UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2021.

☐	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 001-36763

H-CYTE, INC

(Exact Name of Registrant as Specified in Its Charter)

Nevada		46-3312262
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification Number)

201 E Kennedy Blvd Suite 425
Tampa, Florida		33602
(Address of Principal Executive Offices)		(Zip Code)

(844) 633-6839

(Registrant’s Telephone Number, Including Area Code)

Securities registered under section 12(b) of the Exchange Act: Common stock, par value $0.001 per share

Securities registered under section 12(g) of the Exchange Act: Not applicable

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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

	Large accelerated filer ☐		Accelerated filer ☐
	Non-accelerated filer ☐		Smaller Reporting Company ☒
	(Do not check if 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

As of February 25, 2022, 245,115,033 shares of the registrant’s common stock were outstanding.

Documents incorporated by reference: None.

TABLE OF CONTENTS

		Page No.
	PART I
ITEM 1.	BUSINESS	4
ITEM 1A.	RISK FACTORS	7
ITEM 1B.	UNRESOLVED STAFF COMMENTS	7
ITEM 2.	PROPERTIES	8
ITEM 3.	LEGAL PROCEEDINGS	8
ITEM 4.	MINE SAFETY DISCLOSURE	8

	PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	8
ITEM 6.	SELECTED FINANCIAL DATA	8
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	9
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	15
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	15
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	16
ITEM 9A	CONTROLS AND PROCEDURES	16
ITEM 9B.	OTHER INFORMATION	17

	PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	18
ITEM 11.	EXECUTIVE COMPENSATION	22
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	23
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	24
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	26

	SIGNATURES AND POWER OF ATTORNEY	27

FORWARD-LOOKING INFORMATION

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or the Company’s future financial performance. H-CYTE has attempted to identify forward-looking statements by using terminology including “anticipates,” “believes,” “expects,” “can,” “continue,” “could,” “estimates,” “intends,” “may,” “plans,” “potential,” “predict,” “should” or “will” or the negative of these terms or other comparable terminology. These statements are only predictions; uncertainties and other factors may cause the Company’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels or activity, performance or achievements expressed or implied by these forward-looking statements. Although H-CYTE believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance, or achievements. The Company’s expectations are as of the date this Annual Report is filed, and it does not intend to update any of the forward-looking statements after the date this Annual Report is filed to confirm these statements to actual results, unless required by law.

This Annual Report also contains estimates and other statistical data made by independent parties and by H-CYTE relating to market size and growth and other industry data. This data involves several assumptions and limitations, and you are cautioned not to give undue weight to such estimates. The Company has not independently verified the statistical and other industry data generated by independent parties and contained in this Annual Report and, accordingly, it cannot guarantee their accuracy or completeness, though it does generally believe the data to be reliable. In addition, projections, assumptions, and estimates of H-CYTE’s future performance and the future performance of the industries in which it operates are necessarily subject to a high degree of uncertainty and risk due to a variety of factors. H-CYTE’s actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including, but not limited to, the possibility that it may fail to preserve its expertise in medical therapy and product research and development; that existing and potential partners may opt to work with, or favor the products of, competitors if its competitors offer more favorable products or pricing terms; that it may be unable to maintain or grow sources of revenue; that it may be unable to attain and maintain profitability; that it may be unable to attract and retain key personnel; that it may not be able to effectively manage, or to increase, its relationships with customers; that it may have unexpected increases in costs and expenses; the effect the current COVID-19 pandemic will have on the Company as further discussed herein. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by H-CYTE.

PART I

ITEM 1.

BUSINESS

Overview

H-CYTE, Inc (“the Company”) is a hybrid-biopharmaceutical company dedicated to developing and delivering new treatments for patients with chronic respiratory and pulmonary disorders. During the last three years, the Company has evolved into two separate divisions with its entrance into the biologics and device development space (“Biotech Division”). This division is complementary to the Company’s current Lung Health Institute (LHI) autologous infusion therapy business (“Infusion Division”) and is focused on underserved disease states. On September 8, 2021, the Company announced that its Lung Health Institute facilities changed their names to Centers for Respiratory Health as the clinics continue to deliver treatments for patients with chronic respiratory and pulmonary disorders. The Company continues its efforts related to the development and commercialization of the DenerveX device outside of the U.S. As of and for the years ended December 31, 2021 and 2020, there has been no material activity.

The consolidated results for H-CYTE include the following wholly-owned subsidiaries: H-CYTE Management, LLC, Medovex Corp, Cognitive Health Institute, LLC, and Lung Institute Tampa, LLC and the results include Lung Institute Dallas, PLLC (“LI Dallas”), Lung Institute Nashville, PLLC (“LI Nashville”), Lung Institute Pittsburgh, PLLC (“LI Pittsburgh”), and Lung Institute Scottsdale, LLC (“LI Scottsdale”), as Variable Interest Entities (“VIEs”). Additionally, H-CYTE Management, LLC is the operator and manager of the various Lung Health Institute (LHI) clinics: LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale. The LI Dallas and LI Pittsburgh clinics did not reopen in 2020 after the temporary closure of all LI clinics due to COVID-19. These two clinics will remain permanently closed. During the first quarter of 2022, the Company decided to close the LI Tampa and LI Nashville clinics, the LI Scottsdale clinic will remain open.

On September 11, 2020, with the closing of the Rights Offering, FWHC, LLC, FWHC Bridge, LLC, and FWHC Bridge Friends, LLC (collectively known as “FWHC”) gained control of the Company by subsequently owning approximately 61% of the fully diluted shares of the Company (for further discussion, see Notes 8 and 9-“Equity Transactions” to the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K).

Impact of COVID-19

The coronavirus outbreak (“COVID-19”) has adversely affected the Company’s financial condition and results of operations. The impact of the COVID-19 outbreak on businesses and the economy in the United States is expected to continue to be significant. The extent to which the COVID-19 outbreak will continue to impact businesses and the economy is highly uncertain. Accordingly, the Company cannot predict the extent to which its financial condition and results of operation will be affected.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency caused by a new strain of the coronavirus and advised of the risks to the international community as the virus spread globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. The spread of COVID-19 coronavirus has caused public health officials to recommend precautions to mitigate the spread of the virus, especially as to travel and congregating in large numbers. In addition, certain states and municipalities have enacted quarantining regulations which severely limit the ability of people to move and travel.

In addition, the Company is uncertain of the full effect the pandemic will have on it for the longer term since the scope and duration of the pandemic is unknown, and evolving factors such as the level and timing of the distribution of efficacious vaccines across the world and the extent of any resurgences of the virus or emergence of new variants of the virus, such as the Delta variant and the Omicron variant, will impact the stability of economic recovery and growth. The Company may experience long-term disruptions to its operations resulting from changes in government policy or guidance; quarantines of employees, customers and suppliers in areas affected by the pandemic; and closures of businesses or manufacturing facilities critical to its business.

Autologous Infusion Therapy (“Infusion Division”)

The Company’s Infusion Division develops and implements innovative treatment options in autologous cellular therapy (PRP-PBMC) to treat chronic lung disorders. Committed to an individualized patient-centric approach, this division consistently provides oversight and management of the highest quality care to the LHI clinics located in Tampa, Nashville, and Scottsdale, while producing positive medical outcomes following the strictest CDC guidelines. During the first quarter of 2022, the Company decided to close the clinics in Tampa and Nashville, the Scottsdale clinic will remain open.

Biotech Development (“Biotech Division”)

During the year ended December 31, 2021, the Company completed a review of the R&D status regarding the exclusive product supply and services agreements with Rion, LLC (“Rion”) to develop and distribute (post U.S. Food & Drug Administration, the “FDA”, approval) a biologic combining its PRP-PBMC (“PRP”) technology with Rion’s exosomes (“EV”) technology for the treatment of chronic obstructive pulmonary disease (“COPD”). The Company has decided to progress alternate technologies and has determined a single entity biologic from an alternative commercial source will be a more viable solution. To that end the Company is progressing alternate biologics and therapeutic devices to meet the needs of the business.

Competition

Developing and commercializing new FDA approved drugs and therapies is highly competitive. The market is characterized by extensive research and clinical efforts and rapid technological change. The Company faces intense competition worldwide from pharmaceutical, biomedical technology, medical therapy, and combination products companies, including major pharmaceutical companies. The Company may be unable to respond to technological advances through the development and introduction of new products. Most of the Company’s existing and potential competitors have substantially greater financial, sales and marketing, manufacturing and distribution, and technological resources. These competitors may also be in the process of seeking FDA (or other regulatory approvals) and patent protection for new products. The Company’s biologics and device product lines also face competition from numerous existing products and procedures, which currently are considered part of the standard of care. The Company believes that the principal competitive factors in its markets are:

	●	determining and progressing suitable biological therapies for specific disease states and the quality of outcomes for medical conditions;

	●	acceptance by physicians and the medical community;

	●	ease of use and reliability;

	●	technical leadership and superiority;

	●	effective marketing and distribution;

	●	speed to market; and

	●	price and qualification for insurance coverage and reimbursement.

The Company will also compete in the marketplace to recruit qualified scientific, management and sales personnel, as well as in acquiring technologies and licenses which it believes will be complementary to its products or advantageous to its business.

The Company is aware that several of its competitors are developing technologies in its current and future products areas. There are numerous autologous cellular therapy providers who make unsubstantiated claims that they are able to treat chronic lung disease. Most of these competitors are small clinics with little brand recognition. The landscape is changing as pharma and biologics companies, as well as academia, begin to develop therapies for multiple diseases using regenerative medicine through the more stringent regulatory pathway of a Biologics License Application (BLA).

Customers

The Company’s customer base consists of individuals who are suffering from chronic lung disease that are searching for alternative or adjunct forms of treatment outside of traditional pharmaceutical care which has not been successful for them in the past.

Government Regulations

Governmental authorities in the U.S. (at the federal, state, and local levels) and abroad extensively regulate, among other things, the research and development, testing, manufacture, quality control, clinical research, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing, and export and import of products such as those we are developing.

FDA Regulation

The Infusion Vertical’s current cellular therapy for chronic lung disease does not require FDA approval due to it being an autologous therapy which is not intended to suggest diagnosis, treatment, cure, or prevention of any disorder. The Company operates in compliance with CFR Title 21 Part 1271.15 (b) Regulation.

In the U.S., the FDA subjects pharmaceutical and biologic products to rigorous review. If the Company does not comply with applicable requirements, it may be fined, the government may refuse to approve its marketing applications or to allow it to manufacture or market its products, and the Company may be criminally prosecuted. Failure to comply with the law could result in, among other things, warning letters, civil penalties, delays in approving or refusal to approve a product, product recall, product seizure, interruption of production, operating restrictions, suspension or withdrawal of product approval, injunctions, or criminal prosecution.

Good Manufacturing Practices (“GMP”)

United States Anti-Kickback and False Claims Laws

In the U. S., there are Federal and State anti-kickback laws that prohibit the payment or receipt of kickbacks, bribes or other remuneration intended to induce the purchase or recommendation of healthcare products and services. Violations of these laws can lead to civil and criminal penalties, including exclusion from participation in Federal healthcare programs. These laws are potentially applicable to manufacturers of products regulated by the FDA as pharmaceuticals, biologics, medical devices, and hospitals, physicians and other potential purchasers of such products. Other provisions of Federal and State laws provide civil and criminal penalties for presenting, or causing to be presented, to third-party payers for reimbursement, claims that are false or fraudulent, or which are for items or services that were not provided as claimed. In addition, certain states have implemented regulations requiring medical device and pharmaceutical companies to report all gifts and payments of over $50 to medical practitioners. This does not apply to instances involving clinical trials.

Although the Company intends to structure its future business relationships with clinical investigators and purchasers of its products to comply with these and other applicable laws, it is possible that some of the Company’s business practices in the future could be subject to scrutiny and challenged by Federal or State enforcement officials under these laws.

Research and Development Expense

Research and development costs and expenses consist primarily of fees paid to external service providers, laboratory testing, supplies, costs for facilities and equipment, and other costs for research and development activities. Research and development expenses are recorded in operating expenses in the period in which they are incurred.

Employees

As of February 25, 2022, the Company had eight full-time employees. None of its employees are represented by a union.

Available Information

The Company’s website, www.hcyte.com, provides access, without charge, to its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission (“SEC”). The information provided on the Company’s website is not part of this report and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.

Materials filed by the Company with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding our company that we file electronically with the SEC.

ITEM 1A.

RISK FACTORS

Not applicable to smaller reporting companies.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable to smaller reporting companies.

ITEM 2.

PROPERTIES

The Company did not renew its corporate office space lease in Tampa, FL which expired on March 31, 2021. The Company leases medical clinic space in Tampa, FL, Nashville, TN, and Scottsdale, AZ. These clinic locations have various expiration dates through August 31, 2023. The leasing arrangements contain various renewal options that are adjusted for increases in the consumer price index or agreed upon rates. The Company also entered into a twelve-month lease extension for its Nashville location beginning November 1, 2021, totaling $94,500. The Dallas, TX lease expired on July 31, 2020, and the Pittsburgh, PA lease expired on October 31, 2020, neither of which were renewed as these clinic locations were permanently closed. The Company does not intend on renewing the clinic space lease in Tampa, FL which expires on March 31, 2022. The Company has decided that its corporate staff will continue working remotely.

The Company believes its existing facilities are suitable to meet current operational needs.

ITEM 3.

LEGAL PROCEEDINGS

The Company is involved in a lawsuit with Sinclair Broadcast Group, Inc. (Sinclair) which was filed on September 8, 2020, in the Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough County, Florida. Sinclair has filed suit alleging breach of contract for advertising services in the amount of approximately $75,000 plus interest and costs. The Company has retained legal counsel for its defense against the suit. The amount is recorded in accounts payable as of December 31, 2021.

The Company is involved in a lawsuit with ITN Networks, LLC (ITN) which was filed on July 22, 2021, in the Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough County, Florida. ITN has filed suit alleging breach of contract for advertising services in the amount of approximately $75,000 plus interest and costs. The Company has retained legal counsel for its defense against the suit. The amount is recorded in accounts payable as of December 31, 2021.

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

On February 23, 2022, the price per share of the Company’s common stock had a high of $0.04 per share, a low of $0.03 per share, and closed at $0.03. The Company had 246 holders of record of common stock as of February 23, 2022.

Dividends

The Company has not declared or paid any cash dividends on its common stock and presently intends on retaining future earnings, if any, to fund the development and growth of the business. Therefore, the Company does not anticipate paying any cash dividends in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

The Company has authorized 2,650,000 options to be available under the Equity Compensation Plan (the “Plan”). As of December 31, 2021, the Company had an outstanding aggregate of 385,000 options to purchase common stock under the Plan at a weighted average price of $1.34 per share to certain employees, consultants, and outside directors.

On April 1, 2021, the Board of Directors of the Company approved and granted to certain directors and officers of the Company an aggregate of 54,750,000 stock options of which 4,750,000 were immediately vested on the date of grant. Each option granted has an exercise price of $0.07 per share and an expiration date of ten years from the date of grant. These options are not included in the Company’s current stock option plan as they were granted outside of the Plan.

ITEM 6.

SELECTED FINANCIAL DATA

Not required for smaller reporting company.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

H-CYTE, Inc (“the Company”) is a hybrid-biopharmaceutical company dedicated to developing and delivering new treatments for patients with chronic respiratory and pulmonary disorders. During the last two years, the Company has evolved into two separate divisions with its entrance into the biologics and device development space (“Biotech Division”). This division is complementary to the Company’s current Lung Health Institute (LHI) autologous infusion therapy business (“Infusion Division”) and is focused on underserved disease states. On September 8, 2021, the Company announced that its Lung Health Institute facilities changed their names to Centers for Respiratory Health as the clinics continue to deliver treatments for patients with chronic respiratory and pulmonary disorders.

The Company continues its efforts related to the development and commercialization of the DenerveX device outside of the U.S. As of and for the years ended December 31, 2021 and 2020, there has been no material activity.

Impact of COVID-19

COVID-19 has adversely affected the Company’s financial condition and results of operations. The impact of the COVID-19 outbreak on businesses and the economy in the United States is expected to continue to be significant. The extent to which the COVID-19 outbreak will continue to impact businesses and the economy is highly uncertain. Accordingly, the Company cannot predict the extent to which its financial condition and results of operation will be affected.

RESULTS OF OPERATIONS

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The following table sets forth certain operational data including their respective percentages of revenues for the years ended December 31, 2021 and 2020:

H-Cyte, Inc

Statement of Operations

	2021			2020			Change			Change %
Revenues	$	1,611,518		$	2,150,672		$	(539,154	)		-25	%

Gross Profit		906,813			1,383,715			(476,902	)		-34	%

Operating Expenses		6,192,417			8,476,059			(2,283,642	)		-27	%

Operating Loss		(5,285,604	)		(7,092,344	)		1,806,740			25	%

Other Income		486,297			633,108			(146,811	)		-23	%

Net Loss	$	(4,799,307	)	$	(6,459,236	)	$	1,659,929			26	%

Net Loss attributable to common stockholders	$	(4,799,307	)	$	(6,781,411	)	$	1,982,104			29	%

Loss per share - Basic and diluted	$	(0.03	)	$	(0.06	)

Weighted average outstanding shares - basic and diluted		145,736,785			111,491,261

Revenue and Gross Profit

Revenue is derived predominantly from the Company’s Infusion Division, which resulted in revenue, net of allowance for refunds, for the years ended December 31, 2021 and 2020, of approximately $1,612,000 and $2,151,000, respectively. The decrease in revenue for the year ended December 31, 2021, as compared to the prior year is attributable to the effect that COVID-19 continues to have on the Company’s vulnerable patient base, sufferers of chronic lung disorders. Due to the disruption caused by COVID-19, the Company did not reopen the Dallas and Pittsburgh clinics after they were closed in March 2020.

For the years ended December 31, 2021 and 2020, the Company generated a gross profit totaling approximately $907,000 (56% of revenue) and $1,384,000 (64% of revenue), respectively. The gross profit percentage decreased in 2021 compared to 2020 due to the Company using higher priced part-time medical staff to treat its patients.

Salaries and Related Costs

For the years ended December 31, 2021 and 2020, the Company incurred approximately $2,214,000 and $3,199,000, respectively, in salaries and related costs. The Company adjusted its corporate structure in 2021 in which it reduced headcount in marketing, sales, and operations. This led to lower salaries and related costs of approximately $985,000 in 2021 compared to 2020.

Other General and Administrative

For the years ended December 31, 2021 and 2020, the Company incurred approximately $2,698,000 and $4,125,000, respectively, in other general and administrative costs. The decrease is attributable to cost saving measures in response to the COVID-19 pandemic. The Company made adjustments to its corporate structure by reducing expenses in marketing, sales, and operations due to decreased patient volume. The Company also closed the Dallas and Pittsburgh clinics permanently in 2020 and reduced the Tampa and Scottsdale clinics to part-time in 2021.

Other Income (Expense)

For the years ended December 31, 2021 and 2020, interest expense was approximately $177,000 and $1,463,000, respectively. The decrease is related to debt and warrants attached to convertible debt outstanding during the year ended December 31, 2020 that were not applicable to 2021.

The changes in fair value of redemption put liability and fair value of the derivative liability - warrants for the year ended December 31, 2020, were approximately $273,000 and $2,987,000, respectively, and were a result of the change in fair value at the end of the reporting period (see Note 1).

Liquidity, Sources of Liquidity, and Going Concern

The Company had approximately $95,000 and $1,641,000 of cash on hand at December 31, 2021 and 2020, respectively.

The Company incurred net losses of approximately $4,799,000 and $6,459,000 for the years ended December 31, 2021 and 2020, respectively. The Company has historically incurred losses from operations and expects to continue to generate negative cash flows as the Company’s revenue activities are curtailed and as the Company implements its business plan. The consolidated financial statements are prepared using generally accepted accounting principles in the United States (“U.S. GAAP”) as applicable to a going concern.

COVID-19 has adversely affected the Company’s financial condition and results of operations. The impact of the outbreak of COVID-19 on the economy in the U.S. and the rest of the world is expected to continue to be significant. The extent to which the COVID-19 outbreak will continue to impact the economy is highly uncertain and cannot be predicted. Accordingly, the Company cannot predict the extent to which its financial condition and results of operations will be affected.

Although cost reduction measures have been taken, the present level of cash is insufficient to satisfy the Company’s current operating requirements. The Company is seeking additional sources of funds from the sale of equity or debt securities or through a credit facility.

There can be no assurance that the Company will be able to raise additional funds or that the terms and conditions of any future financings will be acceptable to the Company or its shareholders. In the event the Company is unable to fund its operations from existing cash on hand, operating cash flows, additional borrowings, or raising equity capital, there is substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

In January 2022, the Company offered certain warrant holders the opportunity to receive an additional warrant to purchase the Company’s Common Stock at $0.014 per share, for a period of five (5) years from issuance for the exercise of each existing warrant originally issued in April 2020 prior to March 31, 2021. As of February 23, 2022, the Company had ten warrant holders exercise an aggregate of 75,257,511 warrants at $0.014 per share resulting in cash proceeds of $1,053,605 to the Company.

The Company filed a Registration Statement on Form S-1 registering the resale of the shares of common stock issuable upon exercise of the warrants issued in the April 2020 financing. The registration statement was declared effective on February 14, 2022.

Convertible Notes Payable

On April 1, 2021, the Company, entered into a Secured Convertible Note Purchase Agreement (the “April 2021 Note Purchase Agreement”) with five (5) investors (the “Holders”). Pursuant to the terms of the April 2021 Note Purchase Agreement, the Company sold promissory notes in the aggregate principal amount of $2,575,000 maturing on March 31, 2022 with an annual interest rate of 8%. The Notes, plus accrued interest, are convertible into shares of Common Stock at a discount of 20% to the price paid for such New Securities in the next round of financing that meets the definition of Qualified Financing as defined in the April 2021 Note Purchase Agreement. The Notes are secured by the assets of the Company under a security agreement with the Holders. The lead investor of the April 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $1,500,000 of the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC, LLC, which is a principal stockholder and related party of the Company. An additional affiliate of FWHC, LLC provided an additional $25,000 as part of the April 2021 Note Purchase Agreement.

On October 14, 2021, H-Cyte, Inc. (the “Company”) entered into the Second Closing Bring Down Agreement (the “October 2021 Note Purchase Agreement”) whereby the five (5) investors who had entered into the April 2021 Note Purchase Agreement purchased new notes in the Company in the aggregate principal amount of $750,000. The Notes are due and payable on March 31, 2022 and bear interest at an annual rate of 8%. The Notes are convertible into shares of Common Stock at a discount of 20% to the price paid for such New Securities in the next financing that meets the definition of a Qualified Financing as defined in the April 2021 Note Purchase Agreement. The Notes are secured by all of the assets of the Company under a security agreement with the Holders. The lead investor of the October 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $437,000 of the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC, LLC, which is a principal stockholder and related party of the Company. An additional affiliate of FWHC, LLC provided an additional $7,000 as part of the October 2021 Note Purchase Agreement. The Company analyzed the debt instruments and determined the embedded conversion features did not qualify as derivatives as described in Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 815-15-25 Derivatives and Hedging, because there was no market mechanism for net settlement, and they were not readily convertible into cash. Thus, the conversion features are not required to be bifurcated from the host instruments and accounted for separately. The Company chose early adoption of ASU 2020-06 Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity effective January 1, 2021, related to the April 2021 and October 2021 Note Purchase Agreements, which resulted in the Notes being accounted for solely as debt on the balance sheet.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which we have prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods.

On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below.

We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this report, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.

Fair Value Measurements

We measure certain non-financial assets at fair value on a non-recurring basis. These non-recurring valuations include evaluating assets such as long-lived assets and non-amortizing intangible assets for impairment; allocating value to assets in an acquired asset group; and applying accounting for business combinations and derivatives.

We use the fair value measurement framework to value these assets and report the fair values in the periods in which they are recorded or written down.

The fair value measurement framework includes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair values in their broad levels. These levels from highest to lowest priority are as follows:

	●	Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities;

	●	Level 2: Quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted on active markets, but corroborated by market data; and

	●	Level 3: Unobservable inputs or valuation techniques that are used when little or no market data is available.

The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. We may also engage external advisors to assist us in determining fair value, as appropriate.

Although we believe that the recorded fair value of our financial instruments is appropriate at December 31, 2021, these fair values may not be indicative of net realizable value or reflective of future fair values.

Revenue Recognition

The Company recognizes revenue in accordance with U.S. GAAP as outlined in the FASB ASC 606, Revenue From Contracts with Customers, which requires that five steps be completed to determine when revenue can be recognized: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfies a performance obligation. The Company records revenue under ASC 606 when control is transferred to the customer, which is consistent with past practice.

The Company uses a standard pricing model for the types of cellular therapy treatments that is offered to its patients. The transaction price accounts for medical, surgical, facility, and office services rendered by LHI for consented procedures and is recorded as revenue. The Company recognizes revenue when the terms of a contract with a patient are satisfied.

The Company offers two types of cellular therapy treatments to their patients:

	1)	The first type of treatment includes medical services rendered typically over a two-day period in which the patient receives cellular therapy. For this treatment type, revenue is recognized in full at time of service.

	2)	The Company also offers a four-day treatment in which medical services are rendered typically over a two-day period and then again, approximately three months later, medical services are rendered for an additional two days of treatment. Payment is collected in full for both service periods at the time the first treatment is rendered. Revenue is recognized when services are performed based on the estimated stand-alone selling price for each session of treatment. The Company has deferred recognition of revenue amounting to approximately $414,000 and $634,000 at December 31, 2021 and 2020, respectively.

Management performed an analysis of its customer refund history for refunds issued related to prior year’s revenue. Management used the results of this historical refund analysis to record a reserve for anticipated future refunds related to recognized revenue. At December 31, 2021 and 2020, the estimated allowance for refunds was approximately $9,000 and $77,000, respectively and is recorded as a contra revenue account.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4) during the periods presented, investments in special-purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.

Consulting Agreements

The Company entered into an agreement with Jesse Crowne, a former Director and Co-Chairman of the Board of the Company, to provide business development consulting services for a fee of $5,000 per month. The Company incurred expense of approximately $35,000 and $10,000 for the years ended December 31, 2021 and 2020, respectively, related to these agreements.

The Company entered into a consulting agreement with Tanya Rhodes of Rhodes & Associates, Inc, effective June 15, 2020, to serve as the Chief Science Officer of the Company. The agreement has a minimum term of six months with an average fee of $21,000 per month plus expenses which increases 5% per month on January 1 of each calendar year unless an alternative retainer amount is negotiated and agreed upon by both parties. The Company extended the contract on January 1, 2021, resulting in monthly expenses of $22,500 plus expenses for services rendered. The Company incurred expense of approximately $252,000 and $122,000 for the years ended December 31, 2021 and 2020, respectively, related to this agreement.

Departure of Directors and Certain Officers, Election of Directors, Appointment of New Board Members and Officers

On January 12, 2021, Mr. William Horne stepped down as Chairman of the board of directors (the “Board”) of H-Cyte, Inc. (the “Company”). Mr. Horne will remain a member of the Board.

On January 12, 2021, Mr. Raymond Monteleone, a member of the Board, was appointed the new Chairman of the Board.

On September 28, 2021, Mr. Robert Greif’s employment agreement with H-Cyte, Inc. (the “Company”) expired, ending his term as the Company’s Chief Executive Officer. The Company chose not to renew his employment agreement.

On September 28, 2021, Ms. Tanya Rhodes, the Company’s Chief Science Officer, was appointed as interim Chief Executive Officer.

On December 1, 2021, Mr. Michael Yurkowsky, a member of the Board, was appointed the new Chief Executive Officer.

On January 17, 2022, Mr. Richard Rosenblum was appointed as a member of the Board.

On January 17, 2022, Mr. Matthew Anderer was appointed as a member of the Board.

Indemnification

We have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving, at our request, in such capacity, to the maximum extent permitted under the laws of the State of Nevada.

The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. However, we maintain directors and officers insurance coverage that may contribute, up to certain limits, a portion of any future amounts paid for indemnification of directors and officers. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal. Historically, we have not incurred any losses or recorded any liabilities related to performance under these types of indemnities.

Additionally, in the normal course of business, we have made certain guarantees, indemnities, and commitments under which we may be required to make payments in relation to certain transactions. These indemnities include intellectual property and other indemnities to our customers and distribution network partners in connection with the sales of our products and therapies, and indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease.

It is not possible to determine the maximum potential loss under these guarantees, indemnities, and commitments due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision.

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which amends the approaches and methodologies in accounting for income taxes during interim periods and makes changes to certain income tax classifications. The new standard allows exceptions to the use of the incremental approach for intra-period tax allocation, when there is a loss from continuing operations and income or a gain from other items, and to the general methodology for calculating income taxes in an interim period, when a year-to date loss exceeds the anticipated loss for the year. The standard also requires franchise or similar taxes partially based on income to be reported as income tax and the effects of enacted changes in tax laws or rates to be included in the annual effective tax rate computation from the date of enactment. Lastly, in any future acquisition, the Company would be required to evaluate when the step-up in the tax basis of goodwill is part of the business combination and when it should be considered a separate transaction. The Company adopted ASU 2019-12, as required, on January 1, 2021 and the adoption did not have a material impact on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06. Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity. The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. Specifically, ASU 2020-06 revises the requirements to separately account for conversion features as a derivative under ASC Topic 815 and it removes the requirement to account for beneficial conversion features on such instruments. The Company chose early adoption of ASU 2020-06 effective January 1, 2021, related to the April 2021 and October 2021 Note Purchase Agreements. Thus, the Notes did not require consideration for a beneficial conversion feature under ASC 470-20 and the Notes were accounted for solely as debt on the balance sheet.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS FOR THE FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID 215)	F-2
Consolidated Balance Sheets as of December 31, 2021 and 2020	F-3
Consolidated Statements of Operations for the years ended December 31, 2021 and 2020	F-4
Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2021 and 2020	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020	F-6
Notes to Consolidated Financial Statements	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

H-CYTE, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of H-CYTE, Inc. (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of their operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has negative working capital, has an accumulated deficit, has a history of significant operating losses and has a history of negative operating cash flow. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.

/s/ Frazier & Deeter, LLC

Tampa, Florida

February 25, 2022

We have served as the Company’s auditor since 2018.

F-2

H-CYTE, INC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	2021			2020
	December 31,
	2021			2020
Assets

Current Assets
Cash	$	95,172		$	1,640,645
Accounts receivable		13,500			-
Patient financing receivable, current portion		43,900			-
Other receivables		-			22,123
Prepaid expenses		44,884			94,434
Total Current Assets		197,456			1,757,202

Right-of-use asset		-			278,552
Property and equipment, net		38,374			139,175
Patient financing receivable, net of current portion		67,163			-
Other assets		18,412			29,239
Total assets	$	321,405		$	2,204,168

Liabilities and Stockholders’ Deficit

Current Liabilities
Accounts payable	$	585,291		$	1,006,968
Accrued liabilities		164,680			276,415
Other current liabilities		28,246			154,812
Notes payable, current portion		69,455			67,444
Convertible notes payable, related parties		1,969,174			-
Convertible notes payable		1,355,826			-
PPP Loan, current portion		66,275			606,811
Deferred revenue		414,025			634,149
Lease liability, current portion		94,805			139,189
Interest payable, related parties		98,055			-
Interest payable		75,048			6,898
Total Current Liabilities		4,920,880			2,892,686

Long-term Liabilities
Lease liability, net of current portion		62,768			157,050
PPP Loan, net of current portion		-			202,271
Total Long-term Liabilities		62,768			359,321

Total Liabilities		4,983,648			3,252,007

Stockholders’ Deficit
Preferred Stock - $.001 par value: 1,000,000,000 shares authorized; Series A Preferred Stock - $.001 par value: 800,000,000 shares authorized, 501,887,534 and 538,109,409 shares issued and outstanding at December 31, 2021 and 2020, respectively.		501,887			538,109
Common stock - $.001 par value: 1,600,000,000 shares authorized, 164,199,792 and 127,159,464 shares issued and outstanding at December 31, 2021 and 2020, respectively.		164,199			127,159
Additional paid-in capital		43,700,084			42,515,999
Accumulated deficit		(49,028,413	)		(44,229,106	)
Total Stockholders’ Deficit		(4,662,243	)		(1,047,839	)

Total Liabilities and Stockholders’ Deficit	$	321,405		$	2,204,168

See accompanying notes to consolidated financial statements.

F-3

H-CYTE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	2021			2020
	December 31,
	2021			2020
Revenues	$	1,611,518		$	2,150,672
Cost of Sales		(704,705	)		(766,957	)
Gross Profit		906,813			1,383,715

Operating Expenses
Salaries and related costs		2,213,862			3,198,867
Share based compensation		1,184,903			-
Loss on disposal of property and equipment		92,803			-
Other general and administrative		2,697,564			4,125,127
Research and development		3,285			1,152,065
Total Operating Expenses		6,192,417			8,476,059

Operating Loss		(5,285,604	)		(7,092,344	)

Other Income (Expense)
Forgiveness of PPP Loan		698,820			-
Gain on extinguishment of short-term notes, related party		-			1,300,088
Interest expense		(176,836	)		(1,462,750	)
Other income (expense)		(35,687	)		(86,816	)
Change in fair value of redemption put liability		-			272,704
Loss on derivative instrument		-			(2,306,121	)
Warrant modification expense		-			(70,851	)
Change in fair value of derivative liability - warrants		-			2,986,854
Total Other Income		486,297			633,108

Net Loss	$	(4,799,307	)	$	(6,459,236	)

Accrued dividends on Series B Convertible Preferred Stock		-			44,456
Deemed dividend on Series D Convertible Preferred Stock		-			277,719
Net Loss attributable to common stockholders	$	(4,799,307	)	$	(6,781,411	)

Loss per share – basic and diluted	$	(0.03	)	$	(0.06	)
Weighted average outstanding shares - basic and diluted		145,736,785			111,491,261

See accompanying notes to consolidated financial statements.

F-4

H-CYTE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

	Shares			Amount			Shares			Amount			Shares		Amount		Capital			Deficit			Deficit
	Preferred Series A Stock						Preferred Series B Stock						Common Stock				Additional Paid-in			Accumulated			Stockholders’
	Shares			Amount			Shares			Amount			Shares		Amount		Capital			Deficit			Deficit
Balances - December 31, 2019		-		$	-			6,100		$	6			99,768,704	$	99,769	$	28,172,146		$	(37,732,663	)	$	(9,460,742	)
Accrued dividends on Series B Convertible Preferred Stock		-			-			-			-			-		-		(44,456	)		-			(44,456	)
Adjustment of exercise price on certain warrants		-			-			-			-			-		-		(438,913	)		-			(438,913	)
Reclassification of Series B warrants to equity		-			-			-			-			-		-		73,805			-			73,805
Reclassification of Series D warrants to equity		-			-			-			-			-		-		337,400			-			337,400
Conversion of Series B Convertible Preferred Stock to Common Stock		-			-			(6,100	)		(6	)		2,119,713		2,120		150,983			-			153,097
Conversion of Series D Convertible Preferred Stock to Common Stock		-			-			-			-			15,773,363		15,773		6,422,441			-			6,438,214
Conversion of Short-term convertible notes payable - related party		35,860,079			35,860			-			-			-		-		412,541			-			448,401
Conversion of April Advance notes - related party		198,194,248			198,194			-			-			-		-		2,579,961			-			2,778,155
Conversion of Short-term convertible notes to Preferred Stock		89,790,089			89,790			-			-			-		-		1,167,271			-			1,257,061
Issuance of warrants pursuant to conversion of Short-term convertible notes		-			-			-			-			-		-		1,004,252			-			1,004,252
Issuance of common stock in connection with extinguishment of short term notes, related parties		-			-			-			-			4,368,278		4,368		214,046			-			218,414
Deemed dividend on Series D Convertible Preferred Stock		-			-			-			-			-		-		(277,719	)		-			(277,719	)
Deemed dividend on Series D Convertible Preferred Stock at issuance		-			-			-			-			-		-		-			(37,207	)		(37,207	)
Reclassification of related party warrants to equity		-			-			-			-			-		-		107,123			-			107,123
Issuance of Common Stock in exchange for consulting fees incurred		-			-			-			-			109,375		109		34,891			-			35,000
Issuance of warrants pursuant to private placement of Series D Convertible Preferred Stock								-			-			-		-		31,902			-			31,902
Issuance of warrants pursuant to extension of convertible short-term notes, related party		-			-			-			-			-		-		17,636			-			17,636
Issuance of warrants pursuant to extension of maturity date on convertible debt		-			-			-			-			-		-		6,595			-			6,595
Issuance of Series A Preferred Stock in Rights Offering, net of issuance costs		218,285,024			218,285			-			-			-		-		2,517,451			-			2,735,736
Stock based compensation		-			-			-			-			-		-		643			-			643
Issuance of Common Stock pursuant to cashless exercise of warrant
Issuance of Common Stock pursuant to cashless exercise of warrant, Shares
Reclassification of Non-controlling interest
Conversion of Series A Preferred Stock to Common Stock		(4,020,031	)		(4,020	)		-			-			4,020,031		4,020		-			-			-
Conversion of warrants to Common Stock		-			-			-			-			1,000,000		1,000		26,000			-			27,000
Net loss		-			-			-			-			-		-		-			(6,459,236	)		(6,459,236	)
Balances - December 31, 2020		538,109,409		$	538,109			-		$	-			127,159,464	$	127,159	$	42,515,999		$	(44,229,106	)	$	(1,047,839	)

	Preferred Series A Stock						Preferred Series B Stock				Common Stock				Additional Paid-in			Accumulated			Stockholders’
	Shares			Amount			Shares		Amount		Shares		Amount		Capital			Deficit			Deficit
Balances - December 31, 2020		538,109,409		$	538,109			-	$	-		127,159,464	$	127,159	$	42,515,999		$	(44,229,106	)	$	(1,047,839	)
Beginning balance		538,109,409		$	538,109			-		-		127,159,464	$	127,159	$	42,515,999		$	(44,229,106	)	$	(1,047,839	)
Conversion of Series A Preferred Stock to Common Stock		(36,221,875	)		(36,222	)		-		-		36,221,875		36,222		-			-			-
Share based compensation		-			-			-		-		-		-		1,184,903			-			1,184,903
Issuance of Common Stock pursuant to cashless exercise of warrant		-			-			-		-		818,453		818		(818	)		-			-
Net loss		-			-			-		-		-		-		-			(4,799,307	)		(4,799,307	)
Balances – December 31, 2021		501,887,534		$	501,887			-	$	-		164,199,792	$	164,199	$	43,700,084		$	(49,028,413	)	$	(4,662,243	)
Ending balance		501,887,534		$	501,887			-	$	-		164,199,792	$	164,199	$	43,700,084		$	(49,028,413	)	$	(4,662,243	)

See accompanying notes to consolidated financial statements.

F-5

H-CYTE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	2021			2020
	December 31,
	2021			2020
Cash Flows from Operating Activities
Net loss	$	(4,799,307	)	$	(6,459,236	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		15,829			81,470
Loss on disposal of property and equipment		92,803			1,342
Amortization of debt discount		-			1,395,007
Forgiveness of PPP loan		(698,820	)		-
Loss on impairment of ROU asset		139,884
Issuance of warrants pursuant to extend short-term notes, related party		-			17,636
Share based compensation expense		1,184,903			643
Common stock issued for consulting services		-			35,000
Income from change in fair value adjustment of derivative liability - warrants		-			(2,986,854	)
Change in fair value of redemption put liability		-			(272,704	)
Change in fair value of derivative liability - Day one derivative loss		-			2,306,121
Bad debt expense		14,399			6,000
Issuance of warrants pursuant to extension of maturity date on convertible debt		-			6,595
Issuance of Common Stock pursuant to warrant exchange		-			27,000
Gain on extinguishment of short-term notes, related party		-			(1,300,088	)
Warrant modification expense		-			70,851
Changes in operating assets and liabilities:
Accounts receivable		(27,900	)		16,667
Patient financing receivable, current portion		(43,900	)		-
Other receivables		22,123			(3,450	)
Patient financing receivable, net of current portion		(67,163	)		-
Prepaid expenses and other assets		60,379			723,578
Interest payable		79,007			36,196
Interest payable, related parties		98,055			-
Accounts Payable		(421,677	)		(478,572	)
Accrued liabilities		(111,735	)		(48,569	)
Other current liabilities		(126,566	)		(20,369	)
Deferred revenue		(220,124	)		(412,007	)
Net Cash Used in Operating Activities		(4,809,810	)		(7,257,743	)

Cash Flows from Investing Activities
Purchase of property and equipment		(7,830	)		(2,284	)
Net Cash Used in Investing Activities		(7,830	)		(2,284	)

Cash Flows from Financing Activities
Proceeds from convertible notes payable, related parties		1,969,174			-
Proceeds from convertible notes payable		1,355,826			-
Proceeds from PPP loan		-			809,082
Payments on PPP Loan		(52,833	)		-
Payment on debt obligations		-			(10,937	)
Proceeds from Secured Convertible Promissory Notes		-			3,842,695
Proceeds from issuance of Series D Convertible Preferred Stock, net of issuance costs		-			100,000
Proceeds from issuance of Preferred Stock Series A, net of issuance costs		-			2,735,736
Net Cash Provided by Financing Activities		3,272,167			7,476,576

Net Change in Cash		(1,545,473	)		216,549

Cash - Beginning of period		1,640,645			1,424,096

Cash - End of period	$	95,172		$	1,640,645

Supplementary Cash Flow Information
Cash paid for interest	$	8,370		$	33,136

Non-cash investing and financing activities
Conversion of Series A Preferred Stock to Common Stock	$	36,222		$	-
Conversion of warrants to Common Stock		818			-
Deemed Dividend on Series D Convertible Preferred Stock		-			314,926
Conversion of Series D Preferred Stock to Common Stock		-			6,438,214
Conversion of related party (Horne) warrants to equity		-			107,123
Reclassification of Series B warrants to equity		-			73,805
Reclassification of Series D warrants to equity		-			337,400
Conversion of Series B Preferred Stock to Common Stock		-			153,097
Conversion of short-term related party convertible notes to Preferred Stock		-			448,401
Conversion of April Advance notes, related parties		-			2,778,155
Conversion of short-term convertible notes to Preferred Stock		-			1,257,061
Issuance of warrants pursuant to conversion of short-term convertible notes		-			1,004,252
Dividends accrued on Series B Preferred Stock		-			44,456
Adjustment of exercise price on certain warrants		-			438,913
Issuance of Common Stock in connection with extinguishment of short-term notes, related party		-			218,414
Issuance of warrants pursuant to private placement of Series D Convertible Preferred Stock		-			31,902

See accompanying notes to consolidated financial statements.

F-6

Notes to consolidated financial statements

Note 1 – Description of the company

DESCRIPTION OF THE COMPANY

Overview

H-CYTE, Inc (“the Company”) is a hybrid-biopharmaceutical company dedicated to developing and delivering new treatments for patients with chronic respiratory and pulmonary disorders. During the last three years, the Company has evolved into two separate divisions with its entrance into the biologics and device development space (“Biotech Division”). This division is complementary to the Company’s current Lung Health Institute (LHI) autologous infusion therapy business (“Infusion Division”) and is focused on underserved disease states. On September 8, 2021, the Company announced that its Lung Health Institute facilities changed its name to Centers for Respiratory Health as the clinics continue to deliver treatments for patients with chronic respiratory and pulmonary disorders.

Impact of COVID-19

F-7

Autologous Infusion Therapy (“Infusion Division”)

Biotech Development (“Biotech Division”)

Note 2 – Basis Of Presentation And Summary of Significant Accounting Policies

Principles of Consolidation

PRINCIPLES OF CONSOLIDATION

U.S. GAAP requires that a related entity be consolidated with a company when certain conditions exist. An entity is considered to be a VIE when it has equity investors who lack the characteristics of having a controlling financial interest, or its capital is insufficient to permit it to finance its activities without additional subordinated financial support. Consolidation of a VIE by the Parent would be required if it is determined that the Parent will absorb a majority of the VIE’s expected losses or residual returns if they occur, retain the power to direct or control the VIE’s activities, or both.

The accompanying consolidated financial statements include the accounts of the Parent, its wholly owned subsidiaries, and its VIEs. All intercompany accounts and transactions have been eliminated in consolidation.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

Use of Estimates

USE OF ESTIMATES

In preparing the financial statements, U.S. GAAP requires disclosure regarding estimates and assumptions used by management that affect the amounts reported in financial statements and accompanying notes. Significant estimates were made around the valuation of embedded derivatives, which impacts gains or losses on such derivatives, the carrying value of debt, interest expense, and deemed dividends. Actual results could differ from those estimates.

F-8

Cash

CASH

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company’s cash balances at December 31, 2021 and 2020 consists of funds deposited in checking accounts with commercial banks.

Accounts Receivable

ACCOUNTS RECEIVABLE

Accounts receivable represent amounts due from customers for which revenue has been recognized. Generally, the Company does not require collateral or any other security to support its receivables. Trade accounts receivable are stated net of an estimate made for doubtful accounts, if any. Management evaluates the adequacy of the allowance for doubtful accounts regularly to determine if any account balances will potentially be uncollectible. Customer account balances are considered past due or delinquent based on the contractual agreement with each customer. Accounts are written off when, in management’s judgment, they are considered uncollectible. At December 31, 2021 and 2020, management believes no allowance is necessary. For the year ended December 31, 2021 and 2020, the Company recorded bad debt expense of approximately $14,000 and $6,000, respectively.

In February 2021, the Company implemented a patient financing program whereby it utilized third-party financing companies to facilitate financing to its patients to pay for treatments. The financing structure allows patients to make monthly payments to the financing companies with an interest rate ranging from 7.0 – 13.9% based on the patient’s credit score with contract terms ranging from 12 to 36 months. The Company subsequently receives a payment from the financing company net of the finance company’s service fees plus interest. The Company earns interest income from these arrangements which are reflected in interest income in the Company’s financials and combined with interest expense to reflect the net expense. Accounts receivable for financed treatments are listed as “Patient financing receivable, current portion” and “Patient financing receivable, net of current portion”.

Leases

LEASES

The Company accounts for leases in accordance with the Financial Accounting Standard Board (“FASB”) Topic 842, Leases, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. The standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases with a term longer than twelve months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. The Company has not entered into significant lease agreements in which it is the lessor.

F-9

Revenue Recognition

REVENUE RECOGNITION

The Company uses a standard pricing model for the types of cellular therapy treatments that is offered to its patients. The transaction price accounts for medical, surgical, facility, and office services rendered by the Company for consented procedures and is recorded as revenue. The Company recognizes revenue when the terms of a contract with a patient are satisfied.

The Company offers two types of cellular therapy treatments to their patients:

	1)	The first type of treatment includes medical services rendered typically over a two-day period in which the patient receives cellular therapy. For this treatment type, revenue is recognized in full at time of service.

	2)	The Company also offers a four-day treatment in which medical services are rendered typically over a two-day period and then again, approximately three months later, medical services are rendered for an additional two days of treatment. Payment is collected in full for both service periods at the time the first treatment is rendered. Revenue is recognized when services are performed based on the estimated standalone selling price of each service. The Company has deferred recognition of revenue amounting to approximately $414,000 and $634,000 at December 31, 2021 and 2020, respectively.

The Company’s policy is to not offer refunds to patients. However, in limited instances the Company may make exceptions to this policy for extenuating circumstances. These instances are evaluated on a case-by-case basis and may result in a patient refund. Management performed an analysis of its customer refund history for refunds issued related to prior year’s revenue. Management used the results of this historical refund analysis to record a reserve for anticipated future refunds related to recognized revenue. At December 31, 2021 and 2020, the estimated allowance for refunds was approximately $9,000 and $77,000, respectively and is included in other current liabilities.

Research and development costs

RESEARCH AND DEVELOPMENT COSTS

Research and development expenses are recorded in operating expenses in the period in which they are incurred.

Advertising

ADVERTISING

Advertising costs are recorded in operating expenses in the period in which they are incurred.

Stock-Based Compensation

STOCK-BASED COMPENSATION

The Company maintains a stock option incentive plan and accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation. The Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award to employees and directors. As required by fair value provisions of share-based compensation, employee and non-employee share-based compensation expense recognized is calculated over the requisite service period of the awards and reduced for estimated forfeitures.

F-10

Income Taxes

INCOME TAXES

The Company utilizes the liability method of accounting for income taxes as set forth in FASB ASC Topic 740, “Income Taxes”. Under the liability method, deferred taxes are determined based on temporary differences between the financial statement and tax bases of assets and liabilities using tax rates expected to be in effect during the years in which the difference turns around. The Company accounts for interest and penalties on income taxes as income tax expense. A valuation allowance is recorded when it is more likely than not that a tax benefit will not be realized. In determining the need for valuation allowances the Company considers projected future taxable income and the availability of tax planning strategies.

From inception to December 31, 2021, the Company has incurred net losses and, therefore, has no current income tax liability. The net deferred tax asset generated by these losses is fully offset by a valuation allowance as of December 31, 2021 and 2020 since it is currently likely that the benefit will not be realized in future periods.

There are no uncertain tax positions at December 31, 2021 and 2020. The Company has not undergone any tax examinations since inception.

Net Loss Per Share

NET LOSS PER SHARE

Basic loss per share is computed on the basis of the weighted average number of shares outstanding for the reporting period. Diluted loss per share is computed on the basis of the weighted average number of common shares plus potentially dilutive common shares outstanding using the treasury stock and if-converted methods, as applicable. Any potentially dilutive securities are antidilutive due to the Company’s net losses.

Fair Value Measurements

FAIR VALUE MEASUREMENTS

The Company measures certain non-financial assets, liabilities, and equity issuances at fair value on a non-recurring basis. These non-recurring valuations include evaluating assets such as long-lived assets and non-amortizing intangible assets for impairment; allocating value to assets in an acquired asset group; and applying accounting for business combinations.

The Company classifies its stock warrants as either liability or equity instruments in accordance with ASC 480, “Distinguishing Liabilities from Equity” (ASC 480) and ASC 815, “Derivatives and Hedging” (ASC 815), depending on the specific terms of the warrant agreement.

The Company uses the fair value measurement framework to value these assets and report the fair values in the periods in which they are recorded, adjusted above, or written down.

	●	Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities;

	●	Level 2: Quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted on active markets, but corroborated by market data; and

	●	Level 3: Unobservable inputs or valuation techniques that are used when little or no market data is available.

F-11

The determination of fair value and the assessment of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist in determining fair value, as appropriate.

The Company evaluates its financial liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments to be made. Although the Company believes that the recorded fair value of our financial instruments is appropriate at December 31, 2021, these fair values may not be indicative of net realizable value or reflective of future fair values.

Note 3 - Liquidity, Going Concern and Management’s Plans

The Company incurred net losses of approximately $4,799,000 for the year ended December 31, 2021. The Company used approximately $4,810,000 in net cash from operating activities for the year ended December 31, 2021 and has historically incurred losses from operations and expects to continue to generate negative cash flows as the Company implements its business plan. The consolidated financial statements are prepared using generally accepted accounting principles in the United States (“U.S. GAAP”) as applicable to a going concern.

The Company had cash on hand of approximately $95,000 as of December 31, 2021 and approximately $681,000, as of February 23, 2022. The Company’s cash is insufficient to fund its operations over the next year and the Company is currently working to obtain additional debt or equity financing to help support short-term working capital needs.

There can be no assurance that the Company will be able to raise additional funds or that the terms and conditions of any future financings will be workable or acceptable to the Company or its shareholders. If the Company is unable to fund its operations from existing cash on hand, operating cash flows, additional borrowings, or raising equity capital, the Company may be forced to discontinue operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 4 - Right-of-use Asset And Lease Liability

RIGHT-OF-USE ASSET AND LEASE LIABILITY

Upon adoption of ASU No. 2016-02 (as amended), additional current liabilities of approximately $475,000 and long-term liabilities of approximately $713,000 with corresponding ROU assets of approximately $1,167,000 were recognized, based on the present value of the remaining minimum rental payments under the new leasing standard for existing operating leases.

The consolidated balance sheet at December 31, 2021 reflects current lease liabilities of approximately $95,000 and long-term liabilities of $63,000. The Company determined that the corresponding ROU Asset of $140,000 no longer represents part of its strategic plans for the future therefore a loss on impairment was included in other general and administrative expense for the year ended December 31, 2021.

The components of lease expense included in other general and administrative expense for the years ended December 31, 2021 and 2020, respectively, are as follows:

SCHEDULE OF COMPONENTS OF LEASE EXPENSE

		December 31, 2021				December 31, 2020
Operating lease expense		$	324,764			$	548,622

Cash paid for amounts included in the measurement of lease liabilities for the years ended December 31, 2021 and 2020, respectively, are as follows:

		December 31, 2021				December 31, 2020
Payments on operating leases		$	324,764			$	548,622

Supplemental balance sheet and other information related to operating leases are as follows:

	December 31, 2021			December 31, 2020
Operating leases:
Operating leases right-of-use assets	$	-		$	278,552
Lease liability, current	$	94,805		$	139,189
Lease liability, net of current portion		62,768			157,050
Total operating lease liabilities	$	157,573		$	296,239
Weighted average remaining lease term		1.67 years			2.32 years
Weighted average discount rate		9.30	%		10.31	%

Maturities of operating lease liabilities as of December 31, 2021 are as follows:

	December 31, 2021
Due in one year or less	$	102,891
Due after one year through two years		69,333
Total lease payments		172,224
Less interest		(14,651	)
Total	$	157,573

F-12

The Company leases medical clinic space in Tampa, FL, Nashville, TN, Scottsdale, AZ. The leasing arrangements contain various renewal options that are adjusted for increases in the consumer price index or agreed upon rates. Each location has its own expiration date ranging from March 31, 2022 to August 31, 2023. The Company does not intend on renewing the clinic space lease in Tampa, FL which expires on March 31, 2022. Additionally, the Company entered into a short-term lease for its Nashville location beginning November 1, 2021 totaling $94,500 a with maturity date of October 31, 2022. The Company has decided that its corporate staff will continue working remotely.

Note 5 – Related Party Transactions

RELATED PARTY TRANSACTIONS

Officers and Board Members and Related Expenses

On January 12, 2021, Mr. William Horne stepped down as Chairman of the Board. Mr. Horne will remain a member of the Board. Effective March 1, 2021, the Company entered into an oral agreement with Mr. Horne in which Mr. Horne will receive $4,167 per month to serve on the Board of Directors. Mr. Horne agreed to continue to defer the $108,000 in base salary deferred by him in 2018 until such time as there is a positive cash flow to meet the Company’s financial obligations and then the Company and Mr. Horne will work together in good faith to negotiate a payment plan for such Deferred Salary. Effective December 1, 2021, Mr. Horne will receive $5,000 per month to serve on the Board of Directors. For the years ended December 31, 2021 and 2020, the Company expensed approximately $37,500 and $149,000, respectively, in compensation and Board of Director fees to Mr. Horne.

On January 12, 2021, Mr. Monteleone was appointed as Chairman of the Board and Compensation Committee Chair. There are understandings between the Company and Mr. Monteleone for him to receive $5,000 per month to serve on the Board of Directors and an additional $2,500 per quarter to serve as Chairman of the Board, Audit Committee Chair, and Compensation Committee Chair. Effective January 1, 2022, Mr. Monteleone will receive $7,500 per month to serve on the Board of Directors and an additional $2,500 per quarter to serve as Chairman of the Board, Audit Committee Chair, and Compensation Committee Chair. For the years ended December 31, 2021 and 2020, the Company expensed $70,000 and $93,000, respectively, for Board of Director fees to Mr. Monteleone.

Mr. Yurkowsky entered into an oral agreement with the Company on October 1, 2020, in which Mr. Yurkowsky will receive $4,167 per month to serve on the Board of Directors. For the years ended December 31, 2021 and 2020, the Company expensed $46,000 and $12,500, respectively, for Board of Director fees to Michael Yurkowsky. On December 1, 2021, the Board of Directors of the Company appointed Michael Yurkowsky to serve as the Company’s Chief Executive Officer.

F-13

Debt and Other Obligations

Change in Control

On September 11, 2020, with the closing of the Rights Offering, FWHC, LLC, FWHC, Bridge, LLC, and FWHC Bridge Friends, LLC (collectively known as “FWHC”) gained control of the Company by subsequently owning approximately 61% of the fully diluted shares of the Company. On July 28, 2020, the Company issued an aggregate of 15,518,111 shares of its common stock to FWHC upon the conversion of its issued Series D Convertible Preferred Stock. The Preferred Stock was converted pursuant to a mandatory conversion triggered by the majority holder of the Series D Convertible Preferred Stock as set forth in the Certificate of Designations for the Series D Convertible Preferred Stock. On September 11, 2020, with the closing of the Rights Offering, FWHC was issued 123,031,819 shares of Preferred A for conversion of the outstanding promissory notes from April 2020, 75,162,429 shares of Preferred A Stock for conversion of the April Secured Note, 35,860,079 shares of Preferred A Stock for conversion of the Hawes Notes, and 117,362,143 shares of Preferred A Stock issued upon the closing Rights Offering. FWHC was also issued 273,356,676 10-year warrants at $0.014 upon the closing of the Rights Offering.

Convertible Notes Payable

On April 1, 2021, the Company, entered into a Secured Convertible Note Purchase Agreement (the “April 2021 Note Purchase Agreement”) with five (5) investors (the “Holders”). Pursuant to the terms of the April 2021 Note Purchase Agreement, the Company sold promissory notes in the aggregate principal amount of $2,575,000 maturing on March 31, 2022 with an annual interest rate of 8%. The Notes are convertible into shares of Common Stock at a discount of 20% to the price paid for such New Securities in the next round of financing that meets the definition of Qualified Financing as defined in the April 2021 Note Purchase Agreement. The Notes are secured by the assets of the Company under a security agreement with the Holders. The lead investor of the April 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $1,500,000 of the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC, LLC, which is a principal stockholder and related party of the Company. An additional affiliate of FWHC, LLC provided an additional $25,000 as part of the April 2021 Note Purchase Agreement.

Note 6 - Equity Transactions

EQUITY TRANSACTIONS

Common Stock Issuance

In February 2020, the Company issued LilyCon Investments $35,000 in shares of the Company’s common stock at a weighted average share price of $0.32 per share for a total of 109,375 shares per the terms of the consulting agreement executed in February 2019.

On April 23, 2020, Horne Management, LLC agreed to convert the related notes plus accrued interest into (i) 4,368,278 shares of common stock of the Company and (ii) a ten-year warrant to purchase up to an equivalent number of shares of the Company’s common stock with such conversion to be effective as of April 17, 2020. This warrant will have an exercise price equal to the price per share at which securities were offered to investors for purchase at the Qualified Financing, which was $0.014, and is exercisable beginning on the day immediately following the closing of the Rights Offering, which occurred on September 11, 2020.

F-14

On July 28, 2020, the Company issued an aggregate of 17,893,076 shares of its common stock upon the conversion of all of its issued and outstanding Series B and Series D Preferred Stock (the “Preferred Stock”) and accumulated dividends. The Preferred Stock was converted pursuant to a mandatory conversion triggered by the majority holder of the Series D Preferred Stock as set forth in the Certificate of Designations for the Series D Preferred Stock.

On July 29, 2020, the Company filed its Second Amended and Restated Certificate of Incorporation (the “Amended COI”). The Amended COI provides for the issuance of up to 1,600,000,000 shares of Common Stock and 1,000,000,000 shares of Preferred Stock, of which 800,000,000 shares are designated as Series A Preferred Stock and eliminates the previously authorized classes of preferred stock. The Amended COI also delineates the rights of the Series A Preferred Stock.

On September 11, 2020, 1,000,000 warrants were converted to common stock upon the closing of the Rights Offering for a certain warrant holder of the Company.

On December 31, 2021, a certain warrant holder of the Company, exercised 1,339,286 warrants on a cashless basis resulting in the issuance of 818,453 shares of the Company’s common stock.

For the year ended December 31, 2021 and 2020, 36,221,875 and 4,020,031 shares of Series A Preferred Stock were converted to Common Stock at the request of certain Series A Preferred Shareholders.

Series A Preferred Stock

On September 11, 2020, the registered Rights Offering (Registration No. 333-239629) of the Company expired. Pursuant to the Rights Offering, on September 24, 2020, the Company issued (i) 15,235,381 shares of its Series A preferred stock at a price of $0.014 per share to holders of its common stock who validly exercised their subscription rights prior to the expiration time and (ii) 203,049,643 shares of its Series A preferred stock to the standby purchasers as part of the standby commitment. The Rights Offering, including the standby component, resulted in gross proceeds to the Company of $3,055,985.

Additionally, on September 24, 2020, the Company issued an aggregate of 323,844,416 shares of its Series A Preferred Stock to the holders of outstanding promissory notes, issued in April 2020, in the aggregate principal amount and accrued interest of $4,483,617. Included in this issuance, FWHC was issued 123,031,819 shares of Preferred A for conversion of the outstanding promissory notes from April 2020, 75,162,429 shares of Preferred A Stock for conversion of the April Secured Note and 35,860,079 shares of Preferred A Stock for conversion of the Hawes Notes (see Note 11). The notes were converted pursuant to a mandatory conversion triggered by the completion of the rights offering. Such shares were issued under an exemption from registration in reliance on Section 3(a)(9) of the Securities Act. The original notes were issued in reliance on Section 4(a)(2) of the Securities Act. The notes were converted pursuant to a mandatory conversion triggered by the completion of the Rights Offering (for further discussion, see Note 9 - “Equity Transactions” to the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K).

For the year ended December 31, 2021 and 2020, 36,221,875 and 4,020,031 shares of Series A Preferred Stock were converted to Common Stock at the request of certain Series A Preferred Shareholders.

Voting Rights

Holders of Series A Preferred Stock (“Series A Holders”) have the right to receive notice of any meeting of holders of common stock and to vote upon any matter submitted to a vote of the holders of common stock. Each Series A Holder shall vote on each matter on an as converted basis submitted to them with the holders of common stock.

Conversion

Series A Preferred Stock converts to common stock at a 1:1 ratio immediately upon request of the Series A Holder.

Liquidation

Series A Preferred Stock does not have preferential treatment over common stock shareholders if the Company liquidates or dissolves.

F-15

Series B and Series D Convertible Preferred Stock Conversions and Repurchase

On July 28, 2020, the Company issued an aggregate of 17,893,076 shares of its common stock upon the conversion of all of its issued and outstanding Series B and Series D Convertible Preferred Stock (the “Preferred Stock”). The Preferred Stock was converted pursuant to a mandatory conversion triggered by the majority holder of the Series D Convertible Preferred Stock as set forth in the Certificate of Designations for the Series D Convertible Preferred Stock. As of December 31, 2021 and 2020, the Company does not have any Series B or Series D Convertible Preferred Stock outstanding.

Debt Conversion

Convertible Notes and Promissory Note to Related Party

On September 24, 2020, the Company issued an aggregate of 323,844,416 shares of its Series A Preferred Stock to the holders of outstanding promissory notes, issued in April 2020, in the aggregate principal amount and accrued interest of $4,483,617. Included in this issuance, FWHC was issued 123,031,819 shares of Preferred A for conversion of the outstanding promissory notes from April 2020, 75,162,429 shares of Preferred A Stock for conversion of the April Secured Note and 35,860,079 shares of Preferred A Stock for conversion of the Hawes Notes. The notes were converted pursuant to a mandatory conversion triggered by the completion of the Rights Offering.

Share-Based Compensation

The Company utilizes the Black-Scholes valuation method to recognize share-based compensation expense over the vesting period. The expected life represents the period that the stock-based compensation awards are expected to be outstanding.

Stock Option Activity

The Board of Directors decided not to renew the former CEO’s (Robert Greif) employment contract; therefore, the unvested shares were forfeited resulting in a reduction of share-based compensation of approximately $205,000 for the period ended September 30, 2021 that was recognized during the period ended June 30, 2021.

For the year ended December 31, 2020, all outstanding stock options were fully vested, and related compensation expense recognized. For the year ended December 31, 2021, 29,635,000 options were outstanding and 15,385,000 were vested. For the year ended December 31, 2021, the Company recognized an expense of approximately $1,147,000 related to stock options, which is included in share based compensation. At December 31, 2021, the Company has approximately $452,000 of unrecognized compensation costs related to non-vested stock options, which is expected to be recognized over a weighted average period of approximately 2.88 years.

Inputs used in the valuation models are as follows:

2021 Grants
Option value	$	0.054		to	$	0.056
Risk Free Rate		0.90	%	to		1.37	%
Expected Dividend- yield		-		to		-
Expected Volatility		173.99	%	to		176.04	%
Expected term (years)		5		to		7

The following is a summary of stock option activity for the year ended December 31, 2021 and 2020:

SUMMARY OF STOCK OPTION ACTIVITY

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Term (Years)
Outstanding at December 31, 2019		425,000		$	1.38		7.71
Granted		-			-		-
Expired/Cancelled		(15,000	)		1.35		-
Outstanding and exercisable at December 31, 2020		410,000		$	1.39		7.23

Outstanding at December 31, 2020		410,000		$	1.39		6.72
Granted		54,750,000			0.07		9.25
Expired/Cancelled		(25,525,000	)		0.07		-
Outstanding at December 31, 2021		29,635,000		$	0.09		9.20

Exercisable at December 31, 2021		15,385,000		$	0.10		9.16

F-16

The following is a summary of the Company’s non-vested shares for the year ended December 31, 2021:

	Shares			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2020		-		$	-
Granted		54,750,000			0.06
Vested		(15,000,000	)		0.05
Forfeited		(25,500,000	)		0.07
Non-vested at December 31, 2021		14,250,000		$	0.06

Net Loss Per Share

Basic loss per share is computed on the basis of the weighted average number of shares outstanding for the reporting period. Diluted loss per share is computed on the basis of the weighted average number of common shares plus dilutive potential common shares outstanding using the treasury stock and if-converted methods, as applicable. Any potentially dilutive securities are antidilutive due to the Company’s net losses.

The Company excluded the following securities from the calculation of basic and diluted net loss per share as the effect would have been antidilutive:

	For the Year Ended December 31,
	2021		2020
Warrants to purchase common stock (in the money)		383,693,796		26,297,775
Series A Preferred Stock convertible to common stock		501,887,534		538,109,409
Total		885,581,330		564,407,184

Excluded from the above table are 22,607,701 warrants and 29,635,000 stock options for the year ended December 31, 2021 and 387,126,144 warrants and 410,000 stock options for the year ended December 31, 2020, as they are out of the money (exercise price greater than the stock price). Inclusion of such would be anti-dilutive.

Note 7 – Commitments & Contingencies

COMMITMENTS & CONTINGENCIES

CEO Compensation Agreement

On December 23, 2021, H-Cyte, Inc. (the “Company”) entered into an employment agreement (the “Employment Agreement”) with Michael Yurkowsky, the Company’s Chief Executive Officer, to continue to serve as the Chief Executive Officer of the Company. Under the Employment Agreement, which commenced on December 1, 2021 (the “Effective Date”) and has a term of one year from the Effective Date (the “Employment Period”), Mr. Yurkowsky will receive a base salary of $180,000 per year. Upon the expiration of the Employment Period, Mr. Yurkowsky’s employment with the Company will be on an at-will basis.

In addition to his base salary, Mr. Yurkowsky may receive an one-time cash bonus in gross amount equal to $100,000 if (i) the Company’s stock is listed and quoted on the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, or the New York Stock Exchange; or (ii) the Company secures and receives financing of at least $10,000,000.

As additional compensation, Mr. Yurkowsky shall receive shares of common stock of the Company representing 1% of the Company’s fully diluted equity as of the grant date if the Company achieves a market capitalization of at least $250 million for 60 consecutive days during the Employment Period (the “Equity Award”). If the Company achieves a market capitalization of at least $500 million for 60 consecutive days during the Employment Period, the Executive shall receive an additional Equity Award of 1%, such that he has in the aggregate received shares of common stock of the Company representing 2% of the Company’s fully diluted equity as of the date of grant. These market conditions were reflected in the grant date fair value of the award as required under ASC 718 Compensation-Stock Compensation.

The Equity Award was measured at fair value on its grant date using a Monte Carlo simulation model. The Monte Carlo simulation model includes assumptions for the expected term, volatility, and dividend yield, each of which are determined in reference to the Company’s historical results. The Company will recognize aggregate stock-based compensation expense of approximately $328,000 related to the Equity Award on a straight-line basis over the derived service period determined by the Monte Carlo simulation model, which was 0.71 years. As of December 31, 2021, the Company had recognized $38,115 in compensation expense related to the Equity Award. If the market capitalization targets are met sooner than the derived service period, the Company will adjust its stock-based compensation to reflect the cumulative expense associated with the vested Equity Award. The Company will recognize expense if the requisite service is provided, regardless of whether the market conditions are achieved.

Consulting Agreements

F-17

Litigation

From time to time, the Company may be involved in routine legal proceedings, as well as demands, claims and threatened litigation that arise in the normal course of our business. The ultimate amount of liability, if any, for any claims of any type (either alone or in the aggregate) may materially and adversely affect the Company’s financial condition, results of operations and liquidity. In addition, the ultimate outcome of any litigation is uncertain. Any outcome, whether favorable or unfavorable, may materially and adversely affect the Company due to legal costs and expenses, diversion of management attention and other factors. The Company expenses legal costs in the period incurred. The Company cannot assure that additional contingencies of a legal nature or contingencies having legal aspects will not be asserted against the Company in the future, and these matters could relate to prior, current or future transactions or events.

The Company is involved in a lawsuit with Sinclair Broadcast Group, Inc. (Sinclair) which was filed on September 8, 2020 in the Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough County, Florida. Sinclair has filed suit alleging breach of contract for advertising services in the amount of approximately $75,000 plus interest and costs. The Company has retained legal counsel for its defense against the suit. The amount is recorded in accounts payable as of December 31, 2021.

The Company is involved in a lawsuit with ITN Networks, LLC (ITN) which was filed on July 22, 2021 in the Circuit Court for the Thirteenth Judicial Circuit in and for Hillsborough County, Florida. ITN has filed suit alleging breach of contract for advertising services in the amount of approximately $75,000 plus interest and costs. The Company has retained legal counsel for its defense against the suit. The amount is recorded in accounts payable as of December 31, 2021.

Guarantee

The Company has guaranteed payments based upon the terms found in the management services agreements to affiliated physicians related to LI Dallas, LI Nashville, LI Pittsburgh, and LI Scottsdale. For the years ended December 31, 2021 and 2020, payments totaling approximately $95,000 and $36,000, respectively, were made to these physicians’ legal entities. Due to the Company ceasing operations effective March 23, 2020 in LI Dallas, LI Pittsburgh, and LI Scottsdale, in response to COVID-19, the guaranteed payments for these clinics were suspended in March 2020. The Company resumed these guaranteed payments in January 2021.

Rion Agreements

On June 21, 2019, H-CYTE entered into an exclusive product supply agreement with Rion, LLC (“Rion”) to develop and distribute (post FDA approval) a biologic for chronic obstructive pulmonary disease (“COPD”), the fourth leading cause of death in the U.S. Rion has established a novel biologics technology to harness the healing power of the body. Rion’s innovative technology, based on science developed at Mayo Clinic, provides an off-the-shelf platform to enhance healing in soft tissue, musculoskeletal, cardiovascular, and neurological organ systems. This agreement provides for a 10-year exclusive and extendable supply agreement with Rion to enable H-CYTE to develop proprietary biologics.

On October 9, 2019, the Company entered into a services agreement with Rion which provides the Company the benefit of Rion’s resources and expertise for the limited purpose of (i) consulting with and assisting H-CYTE in the further research and development for the generation of a new biologic and (ii) subsequently assisting H-CYTE in seeking and obtaining FDA Phase 1 IND clearance for this biologic as necessary. Rion also agrees to consult with H-CYTE in its arrangement for services from third parties unaffiliated with Rion to support research, development, regulatory approval, and commercialization of the biologic.

During the year ended 2021, the Company completed a review of the R&D status regarding the exclusive product supply and services agreements with Rion to develop and distribute (post FDA approval) a biologic combining its PRP technology with Rion’s exosomes (“EV”) technology for the treatment of chronic obstructive pulmonary disease (COPD). The Company has decided to progress alternate technologies and has determined a single entity biologic from an alternative commercial source will be a more viable solution. To that end, the Company is progressing alternate biologics and therapeutic devices to meet the needs of the business.

The Company has recorded research and development expense of $0 and $1,150,000 related to Rion, for the years ended December 31, 2021 and 2020, respectively.

F-18

Note 8 – Debt

DEBT

Notes Payable

Notes payable were assumed in the Merger (for further discussion, see Note 1 - “Overview” to the consolidated financial statements in the Company’s 2020 Annual Report on Form 10-K) and are due in aggregate monthly installments of approximately $5,800 and carry an interest rate of 5%. Each note originally had a maturity date of August 1, 2019. The Company finalized an eighteen-month extension to March 1, 2021. The promissory notes have an aggregate outstanding balance of approximately $69,000 and $67,000 at December 31, 2021 and December 31, 2020. The Company has not made payments on these notes since February 10, 2020, due to COVID-19.

Short-term notes with related party were issued by the Company during 2019, and as of March 31, 2020 consisted of four loans totaling $1,635,000, made to the Company by Horne Management, LLC, controlled by former CEO, William E. Horne for working capital purposes. The loans bore interest rates ranging from 5.5% to 12%, in some cases increasing to 15% if not paid by the respective maturity date ranging from March 26, 2020 to May 13, 2020. Some of these loans provided for the issuance of warrants at 114% warrant coverage if the loan was not repaid within two months. None of these loans were repaid and 840,000 warrants were issued at an exercise price of $0.75 per share in the fourth quarter of 2019 and the first quarter of 2020. On April 23, 2020, Horne Management, LLC agreed to convert the related notes plus accrued interest into (i) 4,368,278 shares of common stock of the Company and (ii) a ten-year warrant to purchase up to an equivalent number of shares of the Company’s common stock with such conversion to be effective as of April 17, 2020. This warrant will have an exercise price equal to the price per share at which securities were offered to investors for purchase at the Rights Offering totaling $0.014 and is exercisable beginning on the day immediately following the earlier to occur of (x) the closing of the Rights Offering and (y) November 1, 2020. The Rights Offering closed on September 11, 2020. On the date of the transaction, the carrying amount of the note and accrued interest was approximately $1,717,000. The fair value of the Common Stock was valued based on the trading market price on the date of the transaction and the warrants were valued using a Lattice model. The fair value of the Common Stock and warrants issued in the transaction was approximately $218,000 and $199,000, respectively. Since the fair value of the common stock and warrants was less than the carrying amount of the note, the Company recorded a gain on extinguishment of the debt of approximately $1,300,000.

Convertible note

On April 1, 2021, the Company, entered into a Secured Convertible Note Purchase Agreement (the “April 2021 Note Purchase Agreement”) with five (5) investors (the “Holders”). Pursuant to the terms of the April 2021 Note Purchase Agreement, the Company sold promissory notes in the aggregate principal amount of $2,575,000 maturing on March 31, 2022 with an annual interest rate of 8%. The Notes are convertible into shares of Common Stock at a discount of 20% to the price paid for such New Securities in the next round of financing that meets the definition of Qualified Financing as defined in the April 2021 Note Purchase Agreement. The Notes are secured by the assets of the Company under a security agreement with the Holders. The lead investor of the April 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $1,500,000 of the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC, LLC, which is a principal stockholder and related party of the Company. An additional affiliate of FWHC, LLC provided an additional $25,000 as part of the April 2021 Note Purchase Agreement.

Paycheck Protection Program

On April 29, 2020, the Company issued a promissory note in the principal amount of $809,082 to the Bank of Tampa in connection with a loan in such amount made under the Paycheck Protection Program (“PPP Loan”). The PPP Loan bears an interest rate of 1% per annum and matures on April 29, 2022. The Company elected to use a 24-week Covered Period, per the SBA Paycheck Protection Program guidelines, which ended on October 14, 2020.

The Company could apply for loan forgiveness in an amount equal to the sum of the following costs incurred by the Company:

1) payroll costs;

2) any payment of interest on covered mortgage obligations;

3) any payment on a covered rent obligation; and

4) any covered utility payment

The Company received notification from the Small Business Administration (“SBA”), dated August 17, 2021, notifying it that $689,974 in principal and $8,847 in interest was forgiven under the guidelines of the Paycheck Protection Program. As of December 31, 2021, the current balance is $66,275 with $166 in interest payable for which forgiveness will not occur.

F-19

Note 9 – Derivative Liability – Warrants And Redemption Put

The Company’s derivative liabilities were classified within Level 3 of the fair value hierarchy because certain unobservable inputs were used in the valuation models. These assumptions included estimated future stock prices, potential down-round financings for the Warrants, and potential redemptions for the Redemption Put Liability.

The following is a reconciliation of the beginning and ending balances for the liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2020:

Derivative Liability - Warrants

Balance at December 31, 2019	$	315,855
Series D Warrant reclass from equity to liability classification		509,764
Warrants issued with modification of Horne Management Notes		198,994
Warrants issued with April 17, 2020 financing		6,148,816
Fair value adjustments		(2,986,854	)
Warrant reclassification from liability to equity classification		(4,186,575	)
Balance at December 31, 2020	$	-

Redemption Put Liability

Balance at December 31, 2019	$	267,399
Issuance of Series D Convertible Preferred Stock		5,305
Fair value adjustments		(272,704	)
Balance at December 31, 2020	$	-

	(1)	The Company did not have any assets or liabilities measured at fair value using Level 1 or 2 of the fair value hierarchy as of December 31, 2020 and December 31, 2019.

	(2)	Upon the closing of the Rights Offering on September 11, 2020, the Derivative Liability- Warrants was no longer applicable, and its fair value was reclassed to stockholder’s equity.

	(3)	The Series D Convertible Preferred Stock was converted into common stock on July 28, 2020 at which time the Redemption Put Liability was no longer applicable, and its fair value was adjusted to zero and the extinguishment was recorded to income.

Derivative Liability- Warrants

Series B Warrants

In connection with the securities purchase agreements executed in May 2018 (which the Company assumed in the Merger), whereby 108,250 shares of the Company’s Series B Convertible Preferred Stock (the “Series B Shares”) and warrants were issued to purchase 2,312,500 shares of the Company’s common stock (“Series B Warrants”). The Series B Warrants had a three-year term at an exercise price of $0.75. The Series B Warrants contain two features such that in the event of a downward price adjustment the Company is required to reduce the strike price of the existing warrants (first feature or “down round”) and issue additional warrants to the award holders such that the aggregate exercise price after taking into account the adjustment, will equal the aggregate exercise price prior to such adjustment (second feature or “anti-dilution”).

On January 8, 2019, the Company issued equity securities which triggered the down round and anti-dilution warrant features. As a result, the exercise price of the warrants was lowered from $0.75 to $0.40 and 2,023,438 additional warrants were issued. The inclusion of the anti-dilution feature caused the warrants tobe accounted for as liabilities in accordance with ASC Topic 815. The fair market value of the warrants of approximately $1,200,000 was recorded as a derivative liability as a measurement period adjustment to the purchase price allocation in the third quarter of 2019.

As part of the April 2020 offering, the majority holders of the Series B Warrants agreed to terminate all anti-dilution price protection in their warrants and adjusted the exercise price to equal the price per share at which shares of preferred stock are offered for purchase in the Rights Offering. The Company issued an additional 296,875 warrants to a certain Series B holder as compensation to terminate their anti-dilution price protection. The Company also issued 1,292,411 warrants to a certain Series B holder who was non-responsive in the Company’s request to terminate their anti-dilution price protection. The modification resulted in an increase of approximately $71,000 to the fair value of the derivative liability related to the Series B Warrants. In addition, the Company recorded a change in fair market value of approximately $317,000 to the fair value of the derivative liability before the reclass to equity.

Upon the closing of the Rights Offering, which occurred on September 11, 2020, the exercise price of the Series B Warrants became fixed at $0.014 and the warrants then met the conditions for equity classification. Consequently, they were revalued as of the date of the Rights Offering using a Lattice valuation technique with the following assumptions: Trading market price- $0.027, estimated exercise price- $0.014, volatility- 222%-260%, risk free rate- 0.12%-0.13% and an estimated remaining term ranging from 0.7 to 1.33 years. The fair value of the Series B Warrants totaling $73,805 was then reclassed from a derivative liability to stockholders’ equity.

Series D Warrants

In conjunction with the Series D Preferred Financing, the Company originally issued Series D warrants to purchase 14,944,753 shares of Common Stock with an exercise price of $0.75 per share. At inception, the Series D warrants met all the criteria to be classified as equity. As part of the April Offering, the exercise price of the Series D Warrants was reduced to the price per share at which shares of preferred stock are offered for purchase in the Offering. The modification of the exercise price resulted in the warrants requiring liability classification. The Series D Warrants were measured at fair value before and after the modification, resulting in a fair market value of approximately $510,000 when the warrants were reclassified to a liability on July 28, 2020.

Upon the closing of the Rights Offering, which occurred on September 11, 2020, the exercise price of the Series D Warrants became fixed at $0.014 and the warrants then met the conditions for equity classification. Consequently, the Series D Warrants were revalued as of the date of the Rights Offering using a Lattice valuation technique with the following assumptions: Trading market price- $0.027, estimated exercise price- $0.014, volatility- 111%, risk free rate- 0.67% and an estimated term of 9.2 years. The fair value of the Series D Warrants totaling $337,400 was then reclassed from a derivative liability to stockholders’ equity.

F-20

Horne Warrants

On April 23, 2020, Horne Management, LLC agreed to convert the related notes plus accrued interest into (i) 4,368,278 shares of common stock of the Company and (ii) a ten-year warrant to purchase up to an equivalent number of shares of the Company’s common stock with such conversion to be effective as of April 17, 2020. The warrant will have an exercise price equal to the price per share at which securities are offered to investors for purchase at the Qualified Financing. The revised exercise price caused the warrants to require liability classification at fair value and the warrants were valued using a Lattice model with the following assumptions: Trading market price- $0.05, estimated exercise price- $0.014, volatility- 101%, risk free rate- 0.65% and an estimated term of 10 years. At inception, the estimated fair value of the Horne Warrants was approximately $199,000.

Upon the closing of the Rights Offering, which occurred on September 11, 2020, the exercise price of the Horne Warrants became fixed at $0.014 and the warrants then met the conditions for equity classification. Consequently, the Horne Warrants were revalued as of the date of the Qualified Financing using a Lattice valuation technique with the following assumptions: Trading market price- $0.027, estimated exercise price- $0.014, volatility- 103%, risk free rate- 0.67% and an estimated term of 10 years. The fair value of the Horne Warrants totaling $107,123 was then reclassed from a derivative liability to stockholders’ equity.

April Bridge Loan and Converted Advance Warrants

The April Offering entitled the investors to warrants with the right to purchase up to 100% of the aggregate number of shares of Common Stock into which the Purchaser’s Note may ultimately be converted. The Company also received a $1,000,000 advance which was converted into the April Secured Note and April Secured Note Warrants in April 2020. The April Secured Note Warrants entitle the holder to purchase up to 200% of the aggregate number of shares of Common Stock into which the April Secured Note may ultimately be converted.

The Company received an aggregate of $2,842,695 in gross proceeds through the April Offering and an advance of $1,000,000 from the April Secured Note. The Company expected the price per share at which securities would be offered for purchase in the Rights Offering to be $0.014 resulting in the assumption there would be approximately 203,050,000 and 142,857,000 shares issuable upon exercise of the Purchaser Warrants and the April Secured Note Warrants, respectively. The warrants were valued using a Lattice model with the following assumptions: Trading market price- $0.05, estimated exercise price- $0.014, volatility- 103%, risk free rate- 0.65% and an estimated term of 10 years. At inception, the estimated fair value of the Purchaser Warrants and the April Secured Note Warrants was approximately $3,279,000 and $2,869,000, respectively for a total of approximately $6,149,000.

Upon the closing of the Rights Offering which occurred on September 11, 2020, the exercise price of the Purchaser and April Secured Note Warrants became fixed at $0.014 and the Company then had sufficient authorized and unissued shares available to satisfy all their commitments under their equity-linked contracts. There are 212,821,929 and 150,324,857 shares issuable upon exercise of the Purchaser and the April Secured Note Warrants, respectively for a total of 363,146,786 warrants. The Warrants were revalued as of the date of the Rights Offering using a Lattice valuation technique with the following assumptions: Trading market price- $0.027, estimated exercise price- $0.014, volatility- 107%, risk free rate- 0.67% and an estimated term of 10 years. The fair value of the Warrants of $3,668,247 was then reclassed from a derivative liability to stockholders’ equity.

When the Company entered into the April Offering and revised the exercise price of the warrants to the price per share at which shares of preferred stock are offered for purchase in the Rights Offering, they no longer had sufficient authorized and unissued shares available to satisfy all their commitments to issue shares under their equity-linked contracts. The Company has adopted the sequencing approach based on the earliest issuance date. Therefore, warrants issued before the April Offering did not require liability classification, while Warrants issued with the April financing, or subsequently, will be classified as liabilities until such time the Company has sufficient authorized shares.

The derivative liability - warrants was remeasured and a change in fair value of approximately $2,987,000 was recorded as a component of other income in the Company’s consolidated statement of operations for the year ended December 31, 2020.

Redemption Put Liability (Expense)

The redemption put provision embedded in the Series D financing required bifurcation and measurement at fair value as a derivative. If the redemption put provision is triggered, it allows either payment in cash or the issuance of “Trigger Event Warrants”. Accordingly, the fair value of the Redemption put liability considered management’s estimate of the probability of cash payment versus payment in Trigger Event Warrants and was valued using a Monte Carlo Simulation which uses randomly generated stock-price paths obtained through a Geometric Brownian Motion stock price simulation. The fair value of the redemption provision was significantly influenced by the fair value of the Company’s stock price, stock price volatility, changes in interest rates and management’s assumptions related to the redemption factor. On July 28, 2020, the Series D Preferred Stock was converted into Common Stock, at which time the redemption put was no longer applicable and the fair value of the redemption put was adjusted to $0.

The fair market value of the redemption put liability at inception was approximately $614,000 which was recorded as a liability and remeasured to fair value at the end of each reporting period. The change in fair value of approximately $273,000 was recorded as a component of other income (expense) in the Company’s consolidated statement of operations for the year ended December 31, 2020

F-21

Note 10 - Common Stock Warrants

COMMON STOCK WARRANTS

A summary of the Company’s warrant issuance activity and related information for the period ended December 31, 2021 and 2020 is as follows:

SUMMARY OF WARRANT ACTIVITY

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life
Outstanding and exercisable at December 31, 2019		44,806,076		$	0.78		4.59
Issued		369,617,896			0.01		10.05
Exercised		(1,000,000	)		0.01		-