face Amount	$ 175,000
Convertible Promissory Notes 12% [Member] | EMA Financial, LLC [Member]
Debt Instrument, Face Amount	$ 175,000
Warrants Issued to Investors [Member] | EMA Financial, LLC [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	233,333

XML

Note 7 - Equity and Stock-based Compensation (Details Textual)			1 Months Ended	3 Months Ended	9 Months Ended
	May 28, 2018 USD ($) shares	May 05, 2016 USD ($) $ / shares shares	Jun. 30, 2018 USD ($) shares	Sep. 30, 2017 USD ($) shares	Sep. 30, 2018 USD ($) $ / shares shares	Sep. 30, 2017 USD ($)	Sep. 17, 2018 shares	Dec. 31, 2017 USD ($) $ / shares shares	Aug. 04, 2016 shares
Authorized Shares, Common and Preferred					101,000,000
Common Stock, Shares Authorized					100,000,000			31,500,000
Preferred Stock, Shares Authorized					1,000,000			1,000,000
Preferred Stock, Par or Stated Value Per Share | $ / shares					$ 0.0001			$ 0.001
Common Stock, Par or Stated Value Per Share | $ / shares					$ 0.0001			$ 0.0001
Stock Issued During Period, Shares, New Issues	1,000,000		1,000,000	12,800,000
Preferred Stock, Liquidation Preference, Value | $					$ 29,038,000			$ 29,038,000
Proceeds from Issuance of Common Stock | $	$ 500,000		$ 500,000	$ 3,000,000	500,000	$ 3,000,000
Issuance of Options to Settle Accrued Compensation Liabilities | $					$ 321,250
The 2016 Omnibus Plan [Member]
Evergreen Provision, Increase in Number of Shares Authorized Calculation, Percentage Amount of Prior Year's Reserved Shares									6.00%
Evergreen Provision, Maximum Limit of Increase to Authorized Shares									1,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized					1,685,400
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross					815,626
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value | $					$ 51,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period					0
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total | $					$ 1,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition					91 days
Warrants Issued to Investors [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights							466,666
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares					$ 0.15
Common Stock [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights		6,180,000
Additional Paid-in Capital [Member] | The 2016 Omnibus Plan [Member]
Issuance of Options to Settle Accrued Compensation Liabilities | $					$ 321,250
Maximum [Member] | Common Stock [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares		$ 0.75
Minimum [Member] | Common Stock [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights | $ / shares		$ 0.50
Series A Preferred Stock [Member]
Preferred Stock, Shares Authorized		29,038
Common Stock, Par or Stated Value Per Share | $ / shares		$ 0.0001
Stock Issued During Period, Shares, New Issues		29,038
Preferred Stock, Liquidation Preference, Value | $		$ 29,038,000
Preferred Stock, Voting Rights, Number of Votes Per Share		5
Preferred Stock, Restrictions, Debt Ceiling Other Than for Working Capital Purposes | $		$ 3,000,000
Series A Preferred Stock [Member] | Maximum [Member]
Preferred Stock, Voting Rights, Percentage of Voting Rights of Capital Stock		1.00%

XML

Note 7 - Equity and Stock-based Compensation - Stock Option Activity (Details) - The 2016 Omnibus Plan [Member] - USD ($) $ / shares in Units, $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2018	Dec. 31, 2017
Shares outstanding (in shares)	861,250
Shares outstanding, weighted-average exercise price (in dollars per share)	$ 1.04
Shares outstanding, weighted-average remaining contractual term (Year)	7 years 73 days	8 years 208 days
Shares outstanding, aggregate intrinsic value	$ 0	$ 0
Shares granted (in shares)	815,626
Shares granted, weighted-average exercise price (in dollars per share)	$ 0.40
Shares granted, weighted-average remaining contractual term (Year)	7 years
Shares exercised (in shares)	0
Shares exercised, weighted-average exercise price (in dollars per share)
Shares forfeited or expired (in shares)	(385,000)
Shares forfeited or expired, weighted-average exercise price (in dollars per share)	$ 1.10
Shares outstanding (in shares)	1,291,876	861,250
Shares outstanding, weighted-average exercise price (in dollars per share)	$ 0.62	$ 1.04
Shares exercisable (in shares)	1,260,210
Shares exercisable, weighted-average exercise price (in dollars per share)	$ 0.61
Shares exercisable, weighted-average remaining contractual term (Year)	7 years 69 days

XML

Note 7 - Equity and Stock-based Compensation - Stock-based Compensation Expense (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Share-based compensation	$ 1,370	$ 14,335	$ 5,724	$ 42,306
Selling and Marketing Expense [Member]
Share-based compensation		1,392		3,906
Research and Development Expense [Member]
Share-based compensation	721	2,978	2,766	9,201
General and Administrative Expense [Member]
Share-based compensation	$ 649	$ 9,965	$ 2,958	$ 29,199

XML

Note 8 - Commitments and Contingencies (Details Textual)		9 Months Ended
	Jun. 29, 2018 USD ($)	Sep. 30, 2018 USD ($) ft²	Jan. 28, 2018 USD ($)
Office and Warehouse Facilities in Gaithersburg, Maryland Leases [Member]
Operating Leases, Area | ft²		12,000
Operating Leases of Lessee, Number of Operating Leases		2
Operating Leases, Monthly Rent Expense		$ 18,000
Operating Leases, Deferred Monthly Rent Amount		$ 100,000
Commercial Operation Facility in Nashville, Tennessee [Member]
Operating Leases, Area | ft²		2,100
Operating Leases, Monthly Rent Expense		$ 4,000
Security Deposit Forfeited on Sublease			$ 4,000
Facility in Durham, North Carolina [Member]
Operating Leases, Area | ft²		16,300
Operating Leases, Monthly Rent Expense		$ 22,000
Proceeds from Release of Security Deposit	$ 32,000
Payment of Lease Termination Agreement	$ 26,000
Sublease of Facility in Durham, North Carolina [Member]
Operating Leases, Sublease Rental Monthly Payments		$ 14,000

XML

Note 9 - Subsequent Events (Details Textual) - Subsequent Event [Member] - Intellectual Property and License and Service Agreement [Member]	Nov. 08, 2018 USD ($)	Oct. 24, 2018 USD ($)
Number of Patents Sold		2
Disposition of Assets, Consideration Receivable		$ 750,000
Proceeds from Sale of Intangible Assets	$ 500,000
Disposition of Intangible Assets, Consideration Receivable, Period Within Delivery for Balance to Become Due		15 days
JAPAN
Disposition of Intangible Assets, Noncompete Period		5 years