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, 2019

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.)

8285 El Rio, Suite 150
Houston, TX 77054

(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 January 27. 2020, the number of shares outstanding of the registrant’s common stock, $0.0001 par value, was 23,722,400.

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

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	17
Item 3. Quantitative and Qualitative Disclosures About Market Risk	27
Item 4. Controls and Procedures	28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	29
Item 1A. Risk Factors	29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3. Defaults Upon Senior Securities	29
Item 4. Mine Safety Disclosures	29
Item 5. Other Information	29
Item 6. Exhibits	29
Signatures	30

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

NUO THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30, 2019			December 31, 2018
ASSETS
Current assets
Cash and cash equivalents	$	17,328		$	636,927
Accounts receivable, net		-			22,170
Inventory, net		3,083			25,348
Prepaid expenses and other current assets		3,591			182,243
Total current assets		24,002			866,688
Property and equipment, net		14,493			105,479
Deferred costs and other assets		-			3,330
Total assets	$	38,495		$	975,497
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable	$	649,831		$	437,325
Accrued expenses and liabilities		204,039			285,199
Accrued interest payable		45,645			12,166
Convertible notes, net		410,000			309,010
Derivative liabilities		13,784			13,784
Total liabilities		1,323,299			1,057,484
Commitments and contingencies (Note 8)
Stockholders' 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 shares authorized, 23,722,400 shares issued and outstanding		2,372			2,372
Additional paid-in capital		22,182,273			22,132,273
Accumulated deficit		(23,469,452	)		(22,216,635	)
Total stockholders' deficit		(1,284,804	)		(81,987	)
Total liabilities and stockholders' deficit	$	38,495		$	975,497

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, 2019			Three Months ended September 30, 2018
Revenue
Product sales	$	57,883		$	65,280
Royalties		-			195,000
Total revenue		57,883			260,280
Costs of revenue
Costs of sales		34,709			44,856
Total costs of revenue		34,709			44,856
Gross profit		23,174			215,424
Operating expenses
Sales and marketing		-			16,856
Research and development		2,700			95,486
General and administrative		59,166			514,876
Total operating expenses		61,866			627,218
Loss from operations		(38,692	)		(411,794	)
Other income (expense)
Interest, net		(39,242	)		(18,253	)
Fair value of derivatives in excess of convertible notes		-			(234,824	)
Change in fair value of derivative liabilities		-			3,997
Other		(14,686	)		10,996
Total other income (expense)		(53,928	)		(238,084	)
Net loss	$	(92,620	)	$	(649,878	)
Loss per common share
Basic	$	(0.00	)	$	(0.03	)
Diluted	$	(0.00	)	$	(0.03	)
Weighted average common shares outstanding
Basic		23,722,400			23,722,400
Diluted		23,722,400			23,722,400

 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, 2019			Nine Months ended September 30, 2018
Revenue
Product sales	$	141,277		$	270,375
Royalties		-			288,157
Total revenue		141,277			558,532
Costs of revenue
Costs of sales		97,038			132,083
Total costs of revenue		97,038			132,083
Gross profit		44,239			426,449
Operating expenses
Sales and marketing		30,457			98,907
Research and development		181,185			493,588
General and administrative		875,567			1,496,138
Total operating expenses		1,087,209			2,088,633
Loss from operations		(1,042,970	)		(1,662,184	)
Other income (expense)
Interest, net		(204,317	)		(18,620	)
Fair value of derivatives in excess of convertible notes		-			(234,824	)
Change in fair value of derivative liabilities		-			3,997
Other		(5,530	)		1,343
Total other income (expense)		(209,847	)		(248,104	)
Net loss	$	(1,252,817	)	$	(1,910,288	)
Loss per common share
Basic	$	(0.05	)	$	(0.08	)
Diluted	$	(0.05	)	$	(0.08	)
Weighted average common shares outstanding
Basic		23,722,400			23,128,993
Diluted		23,722,400			23,128,993

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

3

NUO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

 (Unaudited)

	Preferred Stock				Common Stock				Additional Paid-In		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital		Deficit			Deficit
Balance, January 1, 2019		29,038	$	3		23,722,400	$	2,372	$	22,132,273	$	(22,216,635	)	$	(81,987	)
Issuance of options to settle related party compensation liabilities		-		-		-		-		50,000		-			50,000
Net loss		-		-		-		-		-		(679,909	)		(679,909	)
Balance, March 31, 2019		29,038	$	3		23,722,400	$	2,372	$	22,182,273	$	(22,896,544	)	$	(711,896	)
Net loss		-		-		-		-		-		(480,288	)		(480,288	)
Balance, June 30, 2019		29,038	$	3		23,722,400	$	2,372	$	22,182,273		(23,376,832	)		(1,192,184	)
Net loss		-		-		-		-		-		(92,620	)		(92,620	)
Balance, September 30, 2019		29,038	$	3		23,722,400	$	2,372	$	22,182,273		(23,469,452	)		(1,284,804	)

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

4

NUO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

 (Unaudited)

	Preferred Stock				Common Stock				Additional Paid-In		Accumulated			Stockholders’ Equity
	Shares		Amount		Shares		Amount		Capital		Deficit			(Deficit)
Balance, January 1, 2018		29,038	$	3		22,722,400	$	2,272	$	21,155,404	$	(20,674,808	)	$	482,871
Stock-based compensation		-		-		-		-		2,983		-			2,983
Net loss		-		-		-		-		-		(670,247	)		(670,247	)
Balance, March 31, 2018		29,038	$	3		22,722,400	$	2,272	$	21,158,387	$	(21,345,055	)	$	(184,393	)
Issuance of common stock		-		-		1,000,000		100		499,900		-			500,000
Stock-based compensation		-		-		-		-		1,371		-			1,371
Net loss		-		-		-		-		-		(590,163	)		(590,163	)
Balance, June 30, 2018		29,038	$	3		23,722,400	$	2,372	$	21,659,658	$	(21,935,218	)	$	(273,185	)
Stock-based compensation		-		-		-		-		1,370		-			1,370
Issuance of options to settle related party compensation liabilities		-		-		-		-		321,250		-			321,250
Warrant issued in conjunction with convertible notes		-		-		-		-		18,624		-			18,624
Net loss		-		-		-		-		-		(649,878	)		(649,878	)
Balance, September 30, 2018		29,038	$	3		23,722,400	$	2,372	$	22,000,902	$	(22,585,096	)	$	(581,819	)

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

5

NUO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Nine Months Ended September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,252,817	)	$	(1,910,288	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		75,366			76,994
Fair value of derivatives in excess of convertible notes		-			234,824
Change in fair value of derivative liabilities		-			(3,997	)
Stock-based compensation		-			5,724
Bad debt provision (recovery)		1,170			(239,660	)
Inventory write-off		13,822			-
Increase (decrease) in allowance for inventory obsolescence		(8,225	)		6,464
Loss on the disposal of fixed assets		15,620			13,938
Amortization of debt discount		40,990			16,667
Non-cash increase in convertible note		60,000			-
Changes in operating assets and liabilities:
Accounts and other receivables		21,000			99,438
Inventory		16,668			(4,940	)
Prepaid expenses and other current assets		178,652			266,622
Other assets		3,330
Accounts payable		212,506			100,720
Accrued expenses and liabilities		(31,160	)		79,175
Accrued interest		33,479			1,506
Other liabilities		-			(4,331	)
Net cash used in operating activities		(619,599	)		(1,261,144	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment		-			2,000
Net cash provided by investing activities		-			2,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		-			500,000
Proceeds from convertible notes, net		-			315,800
Net cash provided by financing activities		-			815,800
Net decrease in cash, cash equivalents and restricted cash		(619,599	)		(443,344	)
Cash, cash equivalents and restricted cash at beginning of period		636,927			693,515
Cash, cash equivalents and restricted cash at end of period	$	17,328		$	250,171
Supplemental cash flow information
Interest expense paid in cash	$	-		$	-
Income taxes paid in cash	$	-		$	-
Non-cash investing and financing activities
Issuance of options to settle accrued compensation liabilities	$	50,000		$	321,250
Debt discount related to issuance of warrants	$	-		$	18,624

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

6

NUO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 – Description of Business

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

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, 2019, we have negative working capital and a shareholder deficit.  At September 30, 2019, we had cash and cash equivalents on hand of approximately $17,000.

During the year ended December 31, 2018, the Company was able to monetize several of its remaining assets, including through agreements with Rohto Pharmaceuticals and STEMCELL Technologies.  While the sale of those assets provided critical inflow of funds to alleviate the Company's ongoing liquidity concerns, the Company now has no further assets left to monetize and is facing immediate cessation of operations and liquidation. 

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

We believe based on the operating cash requirements and capital expenditures expected for the next twelve months that our current resources and projected revenue from sales of Aurix are insufficient to support our operations beyond 30 days of this filing.  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.

7

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 30 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, 2018, 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, 2018.

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. Customer receivable balances in excess of 10% of total receivables at September 30, 2019 and December 31, 2018 were as follows:

	September 30, 2019			December 31, 2018
Customer A		-	%		58	%
Customer B		-	%		29	%

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

	Three months ended September 30, 2019			Three months ended September 30, 2018
Customer A		78	%		-	%
Customer C		-	%		75	%

	Nine months ended September 30, 2019			Nine months ended September 30, 2018
Customer A		52	%		-	%
Customer C		-	%		52	%
Customer D		13	%		-	%
Customer E		12	%		-	%
Customer F		11	%		-	%

8

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, 2019 and December 31, 2018, we maintained an allowance for doubtful accounts of zero and approximately $2,000, respectively. Effective with an executed settlement agreement as of March 29, 2018, we recognized a bad debt recovery of approximately $240,000 for a prior value added tax receivable in the nine months ended September 30, 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, 2019, our inventory consisted of approximately $2,000 of finished goods and $2,000 of raw materials. As of December 31, 2018, our inventory consisted of approximately $15,000 of finished goods and $17,000 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, 2019 and December 31, 2018, the Company maintained an allowance for expired and excess and obsolete inventory of approximately $1,000 and $7,000, respectively. For the nine-month period ending September 30, 2019, the Company recorded a provision for inventory obsolescence of approximately $8,000 and wrote-off approximately $14,000 of expired inventory. 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 amortization.  Assets are 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. 

Leases

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

9

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

Revenue Recognition

The Company analyzes 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.

Segments and Geographic Information

Approximately 0% and 81% of our total revenue was generated outside of the United States for the three months ended September 30, 2019 and 2018, respectively and approximately 11% and 57% of our total revenue was generated outside of the United States for the nine months ended September 30, 2019 and 2018, respectively.

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.

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.

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 2019 and 2018.

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. 

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All of the Company’s outstanding stock options and warrants were considered anti-dilutive for the three and nine months ended September 30, 2019 and 2018. 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, 2019		Nine months ended September 30, 2018
Shares underlying:
Common stock options		1,741,876		1,291,876
Stock purchase warrants		6,646,666		6,180,000

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued guidance for accounting for leases. The guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. The guidance is effective for reporting periods beginning after December 15, 2018. The guidance must be adopted on a modified retrospective basis and provides for certain practical expedients. The Company adopted this guidance effective January 1, 2019 using the following practical expedients: 

● the Company did not reassess if any expired or existing contracts are or contain leases

● the Company did not reassess the classification of any expired or existing leases.

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

Upon adoption of the new guidance on January 1, 2019, there was no impact on the Company’s financial statements.

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

Subsequent Events

The Company’s management reviewed all material events through the date the consolidated financial statements were issued for subsequent event disclosure consideration.

Note 3 – Distribution, Licensing and Collaboration Arrangements

Collaboration Agreement with Restorix Health

On March 22, 2016, we entered into a 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 125 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 not been extended by the parties.

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”), 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.

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Note 4 – Receivables

Accounts receivable, net consisted of the following:

	September 30, 2019		December 31, 2018
Trade receivables	$	-	$	24,145
Less allowance for doubtful accounts		-		(1,975	)
Accounts receivable, net	$	-	$	22,170

The allowance for doubtful accounts at December 31, 2018 of approximately $2,000 reflects the estimated reserve for trade receivables.

Note 5 – Property and Equipment

Property and equipment, net consisted of the following:

	September 30, 2019			December 31, 2018
Medical equipment	$	387,665		$	393,156
Office equipment		-			38,104
Software		-			257,619
Manufacturing equipment		-			15,640
Leasehold improvements		-			19,215
		387,665			723,734
Less accumulated depreciation and amortization		(373,172	)		(618,255	)
Property and equipment, net	$	14,493		$	105,479

Depreciation expense of property and equipment was approximately $24,000 and $25,000 for the three months ended September 30, 2019 and 2018, respectively. Depreciation expense of property and equipment was approximately $75,000 and $77,000 for the nine months ended September 30, 2019 and 2018, respectively. All property and equipment except medical equipment was considered abandoned as of September 30, 2019 and written off with a resulting loss on abandonment of approximately $16,000.

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.

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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 had an original maturity date 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. Under the original terms of the notes, 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. Under the original terms of 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.   The maturity date of the EMA note was extended until June 17, 2020 by EMA in conjunction with the third amendment to the convertible note discussed below.

Under the original terms of the notes, after six months from the date of issuance, the Investors may convert the notes, at any time, in whole or in part, into shares of the Company’s common stock, at a conversion price corresponding to a 40% discount to the average of the two lowest trading prices of the common stock during the 25 trading days prior to the conversion, subject to certain adjustments and price-protection provisions contained in the notes, including full-ratchet anti-dilution protection in the case of dilutive issuances of securities that do not meet the requirements of “exempt issuances” as defined in the notes. 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 $13,784 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%, the 40% discount to market price conversion price formula, and a 35% discount for lack of marketability.  Debt discount 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.

On March 19, 2019, May 3, 2019. June 11, 2019 and again on August 6, 2019, the Company entered into amendments to the convertible notes. The amendments extended the date when the Company may prepay the notes and deferred the date upon which the Investors can initiate conversion of the notes into common shares of the Company pursuant to the notes’ terms until September 17, 2019 in the case of the most recent amendment.  The Company paid the Investors amendment fees totaling $69,000 representing approximately 20% of the face value of the convertible notes and agreed to an increase in the principal balance of each note by $30,000 to $205,000. The maturity date of the Auctus note was also extended until July 31, 2019.  See Note 9 – Subsequent Events for the amendment in December 2019 to settle the convertible note obligations.

Interest expense, net was $204,317 for the nine months ended September 30, 2019 including (i) $40,990 for amortization of debt discount, (ii) $69,000 for cash fees associated with amendments to the convertible notes and (iii) $60,000 increase in the outstanding balance of the notes also in conjunction with note amendments. Interest expense, net was $39,242 for the three months ended September 30, 2019 including (i) $7,000 for cash fees associated with amendments to the convertible notes and (iii) $20,000 increase in the outstanding balance of the notes also in conjunction with note amendments. For the three and nine months ended September 30, 2018, the Company recognized interest expense, net of approximately $18,000 and $19,000, respectively.

Note 7 – Equity and Stock-Based Compensation

Under the Second Amended and Restated Certificate of Incorporation, it has the authority to issue a total of 101,000,000 shares of capital stock, consisting of 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 shall determine.

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Series A Preferred Stock

On May 5, 2016, 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. On May 5, 2016, the Company issued 29,038 shares of Series A Preferred Stock to the Deerfield Lenders in accordance with the Plan pursuant to the exemption from the registration requirements of the Securities Act provided by Section 1145 of the Bankruptcy Code. The Deerfield Lenders 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 New 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 of the Company.   The Series A Preferred Stock has voting rights, voting with the New 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 6 – Convertible Notes and Stock Purchase Warrants 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 and Stock Purchase Warrants 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 1,786,524 shares of common stock under the 2016 Omnibus Plan as of September 30, 2019. 

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A summary of stock option activity under the 2016 Omnibus Plan during the nine months ended September 30, 2019 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, 2019		1,616,876	$	0.58		6.96	$	-
Granted		125,000	$	0.40		7.00
Exercised		-	$	-		-
Forfeited or expired		-	$	-		-
Outstanding at September 30, 2109		1,741,876	$	0.56		5.96	$	-
Exercisable at September 30, 2019		1,741,876	$	0.56		5.96	$	-

There were 125,000 stock options granted under the 2016 Omnibus Plan during the nine months ended September 30, 2019 to settle accrued compensation liabilities with the Company’s senior management. The fair value of these stock options granted and immediately vested during the nine months ended September 30, 2019 was approximately $2,600. As the options issued were to related parties, the $50,000 of settled liabilities was credited to additional paid-in-capital. No stock options were exercised during the nine months ended September 30, 2019. As of September 30, 2019, there was no unrecognized compensation cost related to non-vested stock options.

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

	Three Months ended September 30, 2019		Three Months ended September 30, 2018
Research and development	$	-	$	721
General and administrative		-		649
	$	-	$	1,370

	Nine Months ended September 30, 2019		Nine Months ended September 30, 2018
Research and development	$	-	$	2,766
General and administrative		-		2,958
	$	-	$	5,724

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.

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Effective September 30, 2019, the lease on our primary office and warehouse facility located in Gaithersburg, Maryland, comprising approximately 3,000 square feet expired and we vacated the facility. The facility lease with monthly rent, including our share of certain annual operating costs and taxes, totaled approximately $4,800 per month. Effective August 1, 2018, we executed a first amendment to a lease agreement comprising approximately 9,000 square feet 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 July 2019, we voluntarily abandoned the space under the amended lease agreement which was subject to a posted eviction notice.

As of September 30, 2019, amounts due under both lease agreements total approximately $159,000 net of the security deposit which was applied to the outstanding balance.

Note 9 – Subsequent Events

On November 15, 2019 and again on December 6, 2019, the Company issued 12% senior secured promissory notes to individual investors in an aggregate principal amount of $305,000.  The notes have a maturity date of June 30, 2020 and accrue interest at the rate of 12% per annum. In conjunction with the issuance of the notes, the Company issued a total of 457,500 warrants to the note investors. In conjunction with issuance of the notes, the Company granted a first-priority security interest in all the assets of the Company but fundamentally consisting of the Aurix asset, including all regulatory files and approvals and relevant intellectual property.  The second issuance of the note on December 6, 2019 required the proceeds (subject to a cap) to be used to repay the convertible notes (see below).

On December 10, 2019, the Company entered into fifth amendments to the convertible notes. The amendments provided for the settlement of all obligations under the convertible notes and their extinguishment upon the (i) payment of an aggregate $220,000 to the Investors and (ii) issuance of an aggregate 350,000 shares of common stock to the Investors on or before February 10, 2020.   Issuance of the common shares is expected to occur shortly after the filing of the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019.

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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, 2018 (the “Annual Report”), filed with the U.S. Securities and Exchange Commission, or the Commission on April 16, 2019. 

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:

● the fact that our cash resources have now been depleted, with only $17,000 of cash left at September 30, 2019, the 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 significant likelihood that the Coverage and Analysis Group (CAG) of the Centers for Medicare & Medicaid Services (CMS) will not approve our request for reopening the national coverage determination (NCD) for diabetic foot ulcers on a timely basis, including in light of the August 7, 2019 email from CMS expressing significant reservations about the CED “study design and adherence to that design,... the wide variation in clinical care patients in both [treatment] groups…and the statistical analysis” and indicating that the NCD would likely not be reopened until sometime in 2020;

● the lack of resources to adopt and execute an alternate study design and the low likelihood of the Company's ability to attract additional third-party capital for such purposes given the experience with CED to date and CMS’ inability or unwillingness to indicate what would constitute sufficient evidence warranting a favorable coverage determination;

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

● our limited sources of working capital;

● whether 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;

● 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;

● 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;

● our ability to contract with healthcare providers;

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● our ability to successfully sell and market the Aurix System;

● our ability to retain and attract 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. 

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

As disclosed below under "Liquidity and Capital Resources," we have depleted our cash resources and our ability to continue to operate is in immediate jeopardy.

We are a regenerative therapies company developing and marketing products 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 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, and is estimated to be an approximate $13.4 billion global market, with the number of patients suffering from all forms of chronic wounds projected to increase worldwide at a rate of approximately eight percent per year through 2025.

The Aurix System produces a platelet rich plasma, or PRP, gel at the point of care using the patient’s own platelets and plasma. Aurix comprises a natural, endogenous complement of protein and non-protein signal molecules that contribute to effective healing. During treatment, the patient’s platelets are activated and release hundreds of growth factor proteins and other signaling molecules that form a biologically active hematogel. Aurix delivers concentrations of the natural complement of cytokines, growth factors and chemokines that are known to regulate angiogenesis (i.e., the development of new blood vessels), cell growth and the formation of new tissue. Once applied to the prepared wound bed, the biologically active Aurix hematogel can restore the balance in the wound environment to transform a non-healing wound to a wound that heals naturally.

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.  CED programs have been employed for a variety of other therapies, including transcatheter aortic valve repair and cochlear implantation.  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.  Under the CED program, a facility treating a patient with Aurix is reimbursed by Medicare when health outcomes data are collected to inform future coverage decisions. The intent of the CED program is to evaluate the outcomes of Aurix therapy for the broader Medicare population when it is used in a “real world” continuum of care.  

Since early 2015, we have been primarily pursuing enrollment of patients into three clinical study protocols authorized and approved by CMS under CED.  Under these three protocols, Aurix can be used for venous, pressure and diabetic foot ulcers for wound types of all severities and for patients with various and often difficult comorbidities.  The Company’s collaboration with Restorix Health, Inc., or Restorix, initiated in 2016, was intended to expand patient enrollment in these three protocols. The Company and Restorix have been unsuccessful in meaningfully expanding patient enrollment in the three clinical study protocols and the collaboration is effectively on hold pending clarity on the outcome of our discussions with CMS described below under “Our Strategy”.

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Although FDA cleared the Aurix System for marketing in 2007 under Section 510(k) of the FDCA, CMS only established economically viable reimbursement for the product beginning in 2016. For 2018, the CMS national average reimbursement rate for the Aurix System is $1,568 per treatment, which we believe provides appropriate payment to facilities for product usage. The Company markets the Aurix System at a cost of $700 per treatment to wound care facilities operating in the CED program.

Our Strategy

In light of our unsuccessful discussions with CMS’ Coverage and Analysis Group (CAG) concerning our request to reopen the NCD for diabetic foot ulcers (DFU) in a timely manner based on the evidence collected under CED to date for this wound etiology, we are considering all possible options with regards to Aurix as a product and the Company’s continued viability.

On October 22, 2018, Company’s management met with representatives of 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 physician engagement.

At the meeting and based on a suggestion from CAG representatives in prior conversations, we presented preliminary statistical data from the three protocols with an emphasis on diabetic foot ulcers (DFUs) as that protocol had the largest enrollment.  The preliminary analysis indicated that there was a statistically significant healing benefit for the treatment arm (Aurix plus Usual and Customary Care) versus Usual and Customary Care (UCC) alone.  Uniquely for these CED protocols intended to represent real world clinical practice, UCC was defined to include essentially any wound care therapy which the treating clinician and patient determined was in the best interests of promoting a healing benefit for the wound.

After our October 2018 meeting, we continued in periodic dialogue with CAG and responded to a request for further analysis of the study data for DFUs and to prepare a draft manuscript appropriate for submission to a peer-reviewed scientific journal that CAG  could use to perform a more substantive review of the study data and outcomes.   We submitted the draft manuscript to CAG in January 2019 and a revised draft in late March 2019 based on questions and clarification requested by CAG in early March.   A substantially similar manuscript was submitted for consideration to the wound care journal, Advances in Skin and Wound Care.  The accepted journal article entitled “A Pragmatic Randomized Controlled Trial Conducted Under Medicare’s Coverage with Evidence Development (CED) Paradigm Demonstrates Aurix Gel is an Effective Intervention for Chronic Diabetic Foot Ulcers” has the following highlights and was published in the September 2019 edition of Advances in Skin and Wound Care along with online access available at https://journals.lww.com/aswcjournal/pages/default.aspx:

● An Intent to Treat population of 129 patients with DFUs were randomized to either Aurix (n=66) or UCC (n=63) in 28 wound care centers.

● Given the intent to focus on standard clinical practice, the study included more severe wounds and a range of difficult comorbidities that are normally not allowed in traditional clinical trials conducted in wound care.

● 84% of wounds were classified as Wagner grade 2 or 3 (an additional 8% Wagner grade 4) representing wound severity far more pronounced than seen in standard wound care clinical studies.

● 48.5% (32) of Aurix treatment arm and 30.2% (19) of UCC only control arm wounds healed within the study’s 12-week treatment period (p=0.0304).

● In a smaller subgroup of 80 patients where Aurix was the only advanced wound care therapy utilized; i.e., only standard of care dressings and ointments with no usage of hyperbaric oxygen, negative pressure wound therapy, and/or cellular/tissue products:

o 51% (26/51) of Aurix treatment arm wounds healed

o 27.6% (8/29) of UCC only control arm wounds healed.

● Smoking (52%) and peripheral arterial disease (43%) were the most prevalent health risks and comorbidities present in the study population.

● There was no statistical association between these health risks/comorbidities and the treatment and control arms that would confound interpretation of the healing outcomes between the two arms.

We believe these data for DFUs as collected and analyzed under CED in combination with the other clinical evidence collected and published by the Company over the past several years provides sufficient evidence to warrant a re-opening of the NCD for DFUs and an ultimate determination that coverage of Aurix is appropriate and in the best interests of Medicare beneficiaries.   

We met again with CAG representatives on April 18, 2019 to further discuss the data collected for DFUs in the CED study including opposing interpretations of the appropriate statistical analysis of the data and the generalizable conclusions that might reasonably be made to Medicare beneficiaries as a whole and as a result of the data.   We indicated that we believed the data were remarkably consistent in indicating a positive treatment effect for Aurix especially in view of the wound severities and the health risks and co-morbidities present in the study population.   We reiterated the position emphasized in previous discussions that coverage determinations for autologous blood products used in the treatment of chronic, non-healing wounds should be based on clinical data and outcomes specific to individual products as unique product attributes can lead to differing healing outcomes and that PRP products are improperly considered as essentially the same products.

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On May 8, 2019, we submitted a complete formal request for reconsideration in accordance with the requirements of the Federal Register Notice of August 2013.  On May 17, 2019, we submitted a letter memorandum in support of our reconsideration request summarizing the Company’s efforts over the past 10+ years to obtain a favorable coverage determination for Aurix based on Medicare’s standard of “reasonable and necessary”.  We expressed the view that the totality of clinical data collected over multiple years on healing outcomes from the use of Aurix does, in fact, provide sufficient evidence to warrant a favorable coverage decision because it improves clinically meaningful health outcomes for the Medicare population.  In conclusion, we asserted that a failure to grant a reconsideration request for Aurix that leads to a favorable coverage determination was equivalent to the denial of product access to Medicare beneficiaries by CMS and in direct opposition to recent CMS leadership statements that they "are committed to removing government barriers and modernizing regulations around new technologies to ensure safe and effective treatments are readily accessible to beneficiaries without delaying patient care.”

On June 13, 2019, CMS informed us that our reconsideration request was being accepted but that action would be postponed due to internal capacity restraints. CMS indicated that the August 2013 Federal Register Notice permitted them to “prioritize…requests based on the magnitude of the potential impact on the Medicare program and its beneficiaries…” CMS provided no indication at the time of when their resources would allow the request to be acted upon. On July 29, 2019, we met again with CMS to discuss the NCD situation including the timing of any action to be taken on the accepted reconsideration request.  In an email communication received on August 7, 2019, CMS expressed significant reservations about the CED “study design and adherence to that design,... the wide variation in clinical care patients in both [treatment] groups…and the statistical analysis.”  They indicated a recognition of the very real operational and execution challenges we faced in conducting the CED studies and offered to work with us on an alternate study design.  CMS also indicated in such communication that the NCD would likely not be reopened until sometime in 2020.

We presently lack the resources to adopt and execute an alternate study design and are skeptical of the ability to attract additional third-party capital for such purposes given the experience with CED to date and CMS’ inability or unwillingness to indicate what would constitute sufficient evidence warranting a favorable coverage determination.   We are presently considering all possible options with regards to Aurix as a product and the Company’s continued viability.

The expansion of Medicare reimbursement to patients outside of CED can be achieved only after a successful NCD re-determination. There are no assurances that broad access and reimbursement can be achieved. Because Medicare beneficiaries represent the majority of chronic wound patients in the United States and since commercial insurance coverage determinations often follow CMS coverage and reimbursement decisions, we believe that a decision to reopen the NCD for diabetic foot ulcers would substantially increase the potential commercial value of Aurix. Thus, we continue to believe that the market for innovative technologies that harness the innate regenerative capacity of the human body to trigger natural healing represents a significant opportunity from both a clinical and a business perspective.

Even under any plausible scenario by which we can access sufficient short-term capital in a time frame necessary for us to avoid the complete cessation of normal business operations or liquidation in the immediate future, we will require significant additional capital to fully support an expanded commercialization initiative designed to increase market adoption and penetration of Aurix. See “– Liquidity and Capital Resources.

The Science Underlying Aurix/Platelet Rich Plasma

Normal Wound Healing

The science underlying wound healing is well-established. An immediate early event critical for wound healing is the influx of platelets to the wound site. Platelets bind to elements within damaged tissue such as collagen fragments and endogenous thrombin molecules and are activated to release a diversity of growth factors and other biomolecules from their alpha and dense granules (Reed 2000, Nieswandt, 2003). These biomolecules provide signals essential for biological responses regulating hemostasis and effective tissue regeneration.

Chronic Wounds

Dysregulation of numerous cellular and biological responses contribute to the chronic wound phenotype. Chronic wounds have reduced levels of growth factors and concomitant decreases in cellular proliferation (Mast 1996). There is increased cellular senescence (Telgenhoff 2005), and there generally is a lack of perfusion that can inhibit the delivery of nutrients and cells required for regeneration (Guo 2010). As the body attempts to stave off infection, elevated concentrations of free radicals accumulate in the chronic wound and further damage surrounding tissue (Moseley 2004, James 2003).

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Aurix Therapy

Aurix has been cleared by FDA as safe and effective with an indication for chronic wounds such as leg ulcers, pressure ulcers, and diabetic ulcers and other exuding wounds such as mechanically or surgically debrided wounds. The Aurix therapeutic is formed by mixing a sample of a patient’s platelets and plasma with pharmaceutical grade thrombin and ascorbic acid. The thrombin activates platelets while ascorbic acid drives the synthesis of high tensile strength collagen, clears damaging free radicals and controls gel consistency. The topical dermal application of Aurix gel bypasses the lack of local perfusion to provide immediate signals for new tissue formation and ultimately healing.

The Efficacy of Aurix Relates to Biological Activity Released by Platelets

Regenerative Capacity

More than 300 proteins are released by human platelets in response to thrombin activation (Coppinger, 2004). Important examples include vascular endothelial cell growth factor (VEGF), platelet derived growth factor (PDGF), epidermal growth factor (EGF), fibroblast growth factor (FGF) and transforming growth factor-beta (TGF-B) (Eppley 2004, Everts 2006). These proteins are critical for organized wound healing, regulating responses such as vascularization, cell proliferation, cell differentiation, and deposition of new extracellular matrix (Goldman 2004). Platelets also release chemokines such as Interleukin-8 (IL-8), stromal cell derived factor-1 (SDF-1), and platelet factor-4 (PF-4) (Chatterjee 2011, Gear 2003) that control the mobilization and migration of stem cells and fibroblasts, (Werner 2003 and Gillitzer 2001) that contribute to tissue regeneration. 

Anti-infective Activity

Populations of bioburden in chronic wounds vary over time and wounds invariably retain or become re-infected with some level of bacteria that is detrimental to healing (Howell-Jones 2005). In addition to regenerative capacity, platelets release anti-microbial peptides effective against a broad range of pathogens including Methicillin Resistant Staphylococcus Aureus (MRSA) (Moojen 2007, Jia 2010, Tang 2002, Bielecki 2007).

Clinical Efficacy

Multiple efficacy and effectiveness studies have been published in peer reviewed journals documenting the impact of using Aurix to treat chronic wounds. Key data beyond what is discussed above concerning the recently analyzed CED data in DFUs include:

● In a double blinded randomized controlled trial, 81% of the most common-sized diabetic foot ulcers healed with Aurix compared with 42% of control wounds. Mean time to healing was 6 weeks. (Driver V, Hanft J, Fylling, C et al.:  A Prospective, Randomized, Controlled Trial of Autologous Platelet-Rich Plasma Gel for the Treatment of Diabetic Foot Ulcers. Ostomy Wound Management, 2006; 52(6): 68-87.) 

● In 285 chronic wounds in 200 patients, 96.5% of the wounds had a positive response within an average of 2.2 weeks with an average of 2.8 Aurix treatments (de Leon J, Driver VR, Fylling CP, Carter MJ, Anderson C, Wilson J, et al.:  The Clinical Relevance of Treating Chronic Wounds With an Enhanced Near-physiological Concentration of Platelet-Rich Plasma (PRP) Gel.  Advances in Skin and Wound Care, 2011; 24(8), 357-368.) 

● In a retrospective, longitudinal study of 40 Wagner grade II through IV diabetic foot ulcers, most with critical limb ischemia, wounds increased in size in the approximate 100 days prior to the initiation of comprehensive wound care treatment. Upon treatment with debridement, revascularization, antibiotics and off-loading, the wounds continued to increase in size over a subsequent 75-day period. Once they were then treated with Aurix, the wounds immediately changed healing trajectory and 83% of the wounds healed with an average of 6.1 Aurix treatments per wound (Sakata, J., Sasaki, S., Handa, K., et al.  A Retrospective, Longitudinal Study to Evaluate Healing Lower Extremity Wounds in Patients with Diabetes Mellitus and Ischemia Using Standard Protocols of Care and Platelet-Rich Plasma Gel in a Japanese Wound Care Program. Ostomy Wound Management, 2012; 58(4):36-49.)

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Results of Operations

Comparison of Three Months Ended September 30, 2019 and 2018

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, 2019			Three months ended September 30, 2018
Product sales	$	58,000		$	65,000
Royalties		-			195,000
Total revenues		58,000			260,000
Product cost of sales		35,000			45,000
Total cost of sales		35,000			45,000
Gross profit	$	23,000		$	215,000
Gross margin %		40	%		83	%

Revenues decreased by $202,000 to $58,000 comparing the three months ended September 30, 2019 to the three months ended September 30, 2018. The decrease was primarily attributable to the absence of the $195,000 royalty revenue recognized in the prior year period for the Aldeflour royalty buyout. 

Overall gross profit decreased $192,000 to $23,000 while overall gross margin decreased to 40% from 83%, comparing the three months ended September 30, 2019 to the three months ended September 30, 2018. The decrease in gross profit primarily reflects the absence of the royalty revenue discussed above (with no associated cost).

Operating Expenses

Total operating expenses decreased approximately $565,000 to approximately $62,000 comparing the three months ended September 30, 2019 to the three months ended September 30, 2018. The decrease was primarily due to decreases in research and development and general and administrative expense components from reduced headcount and various cost saving initiatives. A discussion of the various components of operating expenses follows below.

Sales and Marketing

Sales and marketing expenses decreased approximately $17,000 to zero comparing the three months ended September 30, 2019 to the three months ended September 30, 2018.

Research and Development

Research and development expenses decreased approximately $92,000 (97%) to approximately $3,000 comparing the three months ended September 30, 2019 to the three months ended September 30, 2018. The decrease was primarily due to reduced compensation expense as a result of the furlough of company employees effective May 1, 2019 and decreases in all clinical affairs costs.

General and Administrative

General and administrative expenses decreased approximately $456,000 (89%) to $59,000 comparing the three months ended September 30, 2019 to the three months ended September 30, 2018.  The decrease was primarily due to (i) an approximately $233,000 decrease in employee payroll compensation expense due to the furlough of company employees effective May 1, 2019 and (ii) the aggregate decrease across multiple expense categories including professional fees, IT services, and board fees resulting from the effective ceasing of normal business operations.

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Other Income (Expense)

Other expense, net decreased by approximately $184,000 to approximately $54,000 comparing the three months ended September 30, 2019 to the three months ended September 30, 2018.  The increase was primarily due to a charge of approximately $235,000 for fair value of derivatives in excess of convertible notes in the prior year period partially offset by (i) $7,000 in cash fees and $20,000 increase in principal balance related to August 2019 amendments to the 2018 Convertible Notes treated as interest expense, and (ii) a difference of approximately $30,000 between a gain of sale of assets of approximately $14,000 for the three months ended September 30, 2018 compared to a loss on abandonment of assets of approximately $16,000 for the three months ended September 30, 2019.

Comparison of Nine Months Ended September 30, 2019 and 2018

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, 2019			Nine months ended September 30, 2018
Product sales	$	141,000		$	270,000
Royalties		-			288,000
Total revenues		141,000			558,000
Product cost of sales		97,000			132,000
Total cost of sales		97,000			132,000
Gross profit	$	44,000		$	426,000
Gross margin %		31	%		76	%

Revenues decreased by $417,000 to $141,000 comparing the nine months ended September 30, 2019 to the nine months ended September 30, 2018. The decrease was primarily attributable to (i) a $129,000 decrease in Aurix product sales and (ii) the absence of royalty revenues due to the buyout of future Aldeflour related royalties effective September 30, 2018. Aurix revenues declined primarily due to meaningfully lower enrollment in the CED study protocols (and resulting fewer treatments) as study enrollment is now dramatically curtailed in light of ongoing discussions with CAG regarding the NCD reconsideration and as the Company's limited resources have negatively impacted viability perceptions. 

Overall gross profit decreased $382,000 to $44,000 while overall gross margin decreased to 31% from 76%, comparing the nine months ended September 30, 2019 to the nine months ended September 30, 2018. The decrease in gross profit primarily reflects (i) the absence of the royalty revenue discussed above (with no associated cost) and (ii) the negative impact on gross profit from the decreased Aurix product sales discussed above.

Operating Expenses

Total operating expenses decreased approximately $1,002,000 to approximately $1,087,000 comparing the nine months ended September 30, 2019 to the nine months ended September 30, 2018. The decrease was primarily due to decreases in research and development and general and administrative expense components for employee compensation and various cost saving initiatives. A discussion of the various components of operating expenses follows below.

Sales and Marketing

Sales and marketing expenses decreased approximately $69,000 (70%) to approximately $30,000 comparing the nine months ended September 30, 2019 to the nine months ended September 30, 2018. The decrease was primarily due to elimination of the remaining direct sales personnel early in the first quarter 2018.

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Research and Development

Research and development expenses decreased approximately $313,000 (63%) to approximately $181,000 comparing the nine months ended September 30, 2019 to the nine months ended September 30, 2018. The decrease was primarily due to reduced headcount in the clinical affairs area and the May 1, 2019 furlough of company employees resulting in corresponding lower compensation expenses and decreased clinical affairs costs as a result of reduced CED activity.

General and Administrative

General and administrative expenses decreased approximately $621,000 (41%) to $876,000 comparing the nine months ended September 30, 2019 to the nine months ended September 30, 2018.  The decrease was primarily due to (i) an approximately$ 540,000 decrease in employee payroll compensation expense due to reduced headcount and the May 1, 2019 furlough of company employees, and (ii) an aggregate decrease across multiple expense categories including board fees, insurance, and information technology services resulting from the effective ceasing of normal business operations which was partially offset by an approximately $240,000 bad debt recovery in the prior year nine month period ending September 30, 2018.

Other Income (Expense)

Other expense, net decreased by approximately $38,000 to approximately $210,000 comparing the nine months ended September 30, 2019 to the nine months ended September 30, 2018.  The decrease was primarily due to a charge of approximately $235,000 for fair value of derivatives in excess of convertible notes in the prior year period partially offset by increased interest expense of approximately $185,000 comprised primarily of (i) approximately $24,000 increased amortization of debt discount and (ii) $69,000 in cash fees and $60,000 increase in principal balance related to the March, May, June and August 2019 amendments to the 2018 Convertible Notes.

Liquidity and Capital Resources

We have depleted our cash resources and our ability to continue to operate is in immediate jeopardy. At September 30, 2019, we had cash and cash equivalents of approximately $17,000, total current assets of approximately $24,000 and total current liabilities of approximately $1.3 million. As of January 27, 2019, we had cash and cash equivalents of approximately $10,000.  As of May 1, 2019, we ceased normal payroll practices with regards to our remaining employees and furloughed our employees pending access to additional resources and a resolution to the discussions with CMS concerning the Aurix reconsideration request.

We have a history of losses and are not currently profitable. Our ongoing operating revenues have continued to decline significantly since 2016. For the nine months ended September 30, 2019, we incurred a net loss of approximately $1.25 million.  As of September 30, 2019, our accumulated deficit was approximately $23.5 million and our stockholders' deficit was approximately $1.3 million.

During the year ended December 31, 2018, the Company was able to monetize several of its remaining assets, including through agreements with Rohto and with STEMCELL.  While the sale of those assets provided critical inflow of funds to alleviate the Company's ongoing liquidity concerns, the Company now has no further assets left to monetize. 

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

Convertible Note Issuance and Amendments 

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

The 2018 Convertible Notes had an original maturity 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 maturity date of the note issued to EMA could be extended up to one year beyond the original maturity date at the option of EMA. The maturity date of the EMA note was extended until June 17, 2020 by EMA in conjunction with the third amendment to the convertible note discussed below.

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Under the original terms of the notes, 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, to the extent that it is not then in default under the notes. Under the original terms of the notes, beginning on the date that is 181 days following the date of issuance, the Company may no longer prepay the notes. Under the original terms of the notes, after six months from the date of issuance, the Convertible Note 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 issuance of securities that do not meet the requirements of “exempt issuance” as defined in the notes.

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

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 being issued if converted).

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 such note. Upon the occurrence of an event of default, the Investors may require the Company to redeem the note (or convert it into shares of common stock) at 150% of the outstanding principal balance plus accrued and unpaid interest. The notes also 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).

Senior Secured Note Issuance

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

In conjunction with the note issuance, the Company granted a first-priority security interest in all the assets of the Company but fundamentally consisting of the Aurix asset including all regulatory files and approvals and relevant intellectual property. 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 Senior Note Investors by the Company.

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

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

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Fifth Amendment to 2018 Convertible Notes

On December 10, 2019, the Company entered into fifth amendments to the 2018 Convertible Notes pursuant to which the Company’s obligations under such notes will be extinguished in their entirety upon receipt by each Convertible Note Investor of (i) a cash payment of $110,000 and (ii) 175,000 unrestricted shares of the Company’s common stock no later than February 10, 2020. The Company made the required cash payments totaling $220,000 on December 10, 2019. Issuance of the common shares is expected to occur shortly after the filing of the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019.

Current Liquidity Situation

Our continuing losses and depleted cash 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 business operations.   If we are unable within the next 90 days to raise substantial additional funds, we will likely be forced to permanently 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 outstanding 2018 Convertible Notes, the Senior Notes, and the liquidation preference of the holder of our Series A Preferred Stock.

Any equity financings, to the extent permitted under the terms of the 2018 Convertible Notes and the Certificate of Designations for our Series A Preferred Stock, 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 restricted under the terms of the 2018 Convertible Notes and the Certificate of Designations for our Series A Preferred Stock) may require us to comply with onerous financial covenants and restrict our business operations.   The 2018 Convertible Notes, for example, contain severely restrictive covenants and default provisions.  Our ability to complete additional financings is dependent on, among other things, 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, market reception of the Company and perceived likelihood of success of our business model, 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 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 adequate capital cannot be obtained on a timely basis and on satisfactory terms, it would continue to have a material adverse effect on our ability to reinitiate business operations, and our revenues and operations and the value of our common stock would continue to be materially negatively impacted and we may be forced to permanently cease our 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, 2018.

Cash Flows

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

	Nine months ended September 30, 2019			Nine months ended September 30, 2018
Cash flows used in operating activities	$	(620,000	)	$	(1,261,000	)
Cash flows used in investing activities	$	-		$	2,000
Cash flow provided by financing activities	$	-		$	816,000

Operating Activities

Cash used in operating activities for the nine months ended September 30, 2019 of approximately $620,000 primarily reflects our net loss of approximately $1,253,000 adjusted by (i) approximately $434,000 increase for changes in operating assets and liabilities, (ii) approximately $101,000 combined non-cash debt discount amortization and increase in the convertible note principal balance, and (iii) approximately $75,000 of depreciation expense.

Cash used in operating activities for the nine months ended September 30, 2018 of approximately $1,261,000 million primarily reflects our net loss of approximately $1,910,000 million adjusted by (i) approximately $231,000 net change in fair value of derivative liabilities, (ii) approximately $77,000 of depreciation expense, and (iii) an approximately $538,000 increase for changes in operating assets and liabilities partially offset by an approximately $240,000 bad debt recovery.

Investing Activities Investing Activities

We did not have any material investing activities for the nine months ended September 30, 2019 and 2018. 

26

Financing Activities

We did not have any financing activities for the nine months ended September 30, 2019.

Cash provided by financing activities for the nine months ended September 30, 2018 of approximately $816,000 represents the sale of 1,000,000 shares of common stock to Rohto for net proceeds of $500,000 in June 2018 and net proceeds of approximately $316,000 from the issuance of two convertible notes in September 2018.

Inflation

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

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

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

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. 

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.

Adopted Accounting Guidance

For a discussion of significant accounting guidance recently adopted, see Note 2 of the Notes to Unaudited Consolidated Financial Statements included elsewhere herein.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable. 

27

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, 2019. 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, 2019 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.

28

PART II
 
OTHER INFORMATION

Item 1. Legal Proceedings.

None.

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
10.1	Convertible Promissory Note Fourth Amendment with Auctus Fund LLC dated August 6, 2019 (previously filed on August 7, 2019 as Exhibit 10.1 to the Current Report on Form 8-K and incorporated by reference herein).
10.2	Convertible Promissory Note Fourth Amendment with EMA Financial LLC dated August 6, 2019 (previously filed on August 7, 2019 as Exhibit 10.2 to the Current Report on Form 8-K and incorporated by reference herein).
10.3	Form of Senior Secured Promissory Note (previously filed on November 20, 2019 as Exhibit 4.1 to the Current Report on Form 8-K and incorporated by reference herein)
10.4	Form of Warrant (previously filed on November 20, 2019 as Exhibit 4.2 to the Current Report on Form 8-K and incorporated by reference herein)
10.5	Form of Security Agreement (previously filed on November 20, 2019 as Exhibit 4.3 to the Current Report on Form 8-K and incorporated by reference herein)
10.6	Note Purchase Agreement dated November 15, 2019 (previously filed on November 20, 2019 as Exhibit 10.1 to the Current Report on Form 8-K and incorporated by reference herein)
10.7	Convertible Promissory Note Fifth Amendment with Auctus Fund LLC dated December 10, 2019 (previously filed on December 12, 2019 as Exhibit 10.1 to the Current Report on Form 8-K and incorporated by reference herein)
10.8	Convertible Promissory Note Fifth Amendment with EMA Financial LLC dated December 10, 2019 (previously filed on December 12, 2019 as Exhibit 10.2 to the Current Report on Form 8-K and incorporated by reference herein)
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, 2019, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at September 30, 2019 and December 31, 2018, (ii) Consolidated Statements of Operations for the three and nine month periods ended September 30, 2019 and 2018, (iii) Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine month periods ended September 30, 2019 and 2018, (iv) Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2019 and 2018 and (v)  Notes to the Unaudited Consolidated Financial Statements.

29

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: January 31, 2020
By:	/s/ David E. Jorden
	David E. Jorden Chief Executive Officer and Chief Financial Officer
	(Principal Executive Officer and Principal Financial Officer)

30

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 registrantas 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: January 31, 2020
 

/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, 2019 (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: January 31, 2020

/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

Note 4 - Receivables - Accounts and Other Receivable, Net (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Less allowance for doubtful accounts		$ (1,975)
Accounts receivable, net		22,170
Trade Accounts Receivable [Member]
Accounts receivable, gross		24,145
Less allowance for doubtful accounts		$ (2,000)

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Preferred stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
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	100,000,000
Common stock, shares issued (in shares)	23,722,400	23,722,400
Common stock, shares outstanding (in shares)	23,722,400	23,722,400

XML

Note 1 - Description of Business

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Nature of Operations [Text Block]

Note

1

– Description of Business

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 - Summary of Concentration Risk (Details) - Customer Concentration Risk [Member]	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Accounts Receivable [Member] | Customer A [Member]
Concentration percentage					58.00%
Accounts Receivable [Member] | Customer B [Member]
Concentration percentage					29.00%
Revenue Benchmark [Member] | Customer A [Member]
Concentration percentage	78.00%		52.00%
Revenue Benchmark [Member] | Customer C [Member]
Concentration percentage		75.00%		52.00%
Revenue Benchmark [Member] | Customer D [Member]
Concentration percentage			13.00%
Revenue Benchmark [Member] | Customer E [Member]
Concentration percentage			12.00%
Revenue Benchmark [Member] | Customer F [Member]
Concentration percentage			11.00%

XML

Note 7 - Equity and Stock-based Compensation - Stock Option Activity (Details) - The 2016 Omnibus Plan [Member] - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Shares outstanding (in shares)	1,616,876
Shares outstanding, weighted-average exercise price (in dollars per share)	$ 0.50
Shares outstanding, weighted-average remaining contractual term (Year)	6 years 80 days	6 years 350 days
Shares outstanding, aggregate intrinsic value
Shares granted (in shares)	125,000
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)
Shares forfeited or expired, weighted-average exercise price (in dollars per share)
Shares outstanding (in shares)	1,741,876	1,616,876
Shares outstanding, weighted-average exercise price (in dollars per share)	$ 0.49	$ 0.50
Shares exercisable (in shares)	1,741,876
Shares exercisable, weighted-average exercise price (in dollars per share)	$ 0.49
Shares exercisable, weighted-average remaining contractual term (Year)	6 years 80 days

XML

Note 9 - Susbequent Events

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Subsequent Events [Text Block]

Note 

9

– Subsequent Events

On

November 15, 2019

and again on

December 6, 2019,

the Company issued

12%

senior secured promissory notes to individual investors in an aggregate principal amount of

$305,000.

The notes have a maturity date of

June 30, 2020

and accrue interest at the rate of

12%

per annum. In conjunction with the issuance of the notes, the Company issued a total of

457,500

warrants to the note investors. In conjunction with issuance of the notes, the Company granted a

first

-priority security interest in all the assets of the Company but fundamentally consisting of the Aurix asset, including all regulatory files and approvals and relevant intellectual property.   The

second

issuance of the note on

December 6, 2019

required the proceeds (subject to a cap) to be used to repay the convertible notes (see below).

On

December 10, 2019,

the Company entered into

fifth

amendments to the convertible notes. The amendments provided for the settlement of all obligations under the convertible notes and their extinguishment upon the (i) payment of an aggregate

$220,000

to the Investors and (ii) issuance of an aggregate

350,000

shares of common stock to the Investors on or before

February 10, 2020.   

Issuance of the common shares is expected to occur shortly after the filing of the Company’s Quarterly Report on Form

10

-Q for the period ended

September 30, 2019.

XML

Note 5 - Property and Equipment

9 Months Ended

Sep. 30, 2019

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, 2019			December 31, 2018
Medical equipment	$	387,665		$	393,156
Office equipment		-			38,104
Software		-			257,619
Manufacturing equipment		-			15,640
Leasehold improvements		-			19,215
		387,665			723,734
Less accumulated depreciation and amortization		(373,172	)		(618,255	)
Property and equipment, net	$	14,493		$	105,479

Depreciation expense of property and equipment was approximately

$24,000

and

$25,000

 for the

three

months ended

September 30, 2019

and

2018,

respectively. Depreciation expense of property and equipment was approximately

$75,000

 and

$77,000

 for the

nine

months ended

September 30, 2019

and

2018,

respectively. All property and equipment except medical equipment was considered abandoned as of

September 30, 2019

and written off with a resulting loss on abandonment of approximately

$16,000.

XML

Note 5 - Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Property, Plant and Equipment [Table Text Block]

	September 30, 2019			December 31, 2018
Medical equipment	$	387,665		$	393,156
Office equipment		-			38,104
Software		-			257,619
Manufacturing equipment		-			15,640
Leasehold improvements		-			19,215
		387,665			723,734
Less accumulated depreciation and amortization		(373,172	)		(618,255	)
Property and equipment, net	$	14,493		$	105,479

XML

Note 7 - Equity and Stock-based Compensation - Stock-based Compensation Expense (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share-based compensation		$ 1,370		$ 5,724
Selling and Marketing Expense [Member]
Share-based compensation		721		2,766
General and Administrative Expense [Member]
Share-based compensation		$ 649		$ 2,958

XML

Note 4 - Receivables (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

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

	September 30, 2019		December 31, 2018
Trade receivables	$	-	$	24,145
Less allowance for doubtful accounts		-		(1,975	)
Accounts receivable, net	$	-	$	22,170

XML

Note 8 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

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.

Effective

September 30, 2019,

the lease on our primary office and warehouse facility located in Gaithersburg, Maryland, comprising approximately

3,000

square feet expired and we vacated the facility. The facility lease with monthly rent, including our share of certain annual operating costs and taxes, totaled approximately

$4,800

per month. Effective

August 1, 2018,

we executed a

first

amendment to a lease agreement comprising approximately

9,000

square feet 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

July 2019,

we voluntarily abandoned the space under the amended lease agreement which was subject to a posted eviction notice.

As of

September 30, 2019,

amounts due under both lease agreements total approximately

$159,000

net of the security deposit which was applied to the outstanding balance.

XML

Note 4 - Receivables

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

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

Note

4

– Receivables

Accounts receivable, net consisted of the following:

	September 30, 2019		December 31, 2018
Trade receivables	$	-	$	24,145
Less allowance for doubtful accounts		-		(1,975	)
Accounts receivable, net	$	-	$	22,170

The allowance for doubtful accounts at

December 31, 2018

of approximately

$2,000

reflects the estimated reserve for trade receivables.

XML

Note 4 - Receivables (Details Textual) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Accounts Receivable, Allowance for Credit Loss, Current		$ 1,975
Trade Accounts Receivable [Member]
Accounts Receivable, Allowance for Credit Loss, Current		$ 2,000

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
ASSETS
Cash and cash equivalents	$ 17,328	$ 636,927
Accounts receivable, net		22,170
Inventory, net	3,083	25,348
Prepaid expenses and other current assets	3,591	182,243
Total current assets	24,002	866,688
Property and equipment, net	14,493	105,479
Deferred costs and other assets		3,330
Total assets	38,495	975,497
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable	649,831	437,325
Accrued expenses and liabilities	204,039	285,199
Accrued interest payable	45,645	12,166
Convertible notes, net	410,000	309,010
Derivative liabilities	13,784	13,784
Total liabilities	1,323,299	1,057,484
Commitments and contingencies (Note 8)
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 shares authorized, 23,722,400 shares issued and outstanding	2,372	2,372
Additional paid-in capital	22,182,273	22,132,273
Accumulated deficit	(23,469,452)	(22,216,635)
Total stockholders' deficit	(1,284,804)	(81,987)
Total liabilities and stockholders' deficit	$ 38,495	$ 975,497

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (1,252,817)	$ (1,910,288)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	75,366	76,994
Fair value of derivatives in excess of convertible notes		234,824
Change in fair value of derivative liabilities		(3,997)
Stock-based compensation		5,724
Bad debt provision (recovery)	1,170	(239,660)
Inventory write-off	13,822
Increase (decrease) in allowance for inventory obsolescence	(8,225)	6,464
Loss on the disposal of fixed assets	15,620	13,938
Amortization of debt discount	40,990	16,667
Non-cash increase in convertible note	60,000
Changes in operating assets and liabilities:
Accounts and other receivables	21,000	99,438
Inventory	16,668	(4,940)
Prepaid expenses and other current assets	178,652	266,622
Other assets	3,330
Accounts payable	212,506	100,720
Accrued expenses and liabilities	(31,160)	79,175
Accrued interest	33,479	1,506
Other liabilities		(4,331)
Net cash used in operating activities	(619,599)	(1,261,144)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment		2,000
Net cash provided by investing activities		2,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		500,000
Proceeds from convertible notes, net		315,800
Net cash provided by financing activities		815,800
Net decrease in cash, cash equivalents and restricted cash	(619,599)	(443,344)
Cash, cash equivalents and restricted cash at beginning of period	636,927	693,515
Cash, cash equivalents and restricted cash at end of period	17,328	250,171
Supplemental cash flow information
Interest expense paid in cash
Income taxes paid in cash
Non-cash investing and financing activities
Issuance of options to settle accrued compensation liabilities		321,250
Debt discount related to issuance of warrants		$ 18,624

XML

Note 2 - Liquidity and Summary of Significant Accounting Principles (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Cash and Cash Equivalents, at Carrying Value, Ending Balance	$ 17,328		$ 17,328		$ 636,927
Accounts Receivable, Allowance for Credit Loss, Ending Balance	0		0		2,000
Accounts Receivable, Credit Loss Expense (Reversal)			1,170	$ (239,660)
Inventory, Finished Goods, Gross, Total	2,000		2,000		15,000
Inventory, Raw Materials, Gross, Total	2,000		2,000		17,000
Inventory Valuation Reserves, Ending Balance	$ 1,000		1,000		$ 7,000
Increase (Decrease) in Allowance for Inventory Obsolescence			(8,225)	6,464
Inventory Write-down			$ 13,822
Percentage of Revenues Generated Outside of United States	0.00%	75.00%	11.00%	52.00%
Income Tax Examination, Penalties and Interest Expense, Total			$ 0	$ 0
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

XML

Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Liquidity, Policy [Policy Text Block]

Liquidity

Since our inception, we have financed our operations by raising debt, issuing equity and equity-linked instruments, and executing licensing arrangements, and to a lesser extent by generating royalties and product revenues.  We have incurred, and continue to incur, recurring losses and negative cash flows.  As of

September 30, 2019,

we have negative working capital and a shareholder deficit.  At

September 

30,

2019,

we had cash and cash equivalents on hand of approximately

$17,000.

During the year ended

December 31, 2018,

the Company was able to monetize several of its remaining assets, including through agreements with Rohto Pharmaceuticals and STEMCELL Technologies.  While the sale of those assets provided critical inflow of funds to alleviate the Company's ongoing liquidity concerns, the Company now has

no

further assets left to monetize and is facing immediate cessation of operations and liquidation. 

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

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

twelve

months that our current resources and projected revenue from sales of Aurix are insufficient to support our operations beyond 

30

days of this filing.  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

30

 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, 2018,

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, 2018.

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. Customer receivable balances in excess of

10%

of total receivables at

September 30, 2019

and

December 31, 2018

were as follows:

	September 30, 2019			December 31, 2018
Customer A		-	%		58	%
Customer B		-	%		29	%

Revenue from significant customers exceeding

10%

of total revenues for the periods presented was as follows:

	Three months ended September 30, 2019			Three months ended September 30, 2018
Customer A		78	%		-	%
Customer C		-	%		75	%

	Nine months ended September 30, 2019			Nine months ended September 30, 2018
Customer A		52	%		-	%
Customer C		-	%		52	%
Customer D		13	%		-	%
Customer E		12	%		-	%
Customer F		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.

Receivable [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, 2019

and

December 31, 2018,

we maintained an allowance for doubtful accounts of

zero

and approximately

$2,000,

respectively. Effective with an executed settlement agreement as of

March 

29,

2018,

we recognized a bad debt recovery of approximately

$240,000

for a prior value added tax receivable in the

nine

months ended

September 30, 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, 2019,

our inventory consisted of approximately

$2,000

 of finished goods and

$2,000

 of raw materials. As of

December 

31,

2018,

our inventory consisted of approximately

$15,000

of finished goods and

$17,000

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, 2019

and

December 31, 2018,

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

$1,000

and

$7,000,

respectively. For the

nine

-month period ending

September 30, 2019,

the Company recorded a provision for inventory obsolescence of approximately

$8,000

and wrote-off approximately

$14,000

of expired inventory. 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 amortization.  Assets are 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. 

Lessee, Leases [Policy Text Block]

Leases

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

The Company has made certain accounting policy elections whereby the Company (i) does

not

recognize ROU assets or lease liabilities for short-term leases (those with original terms of

12

-months or less) and (ii) combines lease and non-lease elements of its operating leases. 

Revenue [Policy Text Block]

Revenue Recognition

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.

Segment Reporting, Policy [Policy Text Block]

Segments and Geographic Information

Approximately

0%

and

75%

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

three

months ended

September 30, 2019

and

2018,

respectively and approximately

11%

and

52%

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

nine

months ended

September 30, 2019

and

2018,

respectively.

Share-based Payment Arrangement [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.

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.

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

2019

and

2018.

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,

2019

and

2018.

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, 2019		Nine months ended September 30, 2018
Shares underlying:
Common stock options		1,741,876		1,291,876
Stock purchase warrants		6,646,666		6,180,000

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Adopted Accounting Standards

In

February 2016,

the Financial Accounting Standards Board (the “FASB”) issued guidance for accounting for leases. The guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. The guidance is effective for reporting periods beginning after

December 15, 2018.

The guidance must be adopted on a modified retrospective basis and provides for certain practical expedients. The Company adopted this guidance effective

January 1, 2019

using the following practical expedients: 

● the Company did not reassess if any expired or existing contracts are or contain leases

● the Company did not reassess the classification of any expired or existing leases.

Additionally, the Company made ongoing accounting policy elections whereby the Company (i) does

not

recognize ROU assets or lease liabilities for short-term leases (those with original terms of

12

-months or less) and (ii) combines lease and non-lease elements of its operating leases. 

Upon adoption of the new guidance on

January 1, 2019,

there was

no

impact on the Company’s financial statements.

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

not

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

Subsequent Events, Policy [Policy Text Block]

Subsequent Events

The Company’s management reviewed all material events through the date the consolidated financial statements were issued for subsequent event disclosure consideration.

XML

Note 6 - Convertible Notes and Stock Purchase Warrants

9 Months Ended

Sep. 30, 2019

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 had an original maturity date

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. Under the original terms of the notes, 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. Under the original terms of 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.   The maturity date of the EMA note was extended until

June 17, 2020

by EMA in conjunction with the

third

amendment to the convertible note discussed below.

Under the original terms of the notes, after

six

months from the date of issuance, the Investors

may

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

40%

discount to the average of the

two

lowest trading prices of the common stock during the

25

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

not

meet the requirements of “exempt issuances” as defined in the notes. 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

$13,784

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%,

the

40%

discount to market price conversion price formula, and a

35%

discount for lack of marketability.  Debt discount 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.

On

March 19, 2019,

May 3, 2019.

June 11, 2019

and again on

August 6, 2019,

the Company entered into amendments to the convertible notes. The amendments extended the date when the Company

may

prepay the notes and deferred the date upon which the Investors can initiate conversion of the notes into common shares of the Company pursuant to the notes’ terms until

September 17, 2019

in the case of the most recent amendment.  The Company paid the Investors amendment fees totaling

$69,000

representing approximately

20%

 of the face value of the convertible notes and agreed to an increase in the principal balance of each note by

$30,000

to

$205,000.

The maturity date of the Auctus note was also extended until

July 31, 2019.

Interest expense, net was

$204,317

 for the

nine

months ended

September 30, 2019

including (i)

$40,990

for amortization of debt discount, (ii)

$69,000

for cash fees associated with amendments to the convertible notes and (iii)

$60,000

increase in the outstanding balance of the notes also in conjunction with note amendments. Interest expense, net was

$39,242

 for the

three

months ended

September 30, 2019

including (i)

$7,000

for cash fees associated with amendments to the convertible notes and (iii)

$20,000

increase in the outstanding balance of the notes also in conjunction with note amendments. For the

three

and

nine

months ended

September 30, 2018,

the Company recognized interest expense, net of approximately

$18,000

and

$19,000,

respectively.

See Note

x

–

Subsequent Events

for the amendment in

December 2018

to settle the convertible note obligations.

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Note 7 - Equity and Stock-based Compensation (Details Textual)			3 Months Ended	9 Months Ended
	May 28, 2018 USD ($) shares	May 05, 2016 USD ($) $ / shares shares	Jun. 30, 2018 shares	Sep. 30, 2019 USD ($) $ / shares shares	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($) $ / shares shares	Sep. 17, 2018 $ / shares shares	Aug. 04, 2016 shares
Authorized Shares, Common and Preferred				101,000,000
Common Stock, Shares Authorized				100,000,000		100,000,000
Preferred Stock, Shares Authorized				1,000,000		1,000,000
Preferred Stock, Par or Stated Value Per Share | $ / shares				$ 0.0001		$ 0.0001
Stock Issued During Period, Shares, New Issues	1,000,000
Preferred Stock, Liquidation Preference, Value | $				$ 29,038,000		$ 29,038,000
Proceeds from Issuance of Common Stock | $	$ 500,000				$ 500,000
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				1,786,524
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				125,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value | $				$ 2,600
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period				0
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total | $				$ 0
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]
Stock Issued During Period, Shares, New Issues			1,000,000
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 | $				$ 50,000
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
Preferred 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 9 - Susbequent Events (Details Textual) - USD ($)	Dec. 10, 2019	Dec. 06, 2019	Aug. 06, 2019	Sep. 17, 2018
Warrants Issued to Investors [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights				466,666
Subsequent Event [Member] | Warrants Issued to Investors [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights		457,500
Senior Secured promissory Notes 12% [Member] | Subsequent Event [Member]
Debt Instrument, Interest Rate, Stated Percentage		12.00%
Debt Instrument, Face Amount		$ 305,000
Convertible Promissory Notes 12% [Member]
Debt Instrument, Interest Rate, Stated Percentage				12.00%
Debt Instrument, Face Amount			$ 205,000
Convertible Promissory Notes 12% [Member] | Subsequent Event [Member]
Debt Instrument, Aggregate Amount for Settlement and Extinguishment	$ 220,000
Debt Instrument, Convertible, Number of Shares Issuable	350,000

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, 2019	Sep. 30, 2018
Share-based Payment Arrangement, Option [Member]
Anti-dilutive securities (in shares)	1,741,876	1,291,876
Warrant [Member]
Anti-dilutive securities (in shares)	6,646,666	6,180,000

XML

Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenue:
Revenue	$ 57,883	$ 260,280	$ 141,277	$ 558,532
Costs of revenue
Costs of sales	34,709	44,856	97,038	132,083
Total costs of revenue	34,709	44,856	97,038	132,083
Gross profit	23,174	215,424	44,239	426,449
Operating expenses
Sales and marketing		16,856	30,457	98,907
Research and development	2,700	95,486	181,185	493,588
General and administrative	59,166	514,876	875,567	1,496,138
Total operating expenses	61,866	627,218	1,087,209	2,088,633
Loss from operations	(38,692)	(411,794)	(1,042,970)	(1,662,184)
Other income (expense)
Interest, net	(39,242)	(18,253)	(204,317)	(18,620)
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	(14,686)	10,996	(5,530)	1,343
Total other income (expense)	(53,928)	(238,084)	(209,847)	(248,104)
Net loss	$ (92,620)	$ (649,878)	$ (1,252,817)	$ (1,910,288)
Loss per common share
Basic (in dollars per share)	$ 0	$ (0.03)	$ (0.05)	$ (0.08)
Diluted (in dollars per share)	$ 0	$ (0.03)	$ (0.05)	$ (0.08)
Weighted average common shares outstanding
Basic (in shares)	23,722,400	23,722,400	23,722,400	23,128,993
Diluted (in shares)	23,722,400	23,722,400	23,722,400	23,128,993
Product [Member]
Revenue:
Revenue	$ 57,883	$ 65,280	$ 141,277	$ 270,375
Royalty [Member]
Revenue:
Revenue		$ 195,000		$ 288,157

XML

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

9 Months Ended

Sep. 30, 2019

Notes Tables

Share-based Payment Arrangement, Option, 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, 2019		1,616,876	$	0.50		6.96	$	-
Granted		125,000	$	0.40		7.00
Exercised		-	$	-		-
Forfeited or expired		-	$	-		-
Outstanding at September 30, 2109		1,741,876	$	0.49		6.22	$	-
Exercisable at September 30, 2019		1,741,876	$	0.49		6.22	$	-

Share-based Payment Arrangement, Cost by Plan [Table Text Block]

	Three Months ended September 30, 2019		Three Months ended September 30, 2018
Research and development	$	-	$	721
General and administrative		-		649
	$	-	$	1,370

	Nine Months ended September 30, 2019		Nine Months ended September 30, 2018
Research and development	$	-	$	2,766
General and administrative		-		2,958
	$	-	$	5,724

XML

Note 5 - Property and Equipment (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Depreciation, Total	$ 24,000	$ 25,000	$ 75,000	$ 77,000
All Property and Equipment Except Medical Equipment [Member]
Gain (Loss) on Disposition of Property Plant Equipment, Excluding Oil and Gas Property and Timber Property			$ (16,000)

XML

Note 2 - Liquidity and Summary of Significant Accounting Principles

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Significant Accounting Policies [Text Block]

Note

2

– Liquidity and Summary of Significant Accounting Principles

Liquidity

Since our inception, we have financed our operations by raising debt, issuing equity and equity-linked instruments, and executing licensing arrangements, and to a lesser extent by generating royalties and product revenues.  We have incurred, and continue to incur, recurring losses and negative cash flows.  As of

September 30, 2019,

we have negative working capital and a shareholder deficit.  At

September 

30,

2019,

we had cash and cash equivalents on hand of approximately

$17,000.

During the year ended

December 31, 2018,

the Company was able to monetize several of its remaining assets, including through agreements with Rohto Pharmaceuticals and STEMCELL Technologies.  While the sale of those assets provided critical inflow of funds to alleviate the Company's ongoing liquidity concerns, the Company now has

no

further assets left to monetize and is facing immediate cessation of operations and liquidation. 

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

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

twelve

months that our current resources and projected revenue from sales of Aurix are insufficient to support our operations beyond 

30

days of this filing.  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

30

 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, 2018,

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, 2018.

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. Customer receivable balances in excess of

10%

of total receivables at

September 30, 2019

and

December 31, 2018

were as follows:

	September 30, 2019			December 31, 2018
Customer A		-	%		58	%
Customer B		-	%		29	%

Revenue from significant customers exceeding

10%

of total revenues for the periods presented was as follows:

	Three months ended September 30, 2019			Three months ended September 30, 2018
Customer A		78	%		-	%
Customer C		-	%		75	%

	Nine months ended September 30, 2019			Nine months ended September 30, 2018
Customer A		52	%		-	%
Customer C		-	%		52	%
Customer D		13	%		-	%
Customer E		12	%		-	%
Customer F		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, 2019

and

December 31, 2018,

we maintained an allowance for doubtful accounts of

zero

and approximately

$2,000,

respectively. Effective with an executed settlement agreement as of

March 

29,

2018,

we recognized a bad debt recovery of approximately

$240,000

for a prior value added tax receivable in the

nine

months ended

September 30, 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, 2019,

our inventory consisted of approximately

$2,000

 of finished goods and

$2,000

 of raw materials. As of

December 

31,

2018,

our inventory consisted of approximately

$15,000

of finished goods and

$17,000

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, 2019

and

December 31, 2018,

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

$1,000

and

$7,000,

respectively. For the

nine

-month period ending

September 30, 2019,

the Company recorded a provision for inventory obsolescence of approximately

$8,000

and wrote-off approximately

$14,000

of expired inventory. 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 amortization.  Assets are 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. 

Leases

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

The Company has made certain accounting policy elections whereby the Company (i) does

not

recognize ROU assets or lease liabilities for short-term leases (those with original terms of

12

-months or less) and (ii) combines lease and non-lease elements of its operating leases. 

Revenue Recognition

The Company analyzes 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.

Segments and Geographic Information

Approximately

0%

and

75%

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

three

months ended

September 30, 2019

and

2018,

respectively and approximately

11%

and

52%

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

nine

months ended

September 30, 2019

and

2018,

respectively.

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.

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.

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

2019

and

2018.

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,

2019

and

2018.

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, 2019		Nine months ended September 30, 2018
Shares underlying:
Common stock options		1,741,876		1,291,876
Stock purchase warrants		6,646,666		6,180,000

Recently Adopted Accounting Standards

In

February 2016,

the Financial Accounting Standards Board (the “FASB”) issued guidance for accounting for leases. The guidance requires lessees to recognize assets and liabilities related to long-term leases on the balance sheet and expands disclosure requirements regarding leasing arrangements. The guidance is effective for reporting periods beginning after

December 15, 2018.

The guidance must be adopted on a modified retrospective basis and provides for certain practical expedients. The Company adopted this guidance effective

January 1, 2019

using the following practical expedients: 

● the Company did not reassess if any expired or existing contracts are or contain leases

● the Company did not reassess the classification of any expired or existing leases.

Additionally, the Company made ongoing accounting policy elections whereby the Company (i) does

not

recognize ROU assets or lease liabilities for short-term leases (those with original terms of

12

-months or less) and (ii) combines lease and non-lease elements of its operating leases. 

Upon adoption of the new guidance on

January 1, 2019,

there was

no

impact on the Company’s financial statements.

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

not

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

Subsequent Events

The Company’s management reviewed all material events through the date the consolidated financial statements were issued for subsequent event disclosure consideration.

XML

Note 5 - Property and Equipment - Property and Equipment, Net (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Property, plant, and equipment, gross	$ 387,665	$ 723,734
Less accumulated depreciation and amortization	(373,172)	(618,255)
Property and equipment, net	14,493	105,479
Medical Equipment [Member]
Property, plant, and equipment, gross	387,665	393,156
Office Equipment [Member]
Property, plant, and equipment, gross		38,104
Technology Equipment [Member]
Property, plant, and equipment, gross		257,619
Manufacturing Equipment [Member]
Property, plant, and equipment, gross		15,640
Leasehold Improvements [Member]
Property, plant, and equipment, gross		$ 19,215

XML

Note 3 - Distribution, Licensing and Collaboration Arrangements

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Distributors and License Agreement [Text Block]

Note

3

– Distribution, Licensing and Collaboration Arrangements

Collaboration Agreement with Restorix Health

On

March 22, 2016,

we entered into a 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

125

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 

not

been extended by the parties.

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”), 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 3 - Distribution, Licensing and Collaboration Arrangements (Details Textual) - Distribution Agreement with Boyalife [Member] - Affiliated Entity [Member]	May 05, 2016 USD ($)
License Agreement, Original Term	5 years
Due from Related Parties, Current, Total	$ 500,000
Maximum Payment on Right Excercisable	250,000
Aurix System [Member]
Distribution Fee per Unit Sold	$ 40

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Jan. 27, 2020
Document Information [Line Items]
Entity Registrant Name	Nuo Therapeutics, Inc.
Entity Central Index Key	0001091596
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
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Interactive Data Current	Yes

XML

Consolidated Statements of Changes in Stockholders' Equity (Deficit) - USD ($)	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2017	29,038	22,722,400
Balance at Dec. 31, 2017	$ 3	$ 2,272	$ 21,155,404	$ (20,674,808)	$ 482,871
Net loss				(670,247)	(670,247)
Stock-based compensation			2,983		2,983
Balance (in shares) at Mar. 31, 2018	29,038	22,722,400
Balance at Mar. 31, 2018	$ 3	$ 2,272	21,158,387	(21,345,055)	(184,393)
Balance (in shares) at Dec. 31, 2017	29,038	22,722,400
Balance at Dec. 31, 2017	$ 3	$ 2,272	21,155,404	(20,674,808)	482,871
Net loss					(1,910,288)
Balance (in shares) at Sep. 30, 2018	29,038	23,722,400
Balance at Sep. 30, 2018	$ 3	$ 2,372	22,000,902	(22,585,096)	(581,819)
Balance (in shares) at Mar. 31, 2018	29,038	22,722,400
Balance at Mar. 31, 2018	$ 3	$ 2,272	21,158,387	(21,345,055)	(184,393)
Net loss				(590,163)	(590,163)
Stock-based compensation			1,371		1,371
Issuance of common stock (in shares)		1,000,000
Issuance of common stock		$ 100	499,900		500,000
Balance (in shares) at Jun. 30, 2018	29,038	23,722,400
Balance at Jun. 30, 2018	$ 3	$ 2,372	21,659,658	(21,935,218)	(273,185)
Issuance of options to settle related party compensation liabilities			321,250		321,250
Net loss				(649,878)	(649,878)
Stock-based compensation			1,370		1,370
Warrant issued in conjunction with convertible notes			18,624		18,624
Balance (in shares) at Sep. 30, 2018	29,038	23,722,400
Balance at Sep. 30, 2018	$ 3	$ 2,372	22,000,902	(22,585,096)	(581,819)
Balance (in shares) at Dec. 31, 2018	29,038	23,722,400
Balance at Dec. 31, 2018	$ 3	$ 2,372	22,132,273	(22,216,635)	(81,987)
Issuance of options to settle related party compensation liabilities			50,000		50,000
Net loss				(679,909)	(679,909)
Balance (in shares) at Mar. 31, 2019	29,038	23,722,400
Balance at Mar. 31, 2019	$ 3	$ 2,372	22,182,273	(22,896,544)	(711,896)
Balance (in shares) at Dec. 31, 2018	29,038	23,722,400
Balance at Dec. 31, 2018	$ 3	$ 2,372	22,132,273	(22,216,635)	(81,987)
Net loss					(1,252,817)
Balance (in shares) at Sep. 30, 2019	29,038	23,722,400
Balance at Sep. 30, 2019	$ 3	$ 2,372	22,182,273	(23,469,452)	(1,284,804)
Balance (in shares) at Mar. 31, 2019	29,038	23,722,400
Balance at Mar. 31, 2019	$ 3	$ 2,372	22,182,273	(22,896,544)	(711,896)
Net loss				(480,288)	(480,288)
Balance (in shares) at Jun. 30, 2019	29,038	23,722,400
Balance at Jun. 30, 2019	$ 3	$ 2,372	22,182,273	(23,376,832)	(1,192,184)
Net loss				(92,620)	(92,620)
Balance (in shares) at Sep. 30, 2019	29,038	23,722,400
Balance at Sep. 30, 2019	$ 3	$ 2,372	$ 22,182,273	$ (23,469,452)	$ (1,284,804)

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

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

9 Months Ended

Sep. 30, 2019

Notes Tables

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

	September 30, 2019			December 31, 2018
Customer A		-	%		58	%
Customer B		-	%		29	%

	Three months ended September 30, 2019			Three months ended September 30, 2018
Customer A		78	%		-	%
Customer C		-	%		75	%

	Nine months ended September 30, 2019			Nine months ended September 30, 2018
Customer A		52	%		-	%
Customer C		-	%		52	%
Customer D		13	%		-	%
Customer E		12	%		-	%
Customer F		11	%		-	%

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

	Nine months ended September 30, 2019		Nine months ended September 30, 2018
Shares underlying:
Common stock options		1,741,876		1,291,876
Stock purchase warrants		6,646,666		6,180,000

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Note 7 - Equity and Stock-based Compensation

9 Months Ended

Sep. 30, 2019

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, it has the authority to issue a total of

101,000,000

shares of capital stock, consisting of 

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 shall determine.

Series A Preferred Stock

On

May 5, 2016,

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. On

May 5, 2016,

the Company issued

29,038

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

1145

of the Bankruptcy Code. The Deerfield Lenders 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 New 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 of the Company.   The Series A Preferred Stock has voting rights, voting with the New 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

6

–

Convertible Notes and Stock Purchase Warrants

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 and Stock Purchase Warrants

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

1,786,524

shares of common stock under the

2016

Omnibus Plan as of

September 30, 2019. 

A summary of stock option activity under the

2016

Omnibus Plan during the

nine

months ended

September 30, 2019

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, 2019		1,616,876	$	0.50		6.96	$	-
Granted		125,000	$	0.40		7.00
Exercised		-	$	-		-
Forfeited or expired		-	$	-		-
Outstanding at September 30, 2109		1,741,876	$	0.49		6.22	$	-
Exercisable at September 30, 2019		1,741,876	$	0.49		6.22	$	-

There were

125,000

stock options granted under the

2016

Omnibus Plan during the

nine

months ended

September 30, 2019

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

nine

months ended

September 30, 2019

was approximately

$2,600.

As the options issued were to related parties, the

$50,000

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

No

stock options were exercised during the

nine

months ended

September 30, 2019.

As of

September 30, 2019,

there was

no

unrecognized compensation cost related to non-vested stock options.

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

	Three Months ended September 30, 2019		Three Months ended September 30, 2018
Research and development	$	-	$	721
General and administrative		-		649
	$	-	$	1,370

	Nine Months ended September 30, 2019		Nine Months ended September 30, 2018
Research and development	$	-	$	2,766
General and administrative		-		2,958
	$	-	$	5,724

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Note 6 - Convertible Notes and Stock Purchase Warrants (Details Textual) - USD ($)			3 Months Ended		9 Months Ended
	Aug. 06, 2019	Sep. 17, 2018	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Proceeds from Convertible Debt						$ 315,800
Amortization of Debt Discount (Premium)					40,990	16,667
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		$ 13,784
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] | Measurement Input, Discount for Lack of Marketability [Member]
Embedded Derivative Liability, Measurement Input		0.35
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%
Debt Instrument, Face Amount	$ 205,000
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, Amendment Fee	$ 69,000				69,000
Debt Instrument, Amendment Fee, Percent of Face Value	20.00%
Debt Instrument, Increase (Decrease) in Principal of Each Note	$ 30,000
Interest Expense, Total			$ 39,242	$ 18,000	204,317	$ 19,000
Amortization of Debt Discount (Premium)			7,000		40,990
Debt Instrument, Increase (Decrease) in Principal			$ 20,000		$ 60,000
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

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Note 8 - Commitments and Contingencies (Details Textual)		9 Months Ended
	Aug. 01, 2018 USD ($) a	Sep. 30, 2019 USD ($) a
Operating Lease, Liability, Total		$ 159,000
Office and Warehouse Facilities in Gaithersburg, Maryland Leases [Member]
Operating Leases, Area | a	9,000	3,000
Operating Leases, Monthly Rent Expense		$ 4,800
Operating Leases, Deferred Monthly Rent Amount	$ 100,000