Nuo Therapeutics, Inc 10-K for FY2022
Nuo Therapeutics, Inc. (AURX)
About this 10-K
Nuo Therapeutics, Inc filed this 10-K on April 17, 2023, covering the fiscal year ended December 31, 2022 (FY2022).
Headline figures
Fiscal year ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $112.25K
- compared with $0 a year earlier
- Net loss
- $3.17M
- compared with a net loss of $90.67K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
or
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________
Commission file number
NUO THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
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(Address of principal executive offices) (Zip Code)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
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 ☐
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| | 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.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
The aggregate market value of voting common equity held by non-affiliates of the registrant, computed by reference to the closing price as reported on the OTC Markets Group for the registrant’s common stock, as of June 30, 2022, the last business day of the registrant’s second fiscal quarter of 2022 was approximately $
As of April 10, 2023, the number of shares outstanding of the registrant’s common stock was
DOCUMENTS INCORPORATED BY REFERENCE
None.
NUO THERAPEUTICS, INC.
Special Note Regarding Forward-Looking Statements
Certain statements, other than purely historical information, in this Annual Report (including the section titled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”) constitute “forward-looking statements”. Forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance, or achievements, and may contain the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “will be,” “will continue,” “will likely result,” “could,” “may” and words of similar import. These statements reflect the Company’s current view of future events and are subject to certain risks and uncertainties as noted in this Annual Report and in other reports filed by us with the SEC, including Forms 8-K and 10-Q. These risks and uncertainties include, among others, the following:
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our limited revenue base and sources of working capital; |
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our limited operating experience; |
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our ability to continue as a going concern; |
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the dilutive impact of raising additional equity or debt; |
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our ability to timely and accurately report our financial results and prevent fraud if we are unable to maintain effective disclosure and internal controls; |
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acceptance of our product by the medical community and patients; |
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our ability to obtain adequate reimbursement from third-party payors; |
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our ability to contract with healthcare providers; |
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our reliance on several single source suppliers and our ability to source raw materials at affordable costs; |
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our ability to protect our intellectual property; |
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our compliance with governmental regulations; |
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our ability to successfully sell and market the Aurix System; |
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our ability to attract and retain key personnel, including both of our executive officers; and |
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our ability to successfully pursue strategic collaborations to help develop, support, or commercialize our current and future products. |
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results could differ materially from those anticipated in these forward-looking statements.
In addition to the risks identified under the heading “Item 1A. Risk Factors” in this Annual Report and the other filings referenced above, other sections of this report may include additional factors which could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business, or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
The Company undertakes no obligation and does not intend to update, revise or otherwise publicly release any revisions to its forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events.
The Company owns or has rights to various copyrights, trademarks and trade names used in its business, including, but not limited to, Aurix®. This Annual Report also includes discussions of or references to other trademarks, service marks, and trade names of other companies, including, but not limited to, the Angel Whole Blood Separation System®. Other trademarks and trade names appearing in this Annual Report are the property of the holder of such trademarks and trade names.
Corporate Overview
Nuo Therapeutics, Inc. is a Delaware corporation organized in 1998 under the name Informatix Holdings, Inc. In 1999, Autologous Wound Therapy, Inc., an Arkansas Corporation, merged with and into Informatix Holdings, Inc. and the name of the surviving corporation was changed to Autologous Wound Therapy, Inc. In 2000, Autologous Wound Therapy, Inc. changed its name to Cytomedix, Inc. (“Cytomedix”). In 2001, Cytomedix, filed for bankruptcy under Chapter 11 of the United States (“U.S.”) Bankruptcy Code, after which Cytomedix was authorized to continue to conduct its business as a debtor and debtor-in-possession. Cytomedix emerged from bankruptcy in 2002 under a Plan of Reorganization. In September 2007, Cytomedix received 510(k) clearance for the Aurix System (“Aurix”), formerly known as the AutoloGel™ System, from the U. S. Food and Drug Administration (“FDA”). In April 2010, Cytomedix acquired the Angel Whole Blood Separation System (“Angel”) and the Angel Business, from Sorin Group USA, Inc. In February 2012, Cytomedix, acquired Aldagen, Inc. (“Aldagen”), a privately held developmental cell-therapy company located in Durham, NC. In 2014, Cytomedix changed its name to Nuo Therapeutics, Inc. In 2016, Nuo filed for and emerged from bankruptcy under Chapter 11 as described below under “- 2016 Bankruptcy and Emergence from Bankruptcy.” Effective May 1, 2019, Nuo furloughed its remaining employees and ceased standard operational activities as it awaited developments concerning its reconsideration request with the Centers for Medicare & Medicaid Services (“CMS”) regarding Medicare coverage for Aurix. Based on a favorable National Coverage Determination issued in April 2021, Nuo initiated restart activities for the business beginning in October 2021 with an expectation that the Aurix product will be available for commercial sale by May 2022. Aldagen is a non-operational, wholly owned subsidiary of Nuo. Our principal offices are presently located in Houston, Texas.
Our Business
We are a regenerative therapies company focused on developing and marketing products for chronic wound care primarily within the U.S. We commercialize innovative cell-based technologies that harness the regenerative capacity of the human body to trigger natural healing. The use of autologous (i.e., from self, the patient’s own) biological therapies for tissue repair and regeneration is part of a clinical strategy designed to improve long-term recovery in inherently complex chronic conditions with significant unmet medical needs.
Our current commercial offering consists of a point of care technology for the safe and effective separation of autologous blood to produce a platelet-based therapy for the chronic wound care market. This offering is known as “Aurix” or the “Aurix System”. The FDA cleared the Aurix System for marketing in 2007 as a device under Section 510(k) of the Federal Food, Drug, and Cosmetic Act (“FDCA”). Aurix is one of two platelet derived products cleared by the FDA for chronic wound care use and is indicated for most exuding wounds. The advanced wound care market, within which Aurix competes, is composed of advanced wound care dressings, wound care devices, and wound care biologics, and is estimated to be an approximate $10.8 billion global market in 2021 with the North American market estimated at approximately $4.15 billion in 2020. Estimates remain that 1-2% of population in the developed countries will suffer from a chronic wound at least once in their lifetime. According to the National Institute of Health, treatment of diabetic foot ulcers cost an estimated $9-$13 billion annually in the U.S. alone. An aging population and the still increasing prevalence of diabetes suggests a continued increase in the patient population at risk of developing chronic, non-healing wounds.
The Aurix System produces a platelet rich plasma (“PRP”) gel at the point of care using the patient’s own platelets and plasma sourced from a small draw of peripheral blood. Aurix comprises a natural, endogenous complement of protein and non-protein signal molecules that contribute to effective healing. During treatment, the patient’s platelets are activated and release hundreds of growth factor proteins and other signaling molecules that form a biologically active hematogel. Aurix delivers concentrations of the natural complement of cytokines, growth factors and chemokines that are known to regulate angiogenesis (i.e., the development of new blood vessels), cell growth, and the formation of new tissue. Once applied to the prepared wound bed, the biologically active Aurix hematogel can restore the balance in the wound environment to transform a non-healing wound to a wound that heals naturally.
In 2012, a Medicare National Coverage Determination (“NCD”) from CMS reversed a twenty-year old non-coverage decision for autologous blood derived products used in wound care. This NCD allowed for Medicare coverage under the Coverage with Evidence Development (“CED”) program. CED programs have been employed for a selected number variety of other therapies, including transcatheter aortic valve repair and cochlear implantation. Under the CED program, CMS provides reimbursement for items or services on the condition that they be furnished in approved clinical protocols or in the collection of additional clinical data. Under the CED program, a facility treating a patient with Aurix was reimbursed by Medicare when health outcomes data were collected to inform future coverage decisions. The intent of the CED program was to evaluate the outcomes of Aurix therapy for the broader Medicare population when it is used in a “real world” continuum of care.
On May 17, 2019, we transmitted a letter memorandum to CMS’ Coverage and Analysis Group (“CAG”) in support of our complete formal request for reconsideration of the then existing national coverage determination based on clinical data collected and published under the CED program. The complete formal public request for reconsideration was made on May 8, 2019 in accordance with the applicable requirements.
On April 13, 2021, CMS issued a final coverage decision memo indicating that Medicare would nationally cover autologous PRP for the treatment of chronic non-healing diabetic wounds for a duration of 20 weeks under Section 1862(a)(1)(A) of the Social Security Act. This coverage applies when using devices whose FDA-cleared indications include the management of exuding cutaneous wounds, such as diabetic ulcers. Coverage of autologous PRP beyond 20 weeks for diabetic foot ulcers and for the treatment of all other chronic, non-diabetic, non-healing wounds will be determined by local Medicare Administrative Contractors.
Although FDA cleared the Aurix System for marketing in 2007 under Section 510(k) of the FDCA, CMS only established economically viable reimbursement for the product beginning in 2016. For 2022, the CMS national average reimbursement rate for the Aurix System is $1,749 per treatment, which we believe provides appropriate payment to facilities for product usage. We will market the Aurix System at an approximate cost of $800 per treatment to wound care providers.
Our Strategy
Our current commercial focus is establishing engagement with providers treating chronic non-healing wounds to demonstrate the clinical benefits we believe result from the use of Aurix in the treatment of complex wounds. Increasing physician awareness of the differentiating attributes of Aurix will be key to establishing a base of product revenues upon which to grow. We anticipate developing these relationships with clinical providers and treatment facilities primarily by establishing a variety of distributor arrangements throughout the United States. Our commercial team consists of five senior employees who are leveraging their current and historical relationships to establish distributor arrangements. As of December 31, 2022, we had established contractual relationships with more than 100 individual distributor representatives including. a multi-state agreement with Pacific Medical, Inc. covering multiple large markets in the western United States. The number of distributor representatives may continue to expand modestly in the months ahead but the current focus is establishing commercial customer relationships with wound care providers in primarily hospital outpatient wound care clinics and ensuring that the reimbursement mechanisms are appropriately administered by the local Medicare Administrative Contractors in support of the April 2021 national coverage determination.
Commercially available Aurix product was first available in late May 2022 for demonstration and evaluation purposes. Through a growing distributor network, Aurix is presently being evaluated by various hospital/facility Value Analysis Committees (VACs) as part of the process of approving its clinical use. Limited commercial revenues were recorded during the second half of 2022 and we expect reasonably expect revenues to exhibit increasing growth in subsequent periods.
The Science Underlying Aurix/Platelet Rich Plasma
Normal Wound Healing
The science underlying wound healing is well-established. An immediate early event critical for wound healing is the influx of platelets to the wound site. Platelets bind to elements within damaged tissue such as collagen fragments and endogenous thrombin molecules and are activated to release a diversity of growth factors and other biomolecules from their alpha and dense granules (Reed 2000, Nieswandt, 2003). These biomolecules provide signals essential for biological responses regulating hemostasis and effective tissue regeneration.
Chronic Wounds
Dysregulation of numerous cellular and biological responses contribute to the chronic wound phenotype. Chronic wounds have reduced levels of growth factors and concomitant decreases in cellular proliferation (Mast 1996). There is increased cellular senescence (Telgenhoff 2005), and there generally is a lack of perfusion that can inhibit the delivery of nutrients and cells required for regeneration (Guo 2010). As the body attempts to stave off infection, elevated concentrations of free radicals accumulate in the chronic wound and further damage surrounding tissue (Moseley 2004, James 2003).
Aurix Therapy
Aurix has been cleared by FDA as safe and effective with an indication for chronic wounds such as leg ulcers, pressure ulcers, and diabetic ulcers and other exuding wounds such as mechanically or surgically debrided wounds. The Aurix therapeutic is formed by mixing a sample of a patient’s platelets and plasma with pharmaceutical grade thrombin and ascorbic acid. The thrombin activates platelets while ascorbic acid drives the synthesis of high tensile strength collagen, clears damaging free radicals and controls gel consistency. The topical dermal application of Aurix gel bypasses the lack of local perfusion to provide immediate signals for new tissue formation and ultimately healing.
The Efficacy of Aurix Relates to Biological Activity Released by Platelets
Regenerative Capacity
More than 300 proteins are released by human platelets in response to thrombin activation (Coppinger 2004). Important examples include vascular endothelial cell growth factor (“VEGF”), platelet derived growth factor (“PDGF”), epidermal growth factor (“EGF”), fibroblast growth factor (“FGF”) and transforming growth factor-beta (“TGF-B”) (Eppley 2004, Everts 2006). These proteins are critical for organized wound healing, regulating responses such as vascularization, cell proliferation, cell differentiation, and deposition of new extracellular matrix (Goldman 2004). Platelets also release chemokines such as Interleukin-8 (“IL-8”), stromal cell derived factor-1 (“SDF-1”), and platelet factor-4 (“PF-4”) (Chatterjee 2011, Gear 2003) that control the mobilization and migration of stem cells and fibroblasts (Werner 2003 and Gillitzer 2001), which contribute to tissue regeneration.
Anti-infective Activity
Populations of bioburden in chronic wounds vary over time and wounds invariably retain or become re-infected with some level of bacteria that is detrimental to healing (Howell-Jones 2005). In addition to regenerative capacity, platelets release anti-microbial peptides effective against a broad range of pathogens including Methicillin Resistant Staphylococcus Aureus (“MRSA”) (Moojen 2007, Jia 2010, Tang 2002, Bielecki 2007).
Clinical Efficacy
Multiple efficacy and effectiveness studies have been published in peer reviewed journals documenting the impact of using Aurix to treat chronic wounds. Key data include:
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In the published study of the clinical data collected during the CED program for diabetic foot ulcers, Aurix demonstrated a significant time to heal advantage compared to wounds treated with usual and customary care (including any available advanced therapy). A higher percentage of healing was observed across all wound severities (Wagner Grade 1-4) and in a patient population with significant comorbidities. (Gude W, Hagan D, Abood F, Clausen P: Aurix Gel is an Effective Intervention for Chronic Diabetic Foot Ulcers: A Pragmatic Randomized Controlled Trial. Advances in Skin and Wound Care, 2019; 32(9): 416-426.) |
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In a double blinded randomized controlled trial, 81% of the most common-sized diabetic foot ulcers healed with Aurix compared with 42% of control wounds. Mean time to healing was six weeks. (Driver V, Hanft J, Fylling, C et al.: A Prospective, Randomized, Controlled Trial of Autologous Platelet-Rich Plasma Gel for the Treatment of Diabetic Foot Ulcers. Ostomy Wound Management, 2006; 52(6): 68-87.) |
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In 285 chronic wounds in 200 patients, 96.5% of the wounds had a positive response within an average of 2.2 weeks with an average of 2.8 Aurix treatments (de Leon J, Driver VR, Fylling CP, Carter MJ, Anderson C, Wilson J, et al.: The Clinical Relevance of Treating Chronic Wounds with an Enhanced Near-physiological Concentration of Platelet-Rich Plasma (PRP) Gel. Advances in Skin and Wound Care, 2011; 24(8), 357-368.) |
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In a retrospective, longitudinal study of 40 Wagner grade II through IV diabetic foot ulcers, most with critical limb ischemia, wounds increased in size in the approximate 100 days prior to the initiation of comprehensive wound care treatment. Upon treatment with debridement, revascularization, antibiotics and off-loading, the wounds continued to increase in size over a subsequent 75-day period. Once they were then treated with Aurix, the wounds immediately changed healing trajectory and 83% of the wounds healed with an average of 6.1 Aurix treatments per wound (Sakata, J., Sasaki, S., Handa, K., et al. A Retrospective, Longitudinal Study to Evaluate Healing Lower Extremity Wounds in Patients with Diabetes Mellitus and Ischemia Using Standard Protocols of Care and Platelet-Rich Plasma Gel in a Japanese Wound Care Program. Ostomy Wound Management, 2012; 58(4):36-49.) |
Customer Concentration
Our revenues are derived from the sale of the Aurix product to customers consisting of primarily hospital outpatient wound care clinics and other private practice physicians treating chronic wounds. The Aurix product became commercially available for sale again in mid-2022 with limited revenues generated during the balance of the year ended December 31, 2022.
Licenses and Property Rights
Nuo relies on a combination of trademarks, trade secrets, copyright laws as well as confidentiality agreements, contractual provisions, and other similar measures, to establish and protect its business interests.
Government Regulation
Government authorities in the U.S., Canada, the European Union, and other countries extensively regulate pharmaceutical products, biologics, and medical devices. The Company’s products and product candidates are subject to approval or clearance by the governing bodies prior to and during the marketing and distribution of a product. Regulatory requirements apply to, but are not limited to, research and development, safety and efficacy, clinical studies, manufacturing, labeling, distribution, advertising and marketing, and the import and export of products. Before a product candidate is approved by the governing bodies for commercial marketing, rigorous preclinical and human clinical testing may be necessary to conduct to determine the safety and efficacy or effectiveness of the product. If the Company fails to comply with the applicable laws and regulations at any time during the product development process, approval, or clearance process, or during commercialization, it may become subject to administrative and/or judicial sanctions. These sanctions may include, but are not limited to, refusal to approve or clear pending applications, withdrawals of approvals, clinical holds, warning letters, product recalls, product seizures, total or partial suspension of the Company’s operations, injunctions, fines, civil penalties and/or criminal prosecution. Any enforcement action could have a material adverse effect on the Company.
Medical Device Regulation
The Company reinitiated manufacture and available commercial distribution of the Aurix System in May 2022. As such, this and future products manufactured and/or distributed by the Company may be subject to regulations by the applicable governing bodies, including but not limited to, the FDA, Health Canada, the European Medicines Agency, the Japanese Ministry of Health & Welfare, and other regulatory agencies. The Company currently has no meaningful business development initiatives outside of the U.S. Each of the foreign governing bodies noted above serve a similar function as the FDA. As such, the Company and its products and product candidates are subject to the regulations enforced by the outside governing bodies. These regulations include, but are not limited to, product clearance, documentation requirements, good manufacturing practices and medical device reporting. Labeling and promotional activities are also subject to regulation by the U.S. Federal Trade Commission, in certain circumstances. Current enforcement policies prohibit the marketing of approved medical devices for unapproved uses. Each governing body reviews the labeling and advertising of medical devices to ensure that unapproved uses are not promoted. Before a new medical device can be introduced to the market, the manufacturer must obtain clearance or approval from the applicable regulatory agency, depending upon the device classification. In the U.S., medical devices are classified into one of three classes — Class I, II, or III. The regulations enforced by the FDA and/or the appropriate governing bodies to the medical device(s) provide reasonable assurance that the device is safe and effective. In the U.S., Class I devices are non-critical products that the FDA believes can be adequately regulated by “general controls” which include provisions relating to labeling, manufacturer registration, defect notification, records and reports, and current good manufacturing practices, or cGMP, based on the FDA’s Quality Systems Regulations. Most Class I devices are exempt from pre-market notification and some are also exempt from cGMP requirements. Class II devices are products for which the general controls of Class I devices, by themselves, are not sufficient to assure safety and effectiveness and, therefore, require additional controls. Additional controls for Class II devices may include performance standards, post-market surveillance patient registries, and the use of FDA guidelines. Standards may include both design and performance requirements. Class III devices have the most restrictive controls and require pre-market approval by the FDA. Generally, Class III devices are limited to life-sustaining, life-supporting or implantable devices. All of the governing bodies with responsibility over the Company’s products have the ability to inspect medical device manufacturers, order recalls of medical devices in some circumstances, seize non-complying medical devices, and to pursue prosecution of either civil or criminal violations.
Section 510(k) of the Federal Food, Drug, and Cosmetic Act (“FDCA”) requires individuals or companies manufacturing medical devices intended for human use to file a notice with the FDA at least ninety days before intending to introduce the device into the market. This notice, commonly referred to as a 510(k) premarket notification, must identify the type of classified device into which the product falls, the class of that type, and a specific product already being marketed or cleared by the FDA and to which the product is “substantially equivalent.” In some instances, the 510(k) must include data from human clinical studies to establish “substantial equivalence.” The FDA must agree with the claim of “substantial equivalence” before the device can be marketed. The statutory time frame for clearance of a 510(k) is ninety days, though it often takes longer. Nuo currently only markets a product that is subject to 510(k) clearance.
The Company expects to market the Aurix System by May 2022, consisting of the Aurix Wound Dressing Kit, Aurix Reagent Kit, and Aurix System Centrifuge II. Each component of the Aurix System is a legally marketed product that has been cleared by FDA. The Aurix System Centrifuge II, when used with the Aurix Wound Dressing Kit and Aurix Reagent Kit, are suitable for use on exuding wounds such as leg ulcers, pressure ulcers and diabetic ulcers, and for the management of mechanically or surgically debrided wounds.
As a specification developer, manufacturer, and distributor of medical devices, the Company complies with other regulations and standards, such as the FDCA and implementing regulations set forth in 21 CFR et seq. and also ISO 13485. As a manufacturer and distributor of medical devices, the Company, and in some instances its subcontractors, is required to register its facilities and products manufactured annually with the appropriate governing bodies and certain state agencies. Additionally, the Company is subject to periodic inspections by the governing bodies to assess compliance with cGMP regulations. Facilities may also be subject to inspections by other federal, foreign, state, or local agencies. Accordingly, manufacturers such as the Company must continue to expend time, money, and effort around production and quality control to maintain compliance with cGMP and other aspects of regulatory compliance.
Fraud and Abuse Laws
The Company may also be indirectly subject to federal and state anti-kickback and physician self-referral laws. Federal physician self-referral legislation (commonly known as the Stark Law) prohibits, subject to certain exceptions, physician referrals of Medicare and Medicaid patients to an entity providing certain designated health services (“DHS”) if the physician or an immediate family member has a financial relationship with the entity. The Stark Law also prohibits the entity receiving the referral from billing any good or service furnished pursuant to an unlawful referral, and any person collecting any amounts in connection with an unlawful referral is obligated to refund such amounts. CMS has issued numerous regulations containing exceptions to the prohibitions of the Stark Law. If a physician and a DHS entity have financial relationship subject to the Stark Law, then an exception must be met or else the DHS entity cannot bill for the service. A person who engages in a scheme to circumvent the Stark Law’s referral prohibition may be fined up to $100,000 for each such arrangement or scheme. The penalties for violating the Stark Law also include civil monetary penalties of up to $15,000 per referral and possible exclusion from federal health care programs such as Medicare and Medicaid. Violations of the Stark Law have also been the basis for False Claims Act actions, discussed below. Various states have corollary laws to the Stark Law (so-called “baby Stark” laws), including laws that require physicians to disclose any financial interest they may have with a health care provider to their patients when referring patients to that provider. Both the scope and exception for such laws vary from state to state.
The Company may also be subject to federal and state anti-kickback laws. Section 1128B(b) of the Social Security Act, commonly referred to as the Anti-Kickback Law, prohibits persons from knowingly and willfully soliciting, receiving, offering or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made under a federal health care program, such as Medicare and Medicaid. The Anti-Kickback Law is broad, and it prohibits many arrangements and practices that are otherwise lawful in businesses outside of the health care industry. The Office of the Inspector General (“OIG”) of the U.S. Department of Health and Human Services (“DHHS”) has issued regulations, commonly known as “safe harbors” that set forth certain provisions which, if fully met, will assure health care providers and other parties that they will not be prosecuted under the federal Anti-Kickback Law. Although full compliance with these provisions ensures against prosecution under the Anti-Kickback Law, the failure of a transaction or arrangement to fit within a specific safe harbor does not necessarily mean that the transaction or arrangement is illegal or that prosecution under the federal Anti-Kickback Law will be pursued. As with the Stark Law, violations of the Anti-Kickback Law can result in a False Claims Act action. Many states have adopted laws similar to the federal Anti-Kickback Law, and some of these state prohibitions apply to patients for health care services reimbursed by any source, not only federal health care programs such as Medicare and Medicaid.
In addition, there are other U.S. health care fraud laws to which the Company may be subject that prohibit knowingly and willfully executing or attempting to execute a scheme or artifice to defraud any health care benefit program, including private payers (“fraud on a health benefit plan”) and that prohibit knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement or representation in connection with the delivery of or payment for health care benefits, items or services. These laws apply to any health benefit plan, not just Medicare and Medicaid.
The Company may also be subject to other U.S. laws that prohibit submitting, or causing to be submitted, claims for payment or causing such claims to be submitted that are false. Violation of these false claims’ statutes may lead to civil money penalties, criminal fines and imprisonment, and/or exclusion from participation in Medicare, Medicaid and other federally funded state health programs. These statutes include the federal False Claims Act, which prohibits the knowing filing of a false claim (or causing the submission of a false claim) or the knowing use of false statements to obtain payment from the U.S. federal government. Under provisions of the Affordable Care Act, the failure to report and refund an overpayment to the Medicare or Medicaid programs within 60 days of the identification of the overpayment may also be an obligation subjecting the defendant to a False Claims Act action. Finally, a recent U.S. Supreme Court case, Universal Health Services v. United States ex rel. Escobar, upheld the “implied false certification” theory under which a defendant submits a claim for payment that makes a specific representation about the goods or services provider, but fails to disclose the defendant’s noncompliance with a statutory, regulatory, or contractual requirement that would be material to the Government’s payment decision. When an entity is determined to have violated the False Claims Act, the entity must pay three times the actual damages sustained by the government, plus mandatory civil penalties. Suits filed under the False Claims Act can be brought by an individual on behalf of the government (a “qui tam action”). Such individuals (known as “qui tam relators”) may share in the amounts paid by the entity to the government in fines or settlement. In addition, certain states have enacted laws modeled after the False Claims Act. “Qui tam” actions have increased significantly in recent years causing greater numbers of health care companies to have to defend false claim actions, pay fines or be excluded from the Medicare, Medicaid or other federal or state health care programs as a result of an investigation arising out of such action.
Several states also have referral, fee splitting and other similar laws that may restrict the payment or receipt of remuneration in connection with the purchase or rental of medical equipment and supplies. State laws vary in scope and have been infrequently interpreted by courts and regulatory agencies but may apply to all health care products and services, regardless of whether Medicaid or Medicare funds are involved.
Employees
The Company had 10 full-time employees as of December 31, 2022 which are all compensated as salaried employees. None of the Company’s employees is covered by a collective bargaining agreement or represented by a labor union. The Company considers its employee relations to be good.
Research and Development
During the years ended December 31, 2022 and 2021, we incurred no significant costs for research and development activities.
Competition
While Aurix has limited competition in the chronic wound care market from any other FDA cleared platelet derived products, we face competition from pharmaceutical companies, biopharmaceutical companies, medical device companies, and other competitors in the areas of advanced wound care dressings, wound care devices, and wound care biologics. Leading companies in the advanced wound care market include Smith and Nephew, 3M, MoInlycke, and ConvaTec. Leading competitors in the wound care market that offer other biologic products such as tissue-based products include companies such as MiMedx, Organogenesis, Integra Life Sciences, as well as a significant number of smaller companies. While we believe that Aurix can compete favorably on the basis of broad application across multiple wound etiologies, we expect that many physicians and allied professionals will continue to employ other treatment approaches and technologies, separately and in combination, in an attempt to treat chronic and hard-to heal wounds. The chronic wound market has many therapies that compete with Aurix that have established habitual use patterns and provider contracts to encourage standardized use. Furthermore, other companies have developed or are developing products that could be in direct future competition with our current product line. We may not be able to compete effectively against such companies. Many of these companies have substantially greater capital resources, larger marketing staffs and more experience in commercializing products than we do. See “Item 1A. Risk Factors – Risks Relating to Our Business, Industry, and Regulatory Approval of Our Product - Our Product Has Existing Competition in the Marketplace.”
Raw Materials
A reagent, bovine thrombin (Thrombin JMI), used for our Aurix product is available exclusively through Pfizer. Pfizer may unilaterally raise the price for the reagent. If a temporary or permanent interruption in the supply of the reagent were to occur, or the manufacturing costs charged by Pfizer exceed what we can reasonably afford, it would have a material adverse effect on our business.
Available Information
We file annual, quarterly, and current reports, proxy statements and other information with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. We also make available through our website at www.nuot.com our Annual Report on Form 10-K, our quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we have filed it electronically with, or furnished it to, the SEC. Information appearing on, and accessible through, our website is not part of this Annual Report.
An investment in the Company involves a high degree of risk. Before making an investment decision with respect to our common stock, you should consider the risks described below in addition to the cautionary statements and risks described elsewhere and the other information in this Annual Report and in our other filings with the SEC, including subsequent reports on Forms 10-Q and 8-K. The risks described below may not be the only risks the Company faces. Additional risks not yet known or currently believed to be immaterial may also impair our business. If any of these known or unknown risks or uncertainties actually occurs, our business, financial condition or results of operations could suffer and our common stock could be adversely impacted, resulting in a loss of part or all of your investment.
Risks Related to Our Financial Position
Our Revenue Base Is Limited to a Single Product Seeking Market Adoption, We Need Substantial Additional Financing and Our Ability to Effect Such Financing Successfully Could Be Limited
Our current revenue base is limited to our Aurix product, and our Aurix revenue has been minimal. We have a history of losses and are not currently profitable. For the year ended December 31, 2022, we incurred a net loss of approximately $3.2 million. Even if we succeed in raising substantial additional funds, we expect to incur losses and negative operating cash flows in the immediate future. We may never generate sufficient revenues to achieve and maintain profitability.
Historically, we have financed our operations through a combination of the sale of debt, equity and equity-linked securities, licensing, royalty, and product revenues. Until we can generate a sufficient amount of revenues to finance our cash requirements, which we may never do, we need to finance future cash needs. It is substantially uncertain whether we will be able to obtain such financing on satisfactory terms or at all.
If adequate capital cannot be obtained on a timely basis and on satisfactory terms, it would have a material adverse effect on our ability to implement our business plan, and our revenues and operations and the value of our common stock would be materially and negatively impacted, and we may be forced to curtail or cease our operations.
We Have a Limited Operating History and Limited Operating Experience
We have only recently began re-implementing our commercialization strategy for Aurix. Thus, we have a very limited operating history. Continued operating losses, together with the risks associated with our ability to gain new customers for Aurix, may have a material adverse effect on our liquidity. We may also be forced to respond to unforeseen difficulties, such as decreased demand for our products and services, downward pricing trends, regulatory requirements, and unanticipated market pressures.
Our Financial Position Creates Doubt as to Whether We Will Continue as a Going Concern
The Company reestablished commercial operations in 2022 and generated limited revenues of approximately $112,000. We did not generate any revenues in 2021. For the years ended December 31, 2022 and 2021, the Company had a net loss of approximately $3.2 million and $0.1 million, respectively. There can be no assurances that we will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or obtain funding from additional financing through private placements, public offerings and/or bank financing necessary to support our working capital requirements. It is uncertain whether we will be able to obtain such financing on satisfactory terms or at all. Our continuing losses and limited cash resources raise substantial doubt about our ability to continue as a going concern, and we need to raise substantial additional funds in order to continue to conduct our business. If we are unable to secure sufficient capital to fund our operating activities, we may be forced to delay the completion of, or significantly reduce the scope of, our current business plan, delay the pursuit of commercial insurance reimbursement for our wound treatment technologies, and postpone the hiring of new personnel.
We May Issue Additional Equity or Debt Securities Which Will Likely Dilute and May Materially and Adversely Affect the Price of Our Common Stock
Additional issuance of our common stock or other equity or convertible debt securities will likely dilute the ownership interests of our stockholders. Sales of substantial amounts of shares of our common stock in the public market, or the perception that those sales may occur, could negatively affect the market price of our common stock. We have used, and will likely continue to use, our common stock or securities convertible into or exchangeable for common stock to fund working capital needs or to acquire technology, product rights or businesses, or for other purposes. If additional equity and/or equity-linked securities are issued, particularly during times when our common stock is trading at relatively low-price levels, the price of our common stock may be materially and adversely affected.
We May Not Be Able to Timely and Accurately Report Our Financial Results or Prevent Fraud If We Are Unable to Maintain Effective Disclosure and Internal Controls
Effective disclosure controls and procedures and internal control over financial reporting is necessary for us to provide reliable financial reports in a timely manner. Our management concluded there was a material weakness in our internal control over financial reporting as of the period covered by this Form 10-K. Although we have taken steps to remediate such weakness, the material weakness cannot be considered remediated until the controls operate for a sufficient period of time and management concludes that our internal controls are operating effectively. While we believe that our intended remediation efforts will resolve the identified material weakness, there is no assurance that such efforts will be sufficient or that additional actions will not be necessary, which may undermine our ability to provide timely, accurate and reliable reports on our financial and operating results. Further, if we remediate our current material weakness but identify new material weaknesses in our internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the value of our common stock may be negatively affected. As a result of such failures, we could also become subject to investigations by the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition or divert financial and management resources from our business.
Risks Related to Our Business, Industry and Regulatory Approval of Our Product
The Success of Aurix Is Dependent on Acceptance by the Medical Community
The commercial success of our product will depend upon the medical community and patients accepting the therapies as safe and effective. It will also depend on our success introducing the Aurix product within the broad chronic wound market and encouraging provider evaluation and adoption of Aurix in the context of pre-existing wound treatment clinical practice.
Furthermore, the willingness of the medical community to accept or evaluate our products and processes may be impacted by the medical community’s acceptance of the quality of the clinical information that was collected and published as a result of the CED process. If the medical community and patients do not ultimately accept the therapies as safe and effective, or we are unable to raise awareness of our products and processes, our ability to sell our product may be materially and adversely affected, and the results of our operations may be adversely affected.
The Successful Commercialization of the Aurix System Will Depend on Obtaining Reimbursement from Third-Party Payors
In the U.S., the market for any pharmaceutical or biologic product is affected by the availability of reimbursement from third party payors, such as government health administration authorities, private health insurers, health maintenance organizations and pharmacy benefit management companies. If we cannot demonstrate favorable outcomes or a cost-benefit relationship, we may have difficulty obtaining adequate coverage or reimbursement for our products from these payors. Third-party payors may also deny coverage for our product if they determine that the product is experimental, unnecessary, or inappropriate. Coverage and reimbursement are often determining factors in predicting a product’s success, with some physicians and patients strongly favoring only those products for which they will be reimbursed.
The Aurix System is marketed to healthcare providers. Some of these providers, in turn, seek reimbursement from third-party payors such as Medicare, Medicaid, and other private insurers. While we have established Medicare coverage of Aurix through the NCD reconsideration, we may not be successful with our complete reimbursement strategy, including, without limitation, obtaining any additional regulatory approvals.
Should we seek to expand our commercialization internationally, we would be subject to international regulations, where the pricing of prescription pharmaceutical products and services and the level of government reimbursement may be subject to governmental control. In some countries, pricing negotiations with governmental authorities can take six to twelve months or longer after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct one or more clinical trials that compare the cost effectiveness of our product or product candidates to other available therapies. Conducting one or more of these clinical trials would be expensive and result in delays in commercialization of our current and future products.
Managing and reducing healthcare costs has become a major priority of federal and state governments in the U.S. As a result of healthcare reform efforts, we might become subject to future regulations or other cost-control initiatives that materially restrict the price we can receive for our current and future products. Third-party payors may also limit access and reimbursement for newly approved healthcare products generally or limit the indications for which they will reimburse providers or suppliers who use any products that we may develop. Cost control initiatives could decrease the price for any products that we may develop, which would result in lower product revenues to us.
A Disruption in Healthcare Provider Networks Could Have an Adverse Effect on Operations and Profitability
Our operations and future profitability are dependent, in large part, upon the ability to contract with healthcare providers on favorable terms. In any particular service area, healthcare providers could refuse to contract with us or take other actions that could result in higher healthcare costs or create difficulties in meeting our regulatory requirements. In some service areas, certain healthcare providers may have a significant market presence. If healthcare providers refuse to contract with us, use their market position to negotiate unfavorable contracts or place us at a competitive disadvantage, our ability to market services or to be profitable in those service areas could be adversely affected. Provider networks could also be disrupted by the financial insolvency of a large healthcare provider group. Any disruption in provider networks could adversely impact our business, results of operations and financial condition.
Liquidity Problems or Bankruptcy of our Key Customers or Collaborators Could Have a Significant Adverse Effect on our Business, Financial Condition and Results of Operations
Our sales to customers are typically made on credit without collateral. There is a risk that key customers will not pay, or that payment may be delayed, because of bankruptcy, contraction of credit availability to such customers, weak sales, or other factors beyond our control, which could increase our exposure to losses from bad debts. In addition, if our key customers were to cease doing business as a result of bankruptcy or significantly reduce their orders from us, it could have a significant adverse effect on our business, financial condition, and results of operations. In addition, if our collaborators face liquidity problems or file for bankruptcy, they may choose to divert resources away from their continued cooperation and engagement with us or otherwise choose or be forced to reduce operations, which could also have a significant adverse effect on our business, financial condition, and results of operation.
We May Be Unable to Attract a Strategic Partner for the Further Development of Potential Future Product Candidates
Even if positive clinical data is eventually achieved in any future clinical trials, we may not be able to enter into strategic partnerships, licensing, or other similar arrangements that we may consider necessary or appropriate to commercialize product candidates successfully, or even have the resources necessary to seek such arrangements. Furthermore, even if such a strategic relationship regarding any of our current and future products or product candidates is reached, development milestones, clinical data, or other such benchmarks may not be achieved. Therefore, our products and product candidates may never proceed toward commercialization or drive cash infusions for us, and we may ultimately not be able to monetize the patents, existing clinical data, and other intellectual property.
Our Efforts to Secure Commercial Partners May Not Be Successful
From time to time, we may engage in discussions with larger companies regarding potential strategic partnerships involving the broad commercialization of Aurix. The resources and expertise of such a partner would greatly facilitate the capture of market share within the wound care market but would require that the economic benefits of such a broad penetration would be shared with said partner. We may not be successful in securing such a partner. Furthermore, even if a partner is secured, the partnership may not attain the market penetration contemplated, and the profits ultimately realized by us, if any, may not be sufficient to allow us to execute our business strategy.
We May Use Third-Party Collaborators and Service Providers to Help Us Support, Develop or Commercialize Our Product Candidates, and Our Ability to Commercialize Such Candidates May Be Impaired or Delayed if such Collaborations or Engagements Are Unsuccessful
We may in the future selectively pursue strategic collaborations or engagements for, among other purposes, development, data collection, analysis, and/or commercialization of our product candidates, domestically or otherwise. There can be no assurance as to our ability to utilize the data from such engagements to their potential. Nor can there be any assurance, in general, that we will be able to identify future suitable collaborators or negotiate collaboration agreements on terms that are acceptable to us or at all. In any current or future third-party collaborations, we are and would be dependent upon the success of the collaborators in performing their responsibilities and their continued cooperation and engagement. For a variety of reasons outside of our control, our collaborators or third-party providers may not cooperate with us or perform their obligations under our agreements with them. We cannot control the amount and timing of our collaborators’ resources that will be devoted to performing their responsibilities under our agreements with them. Our collaborators may choose to pursue alternative technologies in preference to those being developed in collaboration with us. The development and commercialization of our product candidates will be delayed if collaborators fail to conduct their responsibilities in a timely manner or in accordance with applicable regulatory requirements or if they breach or terminate their collaboration agreements with us. Disputes with our collaborators could also result in product development delays, decreased revenues and litigation expenses.
If We Are Unable to Maintain and Expand Our Network of Distributors, We May Not Be Able To Generate Sales.
Our operating results are directly dependent upon the sales and marketing efforts of not only our employees, but also our independent distributors. We face significant challenges and risks in managing our geographically dispersed distribution network and retaining the individuals who make up that network. If certain of our distributors were to cease to do business with us, our sales could be adversely affected. Because of the intense competition for their services, we may be unable to recruit or retain additional qualified distributors. We may not be able to enter into agreements with them on favorable or commercially reasonable terms, if at all. Failure to hire or retain qualified distributors would prevent us from maintaining or expanding our business and generating sales.
Our Limited Number of Staff May Affect our Ability to Conduct our Operations and Other Functions Effectively
Our future success depends on our ability to attract, retain, and motivate highly skilled management, scientific and sales personnel. As of December 31, 2022, we had only ten full-time employees. Our ability to maintain and provide services to our customers and our ability to provide the necessary support as part of any collaborations depends upon our ability to hire and retain business development and scientific and technical personnel with the skills necessary to keep pace with continuing changes in regenerative biological therapy technologies. Our current liquidity situation makes it unlikely that we will be able to hire additional personnel in the immediate future. Even assuming that we can resolve our immediate liquidity concerns, competition for such personnel is intense; we compete with pharmaceutical, biotechnology and healthcare companies with greater access to resources. Our inability to hire qualified personnel may lead to higher recruiting, relocation, and compensation costs for such personnel. These increased costs may make hiring new key personnel impractical.
We Are Substantially Dependent Upon Our Executive Officers
Our success substantially depends on the continued service of key management, in particular David E. Jorden, our Chief Executive and Financial Officer, and Peter Clausen, our Chief Scientific Officer and Chief Operating Officer. We currently do not maintain key person insurance on, Mr. Jorden or Dr. Clausen. The loss of Mr. Jorden or Dr. Clausen, or other key employees or executive officers, could adversely impact our ability to continue operations unless and until a replacement is identified.
We Rely on a Single Supplier for the Reagent Used for Aurix and an Interruption in Our Supply Chain Could Have a Material Adverse Effect on Our Business
A reagent used for our Aurix product, bovine thrombin (Thrombin JMI), is available exclusively through Pfizer. Pfizer may unilaterally raise the prices for the reagent. If a temporary or permanent interruption in the supply of the reagent were to occur, or the manufacturing costs charged by Pfizer exceed what we can reasonably afford, we would have to seek alternative sources of supply. There is no assurance we would be able to identify a suitable second source of supply or do so without significant delay. Despite our efforts to maintain an adequate supply of inventory, the loss of Pfizer, or its inability to provide us with an adequate supply of a reagent, could cause delay in the manufacture of our product, thereby impairing our ability to meet the demand of our customers and causing significant harm to our business. Any disruption of this nature or increased expense could harm our commercialization efforts and adversely affect our operating results.
We Could Be Affected by Malpractice or Product Liability Claims
Providing medical care entails an inherent risk of professional malpractice and other claims. We do not control or direct the practice of medicine by physicians or health care providers who use our product and do not assume responsibility for compliance with regulatory and other requirements directly applicable to physicians. There is no assurance that claims, suits, or complaints relating to the use of our products, and treatment administered by physicians, will not be asserted against us in the future. The production, marketing and sale, and use of our product entails risks that product liability claims will be asserted against us. These risks cannot be eliminated, and we could be held liable for any damages that result from adverse reactions or infectious disease transmission. Such liability could materially and adversely affect our business, prospects, operating results, and financial condition. We currently maintain professional and product liability insurance coverage, but the coverage limits of this insurance may not be adequate to protect against all potential claims. We may not be able to obtain or maintain professional and product liability insurance in the future on acceptable terms or with adequate coverage against potential liabilities.
Our Product Has Existing Competition in the Marketplace and We May Not Be Able to Compete Effectively.
In the market for biotechnology products, we face competition from pharmaceutical companies, biopharmaceutical companies, medical device companies, and other competitors. The chronic wound market has many therapies that compete with Aurix that have established habitual use patterns and provider contracts to encourage standardized use. Furthermore, other companies have developed or are developing products that could be in direct future competition with our current product line. Biotechnology development projects are characterized by intense competition. Thus, we may not be the first to the market with any newly developed products and we may not successfully be able to market these products. If we are not able to participate and compete in the regenerative biological therapy market, our financial condition will be materially and adversely affected. We may not be able to compete effectively against such companies in the future. Many of these companies have substantially greater capital resources, larger marketing staffs and more experience in commercializing products than we do. Recently developed technologies, or technologies that may be developed in the future, may be the basis for developments that will compete with our current and future products.
Risks Related to Government Regulations
Our Product Is Subject to Governmental Regulation
Our success is also impacted by factors outside of our control. Our current technology and products are subject to extensive regulation by numerous governmental authorities in the U.S., both federal and state, and in foreign countries by various regulatory agencies. Specifically, our product is subject to regulation by the U.S. Food and Drug Administration, or FDA, and state regulatory agencies. The FDA regulates drugs, medical devices, and biologics that move in interstate commerce and requires that such products receive clearance or pre-marketing approval based on evidence of safety and efficacy. The regulations of government health ministries in foreign countries are analogous to those of the FDA in both application and scope. In addition, any change in current regulatory interpretations by, or the positions of, state regulatory officials where our product is used could materially and adversely affect our ability to sell our product in those states. The FDA will require us to obtain clearance or approval of new or modified devices when used for treating specific wounds or marketed with specific wound-healing claims, or for other products under development.
We believe our current product for sale is legally marketed. As we expand and offer and/or develop additional products in the U.S. and in foreign countries, clearance or approval from the FDA and comparable foreign regulatory authorities prior to introduction of any such products into the market may be required. We provide no assurance that we will be able to obtain all necessary approvals from the FDA or comparable regulatory authorities in foreign countries for these products. Failure to obtain the required approvals would have a material adverse impact on our business and financial condition.
Compliance with FDA and other governmental requirements imposes significant costs and expenses. Further, our failure to comply with these requirements could result in sanctions, limitations on promotional or other business activities, or other adverse effects on our business. Further, recent efforts to control healthcare costs could negatively affect demand for our current and future products and services.
We Must Comply With the Physician Payment Sunshine Act
We are required to comply with the United States Physician Payment Sunshine Act, which requires certain manufacturers of drugs, medical devices, biologicals, and medical supplies that participate in U.S. federal healthcare programs to report certain payments and items of value given to physicians and teaching hospitals. Manufacturers are required to report this information annually to CMS. Manufacturers are required to report aggregate payment data to CMS by the 90th day of each subsequent calendar year. We cannot assure you that we will collect and report all data timely and accurately. If we fail to accurately and timely report this information, we could suffer severe penalties.
Any applicable manufacturer that fails to timely, accurately, or completely report the information required in accordance with the rules of the Sunshine Act is subject to a civil monetary penalty of not less than $1,000, but not more than $10,000, for each payment or other transfer of value or ownership or investment interest not reported timely, accurately, or completely (up to $150,000). For “knowing” failures to report, the penalties increase to not less than $10,000, but not more than $100,000, for each such failure (up to $1,000,000). The amount of civil monetary penalties imposed on each applicable manufacturer or applicable group purchasing organization is aggregated separately. Subject to separate aggregate totals, the maximum combined annual total is $1,150,000.
Several of the U.S. states have parallel reporting laws, sometimes accompanied with “gift bans” prohibiting manufacturers from making gifts or other remunerations to prescribers. Massachusetts and Vermont are two such states. There are various penalties associated with noncompliance with the state laws, as well.
Legislative and Administrative Action May Have an Adverse Effect on Our Company
Political, economic, and regulatory influences are subjecting the health care industry in the U.S. to fundamental change. We cannot predict what other legislation relating to our business or to the health care industry may be enacted, including legislation relating to third-party reimbursement, or what effect such legislation may have on our business, prospects, operating results and financial condition. We expect federal and state legislators to continue to review and assess alternative health care delivery and payment systems, and possibly adopt legislation affecting further changes in the health care delivery system. Such laws may contain provisions that may change the operating environment for hospitals and managed care organizations. Health care industry participants may react to such legislation by curtailing or deferring expenditures and initiatives, including those relating to our current and future products. Future legislation could result in modifications to the existing public and private health care insurance systems that would have a material adverse effect on the reimbursement policies discussed above. With growing pressures on government budgets, government efforts to contain or reduce health care spending in some way or another are likely to continue. Any measures to restrict health care spending could result in decreased revenue from products and decrease potential returns from any future research and development initiatives. Furthermore, we may not be able to successfully neutralize any lobbying efforts against any initiatives we may have with governmental agencies. In addition to legislative initiatives, we may be subject to changes in current regulations and policies affecting coverage and reimbursement for our current and future products. Administrative agencies such as the Centers for Medicare and Medicaid Services have broad discretion to adopt or modify polices through rulemaking, and adoption of rules that curtail access to our products or limit reimbursement could have a material adverse effect on the adoption of our current and future products by health care providers, which would have a material adverse effect on our business.
Failure to Obtain Regulatory Approval in International Jurisdictions Would Prevent Us from Marketing Our Product Abroad
We may in the future seek to market some of our product candidates outside the U.S. In order to market our product candidates in the European Union and many other jurisdictions, we must submit clinical data concerning our product candidates and obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval from foreign regulators may be longer than the time required to obtain FDA approval. The regulatory approval process outside the U.S. may include all of the risks associated with obtaining FDA approval. In addition, in many countries outside the U.S., it is required that the product candidate be approved for reimbursement before it can be approved for sale in that country. In some cases, this may include approval of the price we intend to charge for our product, if approved. We may not obtain approvals from regulatory authorities outside the U.S. on a timely basis, or at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the U.S. does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA, but a failure or delay in obtaining regulatory approval in one country may negatively affect the regulatory process in other countries. We may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize any products in any market and therefore may not be able to generate sufficient revenues to support our business.
Risks Related to Our Intellectual Property and Cyber-Security
Our Intellectual Property Assets Are Critical to Our Success
We regard our trademarks, trade secrets and other intellectual property assets as critical to our success. We rely on a combination of trademarks, and trade secret and copyright laws, as well as confidentiality procedures, contractual provisions, and other similar measures, to establish and protect our intellectual property. We attempt to prevent disclosure of our trade secrets by restricting access to sensitive information and requiring employees, consultants, and other persons with access to our sensitive information to sign confidentiality agreements. Despite these efforts, we may not be able to prevent misappropriation of our technology or deter others from developing similar technology in the future. Furthermore, policing the unauthorized use of our intellectual property assets is difficult and expensive. Litigation could result in substantial costs and diversion of resources. We can provide no assurance that we will be successful in any litigation matter relating to our intellectual property assets. Any misappropriation of our intellectual property assets could have a material adverse effect on our ability to increase sales of our commercial product and/or continue the development of any future pipeline candidates.
If We Are Unable to Protect the Confidentiality of Our Proprietary Information and Know-how, Our Competitive Position Would be Impaired
A significant amount of our technology, especially regarding manufacturing processes, is unpatented and is maintained by us as trade secrets. The background technologies used in the development of our product candidates are known in the scientific community, and it is possible to duplicate the methods we use to create our product candidates. In an effort to protect these trade secrets, we require our employees, consultants and contractors to execute confidentiality agreements with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements, however, may not provide us with adequate protection against improper use or disclosure of confidential information, and these agreements may be breached. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. A breach of confidentiality could affect our competitive position. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators or advisors have previous employment or consulting relationships. Also, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. The disclosure of our trade secrets would impair our competitive position.
If We Infringe, or Are Alleged to Infringe, Intellectual Property Rights of Third Parties, Our Business Could be Harmed
Our research, development, and commercialization activities, including any product candidates resulting from these activities, may infringe, or be claimed to infringe, patents or other proprietary rights owned by third parties, and to which we do not hold licenses or other rights. There may be patent applications owned by third parties that have been filed but not published that, when issued, could be asserted against us. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages.
Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit. We have not conducted an exhaustive search or analysis of third-party patent rights to determine whether our research, development, or commercialization activities, including any product candidates resulting from these activities, may infringe or be alleged to infringe any third-party patent rights. As a result of intellectual property infringement claims, or in order to avoid potential claims, we may choose or be required to seek a license from the third party. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the licensee would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property.
Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. All of the issues described above could also affect our potential collaborators to the extent we have any collaborations then in place, which would also affect the success of the collaboration and therefore us. There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including inter partes review and/or interference proceedings declared by the U. S. Patent and Trademark Office and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to our product candidates and technology.
Our Business May Be Adversely Impacted by Cybersecurity Attacks
Disruption in our computer systems could adversely affect our business. We rely on computer systems to process transactions, communicate with customers, manage our business, and process and maintain information. Cybersecurity attacks are evolving and disruptions can be caused by a variety of events, such as viruses, malicious malware, unauthorized access attempts to data, or other types of cybersecurity attacks. Such events could produce disruptions that result in an unexpected delay in operations, loss of confidential or otherwise protected information, corruption of data, and expenses related to the repair or replacement of our computer systems. Compromising and/or loss of information could result in loss of sales or legal or regulatory claims which could adversely affect our revenues and profits or damage our reputation.
Risks Related to Our Common Stock
A Retail Trading Market for Our Common Stock May Not Actively Develop.
Shares of our common stock currently resumed trading on the OTCQB on August 22, 2022. Prior to then, due to a prior lack of current and publicly available information about the Company, trading in shares of our common stock was eligible only for unsolicited quotes on the “Expert Market” of the OTC Markets Group. Because quotations in Expert Market securities are restricted from public viewing, the designation severely limits the number of buyers of, and effectively prevents the development of an active trading market in, designated securities. Even though shares of our common stock now trade on the OTCQB, there can be no assurance as to whether OTC Markets Group will continue to enable shares of our common stock to be quoted on a retail market or whether shares of our common stock can successfully be traded on other trading platforms. As a result, any limited trading of shares of our common stock subject to having a higher risk of wider spreads, increased volatility, and price dislocations.
Trading on an Over-the-Counter Market Could Adversely Affect the Liquidity of Our Common Stock.
Trading in our common stock on the OTCQB since August 22, 2022 has been very limited and we cannot make any assurances that the trading volume will increase, or, if and when it increases, that it will be sustained at any level. Over-the-counter markets are generally considered to be less efficient than, and not as broad as, a stock exchange. Stockholders may have difficulties reselling significant numbers of shares of common stock at any particular time and may not be able to resell their shares of common stock at or above the price paid for such shares. As a result, stockholders may be required to hold shares of common stock for an indefinite period of time. In addition, sales of substantial amounts of common stock could lower the prevailing market price of our common stock.
U.S. Broker-Dealers May Be Discouraged from Effecting Transactions in Shares of our Common Stock.
Our Common Stock may be deemed a “penny stock” under SEC rules. As a result, trading in our common stock may be subject to the requirements of SEC rules that require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-exchange listed equity security that has a market price share of less than $5.00 per share, subject to certain exceptions) and a two business day “cooling off period” before broker and dealers can effect transactions in penny stocks. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction before the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. These, and the other burdens imposed upon broker-dealers by the penny stock requirements, could discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market liquidity of our common stock and the ability of holders of our common stock to sell it.
The Compliance and Reporting Requirements of Being a Public Reporting Company Can Be Expensive.
We are a public reporting company and, accordingly, are subject to the information and reporting requirements of the Exchange Act, and other federal securities laws, including compliance with the Sarbanes-Oxley Act. Preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders is costly. In addition, we may face time consuming and costly effects to develop and implement internal controls and reporting procedures required by the Sarbanes-Oxley Act.
Our Officers, Directors and Principal Stockholders Can Exert Significant Influence Over Us and May Make Decisions That Are Not in the Best Interests of All Stockholders
As of March 15, 2022, our officers and directors beneficially owned approximately 20.8% of our shares of common stock, while three other principal stockholders beneficially owned in the aggregate an additional approximately 44.5% of our shares of common stock. As a result, our officers, directors, and certain principal holders of common stock are able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors. This concentration of ownership of our common stock could have the effect of delaying or preventing a change of control of us or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of us. This, in turn, could have a negative effect on the market price of our common stock, if and when it commences trading. It could also prevent our stockholders from realizing a premium over the market prices for their shares of common stock. Moreover, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders, and accordingly, they could cause us to enter into transactions or agreements that we would not otherwise consider.
Transactions Engaged in by Our Largest Stockholders, Our Directors or Officers Involving Our Common Stock May Have an Adverse Effect on the Value of Our Common Stock
Sales of our common stock by our officers, directors and principal stockholders could have the effect of lowering the price or value of our common stock. The perceived risk associated with the possible sale of a large number of shares of common stock by those stockholders could cause some of our stockholders to sell their stock, thus adversely affecting the value of our common. Our largest stockholders, directors and executive officers may sell a significant number of shares for a variety of reasons unrelated to the performance of our business. Our stockholders may perceive these sales as a reflection on management’s view of the business, which may result in some stockholders selling their shares of our common stock. These sales also could adversely affect the value of our common stock.
Volatility of Our Stock Price Could Adversely Affect Current and Future Stockholders
The market price of our common stock is likely to fluctuate widely in response to various factors which are beyond our control. The price of our common stock is not necessarily indicative of our operating performance or long-term business prospects. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock. Factors that could cause the market price to fluctuate substantially include, among others:
| ● |
our ability or inability to execute our business plan; |
| ● |
the dilutive effect or perceived dilutive effect of additional equity financings; |
| ● |
investor perception of our company and of the industry; |
| ● |
the success of competitive products or technologies; |
| ● |
regulatory developments in the U.S. or overseas; |
| ● |
developments or disputes concerning patents or other proprietary rights; |
| ● |
the recruitment or departure of key personnel; or |
| ● |
general economic, political and market conditions. |
The stock market in general can often experience extreme price and volume fluctuations. Any such market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. Price volatility could be worse if the trading volume of our common stock is low.
ITEM 1B. Unresolved Staff Comments
Not applicable.
Our principal executive offices are located in a leased space at 8285 El Rio Street, Suite 190, Houston, TX 77054. We also lease commercial office space at 6646 Willow Park Drive, Naples, FL 34109.
The Company does not own any real property and does not intend to invest in any real property in the foreseeable future.
There are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition, or cash flows.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Shares of our common stock trade on the OTCQB tier of the over-the counter market operated by OTC Markets Group, Inc. under the symbol “AURX”. Over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not necessarily reflect actual transactions.
Holders
According to information provided by the transfer agent of the Company, there were approximately 800 holders of record of our common stock as of March 15, 2023, respectively.
Dividends
We have never paid or declared cash distributions or dividends in our history and we do not intend to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain all earnings, if and when generated, for reinvestment in our business.
Penny Stock
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Our common stock may be deemed a “penny stock.” The definition of penny stock under SEC rules generally includes equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure document, which generally: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of securities’ laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; and (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks. The broker-dealer also must provide to the customer, prior to effecting any transaction in a penny stock, (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for shares of our common stock.
Issuer Purchases of Equity Securities
None.
Recent Sales of Unregistered Securities
None.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and related notes appearing elsewhere in this Annual Report. The discussion in this section regarding the Company’s business and operations includes “forward-looking statements”. See “Special Note Regarding Forward-Looking Statements” at the beginning of this Annual Report.
Overview
Nuo is a regenerative therapies company developing and marketing products primarily within the U.S. We commercialize innovative cell-based technologies that harness the regenerative capacity of the human body to trigger natural healing. The use of autologous (i.e., from self or the patient’s own) biological therapies for tissue repair and regeneration is part of a transformative clinical strategy designed to improve long term recovery in complex chronic conditions with significant unmet medical needs.
Our only current commercial offering consists of a point of care technology for the safe and effective separation of autologous blood to produce a platelet-based therapy for the chronic wound care market (the "Aurix System"). The Company ceased normal operating activities effective May 1, 2019 as it awaited developments concerning Medicare coverage of the Aurix System under its National Coverage Decision (“NCD”) reconsideration request. Product sales were reinitiated in mid-2022 after the favorable NCD determination was issued in April 2021, the Aurix System supply chain was re-established and equity capital was accessed in December 2021 via the early exercise of warrants under a warrant modification agreement.
The revenue amounts presented in these comparison sections are rounded to the nearest thousand.
Comparison of the Years Ended December 31, 2022 and 2021
Revenue and Gross Profit
Product revenues for the year ended December 31, 2022 totaled approximately $112,000 with approximately $93,000 of associated gross profit and a resulting gross margin of approximately 83%. Re-initiation of commercial activity for the Aurix product began in May 2022 as saleable product inventory became available at the Company’s warehouse/distribution facility. There were no revenues in the year ended December 31, 2021.
Operating Expenses
Total operating expenses increased approximately by $3,323,000 to approximately $3,414,000 comparing the year ended December 31, 2022 to the prior full year 2021 period. The increase from the nominal expense level in the prior year was due to expenses associated with the business returning to commercial status as an operating business in 2022 including renewed commercial sales activities that began in May 2022. Expenses for the year ended December 31, 2022 were primarily composed of (i) approximately $1,700,000 of compensation and benefits expense, (ii) approximately $729,000 of external consulting costs and professional fees including accounting and audit, legal fees, and quality management system consulting costs and (iii) approximately $616,000 of various other operating expenses including sales infrastructure, marketing costs, external distributor commissions, and sales/reimbursement consulting expenses of approximately $255,000, insurance expense of approximately $134,000, operating lease costs of approximately $128,000, and travel related expenses of approximately $99,000.
Interest Expense, net
Interest expense, net for the year ended December 31, 2022 of approximately $2,000 represents interest expense from the financing of insurance premiums.
Other Income (Expense)
Other income for the year ended December 31, 2022 primarily represents the gain of approximately $146,000 realized from the negotiated settlement of legacy accounts payable with third-party vendors including the full release of any ongoing payment liability.
Liquidity and Capital Resources
Overview
As of December 31, 2022, we had cash and cash equivalents of approximately $2.1 million, total current assets of approximately $2.6 million and total current liabilities of approximately $0.6 million. As an operational business, we have a history of losses and are not currently profitable. For the years ended December 31, 2022 and 2021, we incurred net losses of approximately $3.2 million and $0.1 million, respectively. As a consequence of a deemed dividend (contribution) in 2021, we had a net loss available for common stockholders of approximately $0.9 million in 2021. As of December 31, 2022, our accumulated deficit was approximately $26.8 million and our stockholders’ equity was approximately $2.2 million.
We sold 3,957,757 shares of common stock to certain accredited investors pursuant to Security Purchase Agreements in two private placements which closed on April 29 and May 18, 2022 for proceeds of $3,957,757.
On August 24, 2022, we entered into a Common Stock and Warrant Purchase Agreement with Pacific Medical, Inc. (“Pacific Med”) for the sale and issuance of shares of common stock and warrants to purchase shares of common stock. Pursuant to the Common Stock and Warrant Purchase Agreement, Pacific Med purchased 500,000 shares of the Company’s common stock for $500,000 in September 2022. As part of the Common Stock and Warrant Purchase Agreement, we agreed to grant to Pacific Med the right to participate in any future financing through December 31, 2023 (the “Participation Rights”) in connection with a listing of our common stock on a national securities exchange. The Participation Rights entitle Pacific Med to purchase up to 500,000 shares of common stock upon substantially the same terms, conditions, and price provided for in such financing. If such a financing does not occur by December 31, 2023, the Common Stock and Warrant Purchase Agreement provides that we will issue Pacific Med a warrant with a January 1, 2024 issuance date and exercisable until June 30, 2024 to purchase up to 500,000 shares of common stock at a price equal to the lower of $2.00 per share or the 20-day volume weighted average closing price per share ending December 31, 2023.
Our continuing losses and limited cash resources raise substantial doubt about our ability to continue as a going concern, and we need to raise substantial additional funds in order to continue to conduct our business. If we are unable to secure sufficient capital to fund our operating activities, we may be forced to delay further the completion of, or significantly reduce the scope of, our current business plan. It is uncertain whether we will be able to obtain such financing on satisfactory terms or at all.
We may not be able to obtain additional capital as required to finance our efforts, through equity or debt financing or any combination thereof, on satisfactory terms or at all. Additionally, any such financing, if at all obtained, may not be adequate to meet our capital needs and to support our operations.
We maintain our cash deposits primarily in financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (“FDIC”). We have not experienced any losses related to amounts in excess of FDIC limits.
Financing and Related Developments During the Years 2019 through 2021
Spring 2019 Cessation of Normal Operating Activities
In April 2019, the Company made the decision to cease normal operational activities and we furloughed the Company’s remaining employees effective May 1, 2019. This decision was necessitated by the depletion of the Company’s resources during the conduct of the CED studies being undertaken to pursue Medicare reimbursement coverage for the Aurix System. In the spring of 2019, we had collected clinical outcomes and analyzed the data from the subjects involved in the CED studies and were engaged in discussions with CMS concerning the adequacy of the results and a NCD reconsideration request.
On December 10, 2019, the Company entered into fifth and final amendments to the 2018 Convertible Notes pursuant to which the Company’s obligations under such notes were to be extinguished in their entirety upon receipt by each Convertible Note Investor of (i) a cash payment of $110,000 and (ii) 175,000 unrestricted shares of the Company’s common stock no later than February 10, 2020. The Company made the required cash payments totaling $220,000 on December 10, 2019 and issued the common shares as of February 5, 2020 in final settlement of the 2018 Convertible Notes.
Senior Secured Note Issuance
On November 15, 2019 and December 6, 2019, the Company entered into note purchase agreements with certain individual accredited investors (the “Senior Note Investors”) for the issuance and sale to the Investors of 12% senior secured promissory notes (the “Senor Notes”), in the aggregate principal amount of $305,000 with an overall $500,000 cap under the note purchase agreements. Pursuant to the purchase agreements, the Company also issued to the Senior Note Investors warrants exercisable to purchase an aggregate 457,500 shares of the Company’s common stock, subject to adjustment as referenced below.
In conjunction with the note issuance, the Company granted a first-priority security interest in all the assets of the Company but fundamentally consisting of the Aurix System asset including all regulatory files and approvals and relevant intellectual property. The purchase agreements contained certain representations, warranties and covenants by, among and for the benefit of the respective parties. The purchase agreements also provided for customary indemnification of the Senior Note Investors by the Company.
The notes had a maturity date of June 30, 2020 and accrued interest at a rate of 12% per year. The Company could prepay the Senior Notes, in whole or in part, at any time. The warrants were exercisable at any time, at an exercise price per share equal to $0.40, subject to certain adjustments and price protection provisions (including full ratchet anti-dilution protection) contained in the warrants. The warrants had five-year terms.
The use of proceeds from the Notes beyond the initial $50,000 and up to an estimated aggregate amount of $270,000 (for the sake of clarity, such aggregate amount is not deemed to include the initial $50,000) was specifically dedicated to payment to the Convertible Note Investors, in a final amount to be agreed between the Company and the Convertible Note Investors such that the 2018 Convertible Notes were considered retired and no longer in effect.
Series A Preferred Stock Exchange Agreement
On October 5, 2020 (the “Effective Date”), the Company entered into a Recapitalization Agreement (the “Recap Agreement) with Deerfield Private Design Fund II, L.P. (“DPDF”) and Deerfield PDI Financing II, L.P. (“DPF” and, together with DPDF, the “Deerfield Investors”) and the Noteholders, whereby the shares of Series A preferred stock held by the Deerfield Investors were exchanged for 2,700,000 shares of common stock (the “Exchange Shares”) of the Company. The Senior Note Investors agreed to the conversion of the $305,000 principal balance of the Notes plus accrued interest through September 30, 2020 of approximately $30,400 into an aggregate 838,487 shares of common stock (the “Conversion Shares”) of the Company at a conversion price of $0.40 per share, plus the purchase, for cash, of 487,500 shares of common stock (the “Purchase Shares”) at $0.40 per share, or $195,000 in total. On the Effective Date, all shares of Series A preferred stock and Senior Notes were cancelled in full.
Pursuant to the Recap Agreement, the Company also issued to the Senior Note Investors warrants to purchase an aggregate of 3,977,961 shares of the Company’s common stock, subject to adjustment as referenced below. The warrants were exercisable at any time, at an exercise price per share equal to $0.40, subject to certain adjustments and price protection provisions (including full ratchet anti-dilution protection) contained in the warrants. The warrants had five-year terms. The warrants to purchase 457,500 shares of common stock issued to the Noteholders upon the original 2019 issuance of the Notes were canceled.
Warrant Modification Agreement and Early Warrant Exercise
Effective as of December 1, 2021, the Company entered into a Warrant Modification Agreement with the holders of an aggregate 6,865,461 Warrants (the “Warrant Investors”) whereby the Warrants were modified to adjust the warrant exercise price from $0.40 per share to $0.20 per share provided the Investor exercised the warrant prior to January 31, 2022. All Warrants not exercised prior to January 31, 2022 were to be forfeited and deemed expired or otherwise cancelled.
As of December 31, 2021, all Warrants had been exercised for total consideration of $1,373,092 and the resulting issuance of 6,865,461 shares of common stock.
Cash Flows
Net cash provided by (used in) operating, investing, and financing activities for the periods presented were as follows:
| Year Ended December 31, 2022 |
Year Ended December 31, 2021 |
|||||||
| Cash flows used in operating activities |
$ | (3,706,126 | ) |
$ | (119,955 | ) |
||
| Cash flows used in investing activities |
$ | (59,992 | ) |
$ | - | |||
| Cash flow provided by financing activities |
$ | 4,457,757 | $ | 1,373,092 | ||||
Operating Activities
Cash used in operating activities for the year ended December 31, 2022 of approximately $3.7 million primarily reflects our net loss of approximately $3.2 million adjusted by i) a non-cash gain of approximately $0.1 million from the negotiated settlement of legacy accounts payable obligations, ii) approximately $0.1 million in total amortization of right of use assets, property and equipment depreciation, and stock-based compensation and iii) approximately $0.5 million net change in operating assets and liabilities.
Cash used in operating activities for the year ended December 31, 2021 of $0.1 million primarily reflects our net loss of $0.1 million.
Investing Activities
We had limited investing activities for the year ended December 31, 2022 totaling approximately $60,000. We had no investing activities for the year ended December 31, 2021.
Financing Activities
Cash flows from financing activities for the year ended December 31, 2022 reflects (i) approximately $4.0 million of proceeds raised from the sale of 3,957,757 shares of common stock in two private placements closed in April and May 2022 and (ii) $0.5 million of proceeds from the Common Stock and Warrant Purchase Agreement with Pacific Medical, Inc. in September 2022.
Cash provided by financing activities for the year ended December 31, 2021 of $1.4 million represents proceeds from the early exercise of warrants in December 2021.
Inflation
The Company does not believe that inflation has had a material effect on its operations.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Critical Accounting Policies
This Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. A summary of our significant accounting policies is included in Note 3 to the accompanying consolidated financial statements.
A “critical accounting policy” is one that is both important to the portrayal of our financial condition and results of operations and that requires management’s most difficult, subjective, or complex judgments. Such judgments are often the result of a need to make estimates about the effect of matters that are inherently uncertain. We have identified the following accounting policies as critical:
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but not limited to, stock-based compensation, recoverability and depreciable lives of long-lived assets, deferred taxes and associated valuation allowance, and allowances for inventory obsolescence and doubtful accounts. Actual results could differ from those estimates.
Revenue Recognition
We analyze our revenue arrangements to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers; (ii) identification of distinct performance obligations in the contract; (iii) determination of contract transaction price; (iv) allocation of contract transaction price to the performance obligations; and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation. We recognizes revenues upon the satisfaction of its performance obligations (upon transfer of control of promised goods or services to customers) in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.
We provide for the sale of our products, including disposable processing sets and supplies to customers. Revenue from the sale of products is recognized upon shipment of products to the customers. We do not maintain a reserve for returned products, as in the past those returns have not been material and are not expected to be material in the future.
Stock-Based Compensation
We recognize expense in the consolidated statements of operations for the fair value of all stock-based compensation to key employees, nonemployee directors and advisors, generally in the form of stock options and stock awards. We use the Black-Scholes option valuation model to estimate the fair value of stock options on the grant date. Compensation cost is amortized on a straight-line basis over the vesting period for each respective award. We account for any forfeitures as they occur.
Basic and Diluted Earnings (Loss) per Share
In periods of net loss, basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. In periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all potential dilutive common shares is anti-dilutive.
For periods of net income, diluted earnings per share is computed using the more dilutive of the “treasury method” or “two class method.” Dilutive earnings per share under the “treasury method” is calculated by dividing net income available to common stockholders by the weighted- average number of shares outstanding plus the dilutive impact of all potential dilutive common shares, consisting primarily of common shares underlying common stock options and stock purchase warrants using the treasury stock method, and convertible notes using the if-converted method. Because none of the Company’s equity-linked financial instruments contain non-forfeitable rights to dividends, the “two class” method results in the same diluted earnings per share as the “treasury method.”
Fair Value Measurements
Our consolidated balance sheets include certain financial instruments that are carried at fair value. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. These tiers include:
| ● |
Level 1, defined as observable inputs such as quoted prices in active markets for identical assets; |
|
| ● |
Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and |
|
| ● |
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, we perform a detailed analysis of our assets and liabilities that are measured at fair value. All assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as Level 3.
Recent Accounting Pronouncements Not Yet Adopted
The Company does not believe that any recently issued effective standards, or standards issued but not yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
ITEM 8. Financial Statements and Supplementary Data
The information required pursuant to this Item 8 is incorporated by reference herein to our consolidated financial statements beginning on page F-1 of this Form 10-K.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
ITEM 9A. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision of and with the participation of our management, including our Chief Executive Officer, who is our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-K. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Form 10-K, we concluded that, as of such dates, our disclosure controls and procedures were not effective due to the existence of the material weaknesses in the Company’s internal control over financial reporting described below under “Material Weaknesses” and “Remediation Plan.”
Notwithstanding the conclusion that our disclosure controls and procedures as of the end of the period covered by this Form 10-K were not effective, and notwithstanding the material weaknesses in our internal control over financial reporting described below, management believes that the consolidated financial statements and related financial information included in this Form 10-K fairly present in all material respects our financial condition, results of operations and cash flows as of the dates presented, and for the periods ended on such dates, in conformity with GAAP.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Our management conducted an assessment of our internal control over financial reporting as set forth in Item 308(a) of Regulation S-K promulgated under the Exchange Act and Section 404 of the Sarbanes-Oxley Act as of the end of the end of the period covered by this Form 10-K. Based on this assessment, our management concluded that our internal control over financial reporting was ineffective due to the continuing material weakness in our internal control over financial reporting described below under “Material Weaknesses” and “Remediation Plan.”
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of this Form 10-K and the consolidated financial statements and related disclosures herein, management identified the following material weaknesses.
Beginning in mid-2019, we ceased ongoing operational activities and terminated all our financial accounting and reporting resources as we worked to reach a favorable outcome to Medicare reimbursement coverage for the Aurix System. When we re-started commercial operations in 2022 and as disclosed in our prior year Annual Report, the Company had not hired and did not maintain a sufficient complement of accounting and financial reporting resources. The lack of sufficient accounting and financial reporting resources also prevented the Company from maintaining appropriately designed, and monitoring the effectiveness of, internal control over financial reporting.
Remediation Plan
In 2022, the Company engaged outside consultants to assist with various accounting and financial reporting matters and will continue assessing the need for hiring of additional internal accounting and and third-party financial reporting resources. As additional financial resources are obtained and we increase our operating activity, management, under the oversight of the Audit Committee of the Board of Directors, will begin to implement measures designed to improve our internal control over financial reporting to remediate the identified material weaknesses, namely, to identify and engage, through internal hiring and the use of external third parties, a sufficient complement of accounting and financial reporting resources and to periodically assess the design and operating effectiveness of our internal controls.
While we believe that these efforts will improve our internal control over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. We cannot assure you that the measures we have taken to date, or that we may take in the future, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no changes in our internal control over financial reporting during the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
ITEM 10. Directors, Executive Officers, and Corporate Governance
Set forth below is information regarding the directors and executive officers of the Company. Officers are appointed by, and serve at the pleasure of, the Board of Directors.
| Name |
Age |
Position |
||
| David E. Jorden |
60 |
Chief Executive and Chief Financial Officer; Director |
||
| C. Eric Winzer |
66 |
Independent Director |
||
| Scott M. Pittman |
64 |
Independent Director |
||
| Paul D. Mintz, MD |
74 |
Independent Director |
||
| Peter A. Clausen |
57 |
Chief Scientific Officer and Chief Operating Officer |
David E. Jorden has been Chief Executive Officer and Chief Financial Officer of the Company since July 1, 2016 after serving as Acting Chief Executive Officer effective January 8, 2016 and Acting Chief Financial Officer effective May 2015. Mr. Jorden also serves as Secretary of the Company. He has served as a director since October 2008. Mr. Jorden is also presently serving since June 2013 as Chief Executive Officer for Nanospectra Biosciences, Inc., a private company developing nanoparticle directed photothermal ablation technology of solid tumors. From 2003 to 2008, he was with Morgan Stanley’s Private Wealth Management group where he was responsible for equity portfolio management. Prior to Morgan Stanley, Mr. Jorden served as Chief Financial Officer for Genometrix, Inc., a private genomics/life sciences company focused on high-throughput microarray applications. Mr. Jorden was previously a principal with Fayez Sarofim & Co. Mr. Jorden has a MBA from Northwestern University’s Kellogg School and a B.B.A. from University of Texas at Austin. He is a Chartered Financial Analyst and previously held a Certified Public Accountant designation.
Mr. Jorden was chosen to serve on the Board in part because of his extensive financial experience, particularly in the life sciences industry. As our current Chief Executive Officer and Chief Financial Officer, he provides the Board with critical insight into the day-to-day operations of the Company.
C. Eric Winzer has served as director since January 30, 2009. Mr. Winzer has over 30 years of experience in addressing diverse financial issues including raising capital, financial reporting, investor relations, banking, taxation, mergers and acquisitions, financial planning and analysis, and accounting operations. Mr. Winzer has been the Chief Financial Officer at Immunomic Therapeutics, Inc., a privately-held clinical stage biotechnology company, since May 2015. From June 2009 to April 2015 Mr. Winzer served as the Principal Accounting Officer, Senior Vice President of Finance, and Chief Financial Officer for OpGen Inc. (OPGN), a precision medicine company that went public in May 2015. Before his tenure with OpGen Inc., Mr. Winzer held multiple executive positions at Avalon Pharmaceuticals, Inc. (AVRX) including serving as its Chief Financial Officer and Executive Vice President, Principal Accounting Officer, and Secretary. Before joining Avalon Pharmaceuticals, Mr. Winzer held numerous senior financial positions over twenty years at Life Technologies Corporation (LIFE) (now part of Thermo Fisher Scientific (TMO)) and its predecessor companies, Invitrogen (IVGN) and Life Technologies, Inc. (LTEK). From 1980 to 1986, Mr. Winzer held various financial positions at Genex Corporation. Mr. Winzer holds a B.A. in Economics and Business Administration from Western Maryland College (now McDaniel College) and an M.B.A. from Mount Saint Mary's University.
Mr. Winzer was chosen to serve as a director of the Company in part because of his executive experience in the life sciences industry and his substantial financial knowledge and expertise.
Scott M. Pittman has served as a director since May 5, 2016. Mr. Pittman has over 30 years in hospital executive management. Since 2014, he has served in operational and business development roles for, and currently is Senior Vice President of, Buchanan General Hospital. Since 2010, he has been a Registered Representative with Calton & Associates. From 2001 to 2009, he was a hospital CEO with Adventist Health Systems. During 1989 to 2001, he was a hospital executive and system COO for Princeton Community Hospital Assoc. Mr. Pittman has developed several multi-million-dollar hospital and program service expansions, healthcare entity acquisitions and mergers, and served on state and regional health planning organizations. He is a magna cum laude graduate of Southwestern Adventist University with B.A. and B.S. Degrees in Business and Finance, and a Masters of Hospital Administration from Medical College of Virginia.
Mr. Pittman was chosen to serve as a director of the Company in part because of his extensive experience as a hospital administration executive.
Paul D. Mintz, MD has served as a director since April 7, 2017. Dr. Mintz is the Senior Vice President and Chief Medical Officer of Verax Biomedical, Inc., or Verax Biomedical. Prior to joining Verax Biomedical in early 2016, Dr. Mintz served as Director, Division of Hematology Clinical Review, Office of Blood Research and Review, Center for Biologics Evaluation and Research of the U.S. Food and Drug Administration from 2011 to 2016. Prior to that, for more than 30 years, Dr. Mintz was a member of the faculty of the University of Virginia, School of Medicine, where he was a tenured Professor of Pathology and Internal Medicine. He also served as Vice-Chair of Pathology and Chief of the Division of Clinical Pathology, and as Medical Director of the Clinical Laboratories and Transfusion Medicine Services at the University of Virginia Health System. In addition, Dr. Mintz served as Co-Medical Director of Virginia Blood Services. He served as a director of Immucor, Inc. (BLUD) from 2009 to 2011. Dr. Mintz is a former President of the American Association of Blood Banks (now the Association for the Advancement of Blood and Biotherapies), or AABB, served on AABB’s Board of Directors for nine years, and chaired and was a member of numerous AABB committees. He has also served as a member of the Board of Trustees of the National Blood Foundation. A recipient of a Transfusion Medicine Academic Award from the National Heart, Lung and Blood Institute, Dr. Mintz was an inaugural inductee into the National Blood Foundation Hall of Fame. He has served as a member of the Medicare Coverage Advisory Committee of CMS. Dr. Mintz is author or co-author of more than 100 articles and editorials spanning clinical practice, blood safety and the evaluation of new transfusion medicine technologies and has designed and served as principal investigator for numerous clinical trials. He is the sole editor of all three editions of Transfusion Therapy: Clinical Principles and Practice (AABB Press) and has served on several journal editorial boards. Dr. Mintz earned his BA with High Distinction in Philosophy from the University of Rochester and received his MD with Honors from the University of Rochester, School of Medicine.
Dr. Mintz was chosen to serve as a director of the Company based in part on his recognized expertise in clinical practice, his extensive involvement in transfusion medicine, transfusion-related clinical trials, and regulatory leadership experience.
Peter A. Clausen has been our Chief Scientific Officer as well as our Chief Operating Officer since January 1, 2022. He previously was appointed as the Chief Scientific Officer on March 30, 2014 and served in that position until December 31, 2019. He originally joined the Company in September 2008 and has more than 20 years of experience in the biotechnology industry. Dr. Clausen served as a Senior Product manager within the orthobiologics division at Arthrex Inc. from March 2020 to October 2021 where he was responsible for the development and launch of autologous biologics used to treat inflammatory mediated connective tissue disease. Prior to originally joining the Company, he was a founding member and Vice President of Research and Development at Marligen Bioscience, where he developed and commercialized innovative genomic and protein analysis products for the life sciences market. Dr. Clausen was the Manager of New Purification Technologies at Life Technologies and the Invitrogen Corporation. He also has significant experience within the commercial biotechnology industry developing peptide and small molecule therapeutics for application in the areas of inflammatory mediated disease and stem cell transplantation. He completed his post-doctoral training at the Laboratory of Molecular Oncology at the National Cancer Institute where his research efforts focused in the areas of oncology, hematopoiesis, and gene therapy. Dr. Clausen earned Ph.D. in Biochemistry from Rush University in Chicago and a Bachelor of Science degree in Biochemistry from Beloit College.
There are no family relationships between any of the Company’s executive officers or directors and, other than as disclosed above, there are no arrangements or understandings between a director and any other person pursuant to which such person was elected as director.
Corporate Governance
Each director holds office for the term for which he or she is elected or until his or her successor is duly elected. The Company has not made any material changes to the procedures by which stockholders may recommend nominees to the Board of Directors of the Company since 2022.
Audit Committee Financial Expert
The Board has established an Audit Committee in accordance with section 3(a)(58)(A) of the Exchange Act. The Audit Committee currently is comprised of Mr. Winzer, Dr. Mintz, and Mr. Pittman. The Board has determined that Mr. Winzer is independent and is an audit committee financial expert as defined by Item 407(d)(5) of Regulation S-K. The Company applies Nasdaq Stock Market corporate governance requirements and standards in determining director and Audit Committee independence.
Code of Conduct and Ethics
The Board has adopted a Code of Conduct and Ethics applicable to all directors, officers, and employees in accordance with Item 406 of Regulation S-K. A copy of this Code of Conduct and Ethics is available on our website at www.nuot.com.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act, requires officers, directors and persons who own more than ten percent of a registered class of equity securities to, within specified time periods, file certain reports of ownership and changes in ownership with the SEC.
Based solely on a review of the Section 16 reports filed electronically with the SEC and written representations from certain reporting persons, the Company believes that, during the fiscal year ended December 31, 2022, all Section 16(a) reports required to be filed by its officers, directors, and greater than ten percent beneficial owners were timely filed, except that a report covering two transactions on one date was filed late by Mr. Jorden, a report covering two transactions on one date was filed late by Mr. Winzer, a report covering a total of two transactions on one date was filed late by Mr. Pittman, a report covering two transactions on one date was filed late by Dr. Mintz, and the initial statement of beneficial ownership and two reports each covering one transaction was filed late by Dr. Clausen.
ITEM 11. Executive Compensation
This following table presents information regarding compensation paid to our named executive officers during the years 2022 and 2021.
Summary Compensation Table
| Name and Principal Position |
Year |
Salary |
Bonus |
Option and Equity Awards (1) |
All Other Compen- sation |
Total |
||||||||||||||||
| David E. Jorden |
2022 |
$ | 168,750 | (2) | $ | - | $ | 1,786 | (3) | $ | $ | 170,536 | ||||||||||
| Chief Executive and Chief Financial Officer |
2021 |
$ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Peter A. Clausen |
2022 |
$ | 210,000 | (5) | $ | - | $ | 3,247 | (6) | $ | - | $ | 213,247 | |||||||||
| Chief Scientific Officer and Chief Operating Officer (4) |
2021 |
$ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||
| (1) |
Represents the grant date fair value of the common stock options issued during the fiscal year indicated, calculated in accordance with FASB ASC Topic 718. The warrant fair value was estimated using the assumptions detailed in Note 3 - Liquidity and Summary of Significant Accounting Principles to the Company’s consolidated financial statements included in this Annual Report. The fair value of the common stock issued was based on the trading price of the stock on the date of issuance. |
| (2) |
Effective April 1, 2022, the Board established Mr. Jorden’s annual salary as $225,000. Previously, effective April 30, 2019, Mr. Jorden's salary had been eliminated as the Company ceased operational status. |
| (3) |
On March 4, 2022, Mr. Jorden was granted 125,000 immediately exercisable options at an exercise price of $0.75. |
| (4) |
Dr. Clausen was reappointed as our Chief Scientific Officer as well as our Chief Operating Officer effective January 1, 2022. |
| (5) |
Effective January 1, 2022, the Board established Dr. Clausen’s paid annual salary as $180,000 and subsequently adjusted his annual salary to $225,000 effective May 1, 2022. |
| (6) |
On March 4, 2022, Dr. Clausen was granted 275,000 options at an exercise price of $0.75 of which one-third were immediately exercisable and the balance vesting quarterly over 3 years. |
Employment Agreements
On May 9, 2022, the Company entered into an employment agreement effective April 1, 2022 with David Jorden, the Company’s Chief Executive and Financial Officer. The employment agreement provides for a base salary to Mr. Jorden of Two Hundred Twenty-Five Thousand Dollars ($225,000) per year and, as determined by the Compensation Committee, an annual bonus of up to 50% of such base salary. The employment agreement also provides, upon certain circumstances, for a severance payment to Mr. Jorden of twelve months of his base salary as in effect at the time upon termination of services, including due to a change in control of the Company. The terms of the employment agreement with Mr. Jorden contain other customary provisions.
On May 9, 2022, the Company also entered into an employment agreement effective January 1, 2022 with Peter Clausen, the Company’s Chief Scientific Officer and Chief Operating Officer. The employment agreement provides for a base salary to Mr. Clausen as of May 1, 2022 of Two Hundred Twenty-Five Thousand Dollars ($225,000) per year and, as determined by the Compensation Committee, an annual bonus of up to 50% of such base salary. The employment agreement also provides, upon certain circumstances, for a severance payment to Mr. Clausen of twelve months of his base salary as in effect at the time upon termination of services, including due to a change in control of the Company. The terms of the employment agreement with Mr. Clausen contain other customary provisions.
The descriptions above of the employment agreements for Mr. Jorden and Mr. Clausen are qualified by reference to the actual employment agreements, copies of which are included as exhibits to this Annual Report.
The Company does not provide any pension plans/benefits or nonqualified deferred compensation.
Outstanding Equity Awards
The following table sets forth the outstanding equity awards held by our named executive officers as of December 31, 2022.
Outstanding Equity Awards at December 31, 2022
| Name |
Number of Securities Underlying Unexercised Options Exercisable |
Number of Securities Underlying Unexercised Options Unexercisable |
Option Exercise Price |
Option Expiration Date |
|||||||||
| David E. Jorden |
162,500 | (1) | - | $ | 1.00 | 6/30/2026 |
|||||||
| 192,710 | (2) | - | $ | 0.40 | 8/8/2025 |
||||||||
| 125,000 | (3) | - | $ | 0.40 | 12/31/2025 |
||||||||
| 66,672 | (4) | - | $ | 0.50 | 03/03/2032 |
||||||||
| 125,000 | (5) | - | $ | 0.75 | 03/03/2032 |
||||||||
| Peter A. Clausen |
183,853 | (2) | - | $ | 0.40 | 8/8/2025 |
|||||||
| 81,250 | (3) | - | $ | 0.40 | 12/31/2025 |
||||||||
| 43,228 | (4) | - | $ | 0.50 | 03/03/2032 |
||||||||
| 275,000 | (6) | 137,500 | $ | 0.75 | 03/03/2032 |
||||||||
| (1) |
62,500 vested immediately upon the January 9, 2017 date of grant, 50,000 vested on March 31, 2017, and 50,000 vested on December 31, 2017. |
| (2) |
Fully vested upon the August 9, 2018 date of grant in settlement of $77,083 and $73,541 of accrued compensation liabilities for Mr. Jorden and Dr. Clausen, respectively. |
| (3) |
Fully vested upon the March 4, 2022 date of grant in settlement of $50,000 and $32,500 of accrued compensation liabilities for Mr. Jorden and Dr. Clausen, respectively. |
| (4) |
Fully vested upon the March 4, 2022 date of grant in settlement of $33,336 and $21,614 of accrued compensation liabilities for Mr. Jorden and Dr. Clausen, respectively. |
| (5) | Fully vested upon the March 4, 2022 date of grant. |
| (6) | One-third vested immediately upon the March 4, 2022 date of grant and the remainder vest quarterly over three years. |
Potential Payments Upon Termination or Change of Control
The employment agreements of each of Mr. Jorden and Dr. Clausen provides, upon certain circumstances, for a severance payment of twelve months of his base salary as in effect at the time upon termination of services, including due to a change in control of the Company.
Director Compensation in 2022
The following table sets forth, for the fiscal year ended December 31, 2022, the cash and non-cash compensation of our non-executive directors during the years.
| Fees Earned or Paid in Cash (1) |
Option and Equity Awards (2) |
Total | ||||||||||
| Name |
2022 |
2022 |
2022 | |||||||||
| C. Eric Winzer |
$ | - | $ | 1,072 | $ | 1,072 | ||||||
| Scott M. Pittman |
$ | - | $ | 1,429 | $ | 1,429 | ||||||
| Paul D. Mintz, MD |
$ | - | $ | 1,072 | $ | 1,072 | ||||||
| (1) |
Effective May 1, 2019, concurrent with the Company's decision to furlough its remaining employees, the Board ceased its cash fees for its service and has not since reinstituted such fees. |
| (2) |
On March 4, 2022, the Board granted 75,000, 100,000, and 75,000 fully vested options, with an exercise price of $0.75 per option, to Mr. Winzer, Mr. Pittman, and Dr. Mintz, respectively. |
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Beneficial Ownership Table
The following tables set forth information regarding the beneficial ownership of shares of our common stock as of date indicated by (i) each director; (ii) each of the named executive officers, as identified under “Summary Compensation Table” in Item 11 above; (iii) all directors and executive officers as a group and (iv) principal stockholders known by the Company to be beneficial owners of more than five percent of our common stock.
Beneficial ownership is determined in accordance with the rules of the SEC. Except as otherwise noted, below, each named beneficial owner known to the Company has sole voting and investment power with respect to the shares listed. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of our common stock that could be issued upon the exercise of outstanding options or warrants held by that person that are exercisable at the date indicated or within 60 days thereof are considered outstanding; however, these shares are not considered outstanding when computing the percentage ownership of any other person.
Except as otherwise noted below, the address for each person or entity listed in the table is c/o Nuo Therapeutics, Inc., 8285 El Rio, Suite 190, Houston, TX 77054.
As of March 15, 2023
| Beneficial Ownership (1) |
||||||||
| Beneficial Owner |
Number of |
Percent of |
||||||
| Directors and Named Executive Officers |
||||||||
| David E. Jorden (2) |
2,647,240 | 6.2 | % |
|||||
| C. Eric Winzer (3) |
365,729 | * | ||||||
| Scott M. Pittman (4) |
4,701,054 | 11.2 | % |
|||||
| Paul D. Mintz (5) |
257,916 | * | ||||||
| Peter A. Clausen (6) |
990,884 | 2.3 | % |
|||||
| All Directors and Executive Officers as a Group (5 persons) (7) |
9,125,323 | 20.8 | % |
|||||
| Principal Stockholders |
||||||||
| Charles E. Sheedy (8) |
11,003,365 | 26.3 | % |
|||||
| Boyalife Asset Holding II, Inc. (9) |
4,900,000 | 11.7 | % |
|||||
| Deerfield Management (10) |
2,700,000 | 6.5 | % |
|||||
| * |
Less than 1% |
| (1) |
Based on 41,799,016 shares of common stock outstanding. |
| (2) |
Includes 671,882 shares issuable upon exercise of options. |
| (3) |
Includes 340,729 shares issuable upon exercise of options. |
| (4) |
Includes 357,709 shares issuable upon exercise of options. |
| (5) |
Represents shares issuable upon exercise of options. |
| (6) |
Includes 445,931 shares issuable upon exercise of options. |
| (7) |
Includes 2,074,167 shares issuable upon the exercise of options. |
| (8) |
Based upon information available to the Company and information contained in a Schedule 13D/A filed with the SEC on July 5, 2022 with respect to the beneficial ownership of shares of common stock as of July 5, 2022. According to such Schedule 13D/A, Mr. Sheedy shares voting and dispositive power with respect to 3,365 shares held in trusts for the benefit of Mr. Sheedy’s children. The mailing address of Mr. Sheedy is Two Houston Center, Suite 2907, 909 Fannin Street Houston, TX 77010. |
| (9) |
Based upon information available to the Company and information contained in a Schedule 13D/A filed with the SEC on September 21, 2017 with respect to the beneficial ownership of shares of common stock as of September 11, 2017. The mailing address of Boyalife Asset Holding II, Inc. is 2711 Citrus Road, Sacramento, CA 95742. |
| (10) |
Based upon information contained in a Schedule 13G filed with the SEC on October 9, 2020 with respect to the beneficial ownership of shares of common stock as of October 5, 2020. According to the Schedule 13G, Deerfield Mgmt, L.P., Deerfield Management Company, L.P. James E. Flynn (together, “Deerfield Management”) share voting and dispositive power of 2,700,000 shares comprised of 1,258,227 shares held by Deerfield Private Design Fund II, L.P. and 1,441,773 shares held by Deerfield PDI Financing II, L.P. The mailing address of the persons associated with Deerfield Management is 345 Park Avenue South, 12th Floor, Attn: Legal Department, New York, NY 10010. |
Securities Authorized for Issuance under Equity Compensation Plans
During the period covered by this Form 10-K and currently, the sole equity compensation plan of the Company has been the Nuo Therapeutics, Inc. 2016 Omnibus Incentive Compensation Plan (the “Omnibus Plan”). As of March 4, 2022, the Board of Directors amended the Omnibus Plan, which stockholders subsequently approved, to eliminate its evergreen provision and increase the number of shares authorized under the Omnibus Plan to 4,250,000 shares. Refer to Note 7 - Equity and Stock-Based Compensation in the Notes to the Consolidated Financial Statements in this Form 10-K for additional information about our equity compensation plans and arrangements.
The following table sets forth information regarding the Omnibus Plan as of December 31, 2022.
| Plan category |
Number of warrants, |
Weighted average warrants, |
Number of remaining future |
|||||||||
| Equity compensation plans approved by security holders |
3,376,667 | $ | 0.64 | 873,333 | ||||||||
| Equity compensation plans not approved by security holders |
— | $ | — | — | ||||||||
| Total |
3,376,667 | $ | 0.64 | 873,333 | ||||||||
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
Transactions with Related Persons
Except as set forth below, we were not involved in any related person transactions since the beginning of 2021, and we are not involved in any related person transaction currently, that is required to be disclosed under Item 404(d) of Regulation S-K.
Warrant Modification Agreement
Effective as of December 1, 2021 (the “Modification Effective Date”), the Company entered into a Warrant Modification Agreement (the “Warrant Modification Agreement") with the holders of an aggregate 6,865,461 warrants whereby such warrants were modified to adjust the warrant exercise price from $0.40 per share to $0.20 per share provided a holder exercised the warrant prior to January 31, 2022. All such modified warrants not exercised prior to such date were to be forfeited and deemed expired or otherwise cancelled.
Charles E. Sheedy, a more than five percent beneficial owner of shares of our common stock, exercised modified warrants for 1,431,615 shares at an exercise purchase price of $286,323. David E. Jorden, the Chief Executive and Financial Officer and a director of the Company, and Scott M. Pittman, a director of the Company, exercised modified warrants for 1,137,635 and 900,000 shares, respectively, at exercise purchase prices of $227,527 and $180,000, respectively.
2022 Private Placement
On April 29, 2022, the Company entered into a Securities Purchase Agreement, dated as of April 11, 2022, with certain accredited investors for the sale of 3,550,000 shares of the Company’s common stock at a price of $1.00 per share for proceeds of $3,550,000 (the “Private Placement”). The closing of the Private Placement also occurred on April 29, 2022.
The investors in the Private Placement included David E. Jorden, the Chief Executive and Financial Officer and a member of the Board of Directors of the Company, Scott M. Pittman, a member of the Board of Directors of the Company, Peter A. Clausen, the Chief Scientific Officer and Chief Operating Officer of the Company, and Charles E. Sheedy, a principal stockholder of the Company of the Company. Messrs. Jorden, Pittman, Clausen, and Sheedy invested $10,532, $100,000, $25,000, and $804,868, respectively, in the Private Placement.
Director Independence
The Company’s current directors are David Jorden, Eric Winzer, Scott Pittman, and Paul D. Mintz. The Board has chosen to apply Nasdaq Stock Market corporate governance requirements and standards in determining director independence. The Board has determined that all of the Company’s current directors meet such independence requirements with the exception of Mr. Jorden, who serves as the Chief Executive and Financial Officer of the Company.
ITEM 14. Principal Accounting Fees and Services
Since August 9, 2018, Marcum LLP (“Marcum”) has been our independent registered public accounting firm. GBH CPAs, PC (“GBH”) previously was our independent registered public accounting firm since September 27, 2017 until GBH combined its practice with Marcum effective July 1, 2018. The following table presents fees for professional services rendered by our principal accountants for the fiscal years 2022 and 2021:
| 2022 |
2021 |
|||||||
| Audit Fees (1) |
$ | 110,000 | 35,000 | |||||
| Audit-Related Fees |
– | – | ||||||
| Tax Fees |
– | – | ||||||
| All Other Fees |
– | – | ||||||
| (1) |
Audit fees represent fees accrued for annual professional services provided in connection with the audit of the Company’s annual financial statements, reviews of its quarterly financial statements, audit services provided in connection with statutory and regulatory filings for those years and fees related to non-routine SEC filings. |
Pursuant to its charter, the Audit Committee must pre-approve audit services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent auditors. The Audit Committee may, when appropriate, form and delegate authority to subcommittees consisting of one or more members of the Audit Committee, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Audit Committee at its next scheduled meeting.
All audit services and permitted non-audit services were pre-approved by the Audit Committee.
ITEM 15. Exhibits and Financial Statement Schedules
| (a)(1) |
Financial Statements |
See the Index to Consolidated Financial Statements at page F-1 of this Form 10-K:
| (a)(2) |
Financial Statement Schedules |
Financial statement schedules have been omitted since they either are not required, not applicable, or the information is otherwise included in our consolidated financial statements or the related footnotes.
| (a)(3) |
Exhibits |
| Number |
Exhibit Table |
|
| 3.1 |
||
| 3.2 |
||
| 3.3 |
||
| 3.4 |
||
| 4.1 |
||
| 4.2 |
||
| 4.3 |
||
| 4.4 |
||
| 10.1 |
||
| 10.2 |
||
| 10.3 |
||
| 10.4 |
||
| 10.5 |
Form of Option Award under the 2016 Omnibus Incentive Compensation Plan, as amended and restated* |
|
| 10.6 |
||
| 21 |
||
| 31 |
||
| 32 |
||
| 101.INS |
Inline XBRL Instance Document |
|
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
|
| 101.CAL |
Inline XBRL Taxonomy Calculation Linkbase Document |
|
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
| 104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * |
Indicates a management contract or compensatory plan or arrangement. |
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| NUO THERAPEUTICS, INC. |
||
| Date: April 14, 2023 |
By: |
/s/ David E. Jorden |
| David E. Jorden |
||
| Chief Executive and Chief Financial Officer and Director |
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Date: April 14, 2022 |
/s/ David E. Jorden |
| David E. Jorden |
|
| Chief Executive and Chief Financial Officer and Director |
|
| (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer) |
|
| Date: April 14, 2022 |
/s/ Paul D. Mintz |
| Paul D. Mintz |
|
| Director |
|
| Date: April 14, 2022 |
/s/ C. Eric Winzer |
| C. Eric Winzer |
|
| Director |
|
| Date: April 14, 2022 |
/s/ Scott M. Pittman |
| Scott M. Pittman |
|
| Director |
NUO THERAPEUTICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Audited Financial Statements | |
| Report of Independent Registered Public Accounting Firm (PCAOB Firm ID No. | F-2 |
| F-3 | |
| F-4 | |
| F-5 | |
| F-6 | |
| F-7 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Nuo Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Nuo Therapeutics, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 3 to the financial statements, the Company has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the 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 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 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 financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Marcum LLP
We have served as the Company’s auditor since 2017.
April 14, 2023
| Consolidated Balance Sheets |
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right of use assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Non-current portion of operating lease liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 10) | ||||||||
| Stockholders' Equity | ||||||||
| Common stock; $ par value; shares authorized; and shares issued and outstanding at December 31, 2022 and 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
| Consolidated Statements of Operations |
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | ||||||||
| Product sales | $ | $ | ||||||
| Total revenue | ||||||||
| Costs of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling, general and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest expense, net | ( | ) | ||||||
| Gain on settlement of legacy accounts payable obligations | ||||||||
| Other income | ||||||||
| Loss before benefit for income taxes | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Deemed dividend (contribution): | ||||||||
| Warrant modification | ( | ) | ||||||
| Net loss available for common stockholders | $ | ( | ) | $ | ( | ) | ||
| Net loss per share – basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding – basic and diluted | ||||||||
| Consolidated Statements of Changes in Stockholders' Equity |
For the Years Ended December 31, 2022 and 2021
| Common Stock | Total | |||||||||||||||||||
| Shares | Amount (par $0.0001) | Additional Paid-in Capital | Accumulated Deficit | Stockholders' Equity | ||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Issuance of common stock pursuant to inducement of existing warrants | ||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Share-based compensation expense | - | |||||||||||||||||||
| Issuance of options to settle related party compensation liabilities | - | |||||||||||||||||||
| Issuance of common shares | ||||||||||||||||||||
| Issuance of common shares, participation right and contingent warrant | ||||||||||||||||||||
| Exercise of warrants | ( | ) | ||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
Consolidated Statements of Cash Flows
| Year ended December 31, |
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| 2022 |
2021 |
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| CASH FLOWS FROM OPERATING ACTIVITIES |
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| Net loss |
$ | ( |
) |
$ | ( |
) |
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| Adjustments to reconcile net loss to net cash used in operating activities: |
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| Stock-based compensation |
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| Gain on settlement of accounts payable |
( |
) |
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| Depreciation of property and equipment |
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| Amortization of operating lease right of use assets |
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| Changes in operating assets and liabilities: |
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| Accounts receivable |
( |
) |
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| Inventory |
( |
) |
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| Prepaid expenses and other current assets |
( |
) |
( |
) |
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| Accounts payable |
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| Accrued liabilities |
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| Operating lease liabilities |
( |
) |
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| Net cash used in operating activities |
( |
) |
( |
) |
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| CASH FLOWS FROM INVESTING ACTIVITIES |
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| Purchases of property and equipment |
( |
) |
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| Net cash used in investing activities |
( |
) |
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| CASH FLOWS FROM FINANCING ACTIVITIES |
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| Net proceeds from issuance of common stock, participation right, and contingent warrant |
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| Net proceeds from exercise of warrants |
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| Net cash provided by financing activities |
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| NET INCREASE IN CASH AND CASH EQUIVALENTS |
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| Cash and cash equivalents, beginning of period |
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| Cash and cash equivalents, end of period |
$ | $ | ||||||
| RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH |
||||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Restricted cash |
||||||||
| Cash, cash equivalents, and restricted cash, beginning of period |
$ | $ | ||||||
| Cash and cash equivalents |
$ | $ | ||||||
| Restricted cash |
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| Cash, cash equivalents, and restricted cash, end of period |
$ | $ | ||||||
| SUPPLEMENTAL INFORMATION |
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| Cash paid during the period for: |
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| Income taxes |
$ | $ | ||||||
| Interest |
$ | $ | ||||||
| NON-CASH INVESTING AND FINANCING TRANSACTIONS |
||||||||
| Issuance of options to settle accrued compensation liabilities |
$ | $ | ||||||
| ROU assets and lease liabilities established at inception of lease |
$ | $ | ||||||
NUO THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Description of Business
Description of Business
Nuo Therapeutics, Inc. (“Nuo Therapeutics,” the “Company,” “we,” “us,” or “our”) is a Delaware corporation organized in 1998 under the name Informatix Holdings, Inc. In 1999, Autologous Wound Therapy, Inc., an Arkansas Corporation, merged with and into Informatix Holdings, Inc. and the name of the surviving corporation was changed to Autologous Wound Therapy, Inc. In 2000, Autologous Wound Therapy, Inc. changed its name to Cytomedix, Inc. (“Cytomedix”). In 2001, Cytomedix, filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code, after which Cytomedix was authorized to continue to conduct its business as a debtor and debtor-in-possession. Cytomedix emerged from bankruptcy in 2002 under a Plan of Reorganization. In September 2007, Cytomedix received 510(k) clearance for the Aurix System (“Aurix”), formerly known as the AutoloGel™ System, from the U. S. Food and Drug Administration (“FDA”). In April 2010, Cytomedix acquired the Angel Whole Blood Separation System (“Angel”) and the Angel Business, from Sorin Group USA, Inc. In February 2012, Cytomedix, acquired Aldagen, Inc. (“Aldagen”), a privately held developmental cell-therapy company located in Durham, NC. In 2014, Cytomedix changed its name to Nuo Therapeutics, Inc. In 2016, Nuo filed for and emerged from bankruptcy under Chapter 11. Effective May 1, 2019, we furloughed our remaining employees and ceased standard operational activities as we awaited developments concerning our reconsideration request with the Centers for Medicare & Medicaid Services (“CMS”) regarding Medicare coverage for Aurix. Based on a favorable National Coverage Determination issued in April 2021, we initiated restart activities for the business beginning in October 2021 with an expectation that the Aurix product will be available for commercial sale by May 2022. Aldagen is a non-operational, wholly owned subsidiary of Nuo.
Impact of COVID-19 Pandemic on Financial Statements
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a “pandemic”, or a worldwide spread of a new disease. Many countries imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus and have closed non-essential businesses.
The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the pandemic. The unaudited consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company has not experienced any significant negative impact on its December 31, 2022 consolidated financial statements related to COVID-19.
Note 2 –Recapitalization
In anticipation of returning to operational status, the Company undertook several financing transactions in 2021, 2020 and 2019 to stabilize its financial condition, as follows:
2018 Convertible Notes
In September 2018, the Company issued two separate convertible notes (the “2018 Convertible Notes”) with detachable stock purchase warrants (the “Warrants”) to two separate investors, Auctus Fund, LLC (“Auctus”) and EMA Financial, LLC (“EMA” and, collectively with Auctus, the “Investors”). Pursuant to separate securities purchase agreements, the Company issued and sold to the Investors
The notes had an original maturity date months from the date of issuance ( June 17, 2019). Under the original terms of the 2018 Convertible Notes, after months from the date of issuance, the Investors may convert the notes, at any time, in whole or in part, into shares of the Company’s common stock, at a conversion price corresponding to a
Throughout the first three quarters of 2019, the Company entered into various amendments to the 2018 Convertible Notes. The amendments extended the date when the Company may prepay the notes and deferred the date upon which the Investors can initiate conversion of the notes into common shares of the Company pursuant to the notes’ terms until September 17, 2019 in the case of the most recent amendment. The Company paid the Investors amendment fees totaling $
In December 2019, the Company further amended the 2018 Convertible Notes to provide for the settlement and extinguishment of all obligations under the 2018 Convertible Notes upon the (i) payment of an aggregate $
2019 Senior Secured Notes
In November and December 2019, the Company entered into note purchase agreements with certain investors providing for the issuance of $
On September 1, 2020, the Noteholders notified the Company of its default under the 2019 Senior Secured Notes and submitted a forbearance and recapitalization proposal to the Company. The 2019 Senior Secured Notes were settled in full in October 2020 (see 2020 Recapitalization below).
2020 Recapitalization
In October 2020 and in response to the declared default under the 2019 Senior Secured Notes, the Company entered into a Recapitalization Agreement (the “Recapitalization”) with its existing Deerfield Investors (“Deerfield”) and holders of its 2019 Senior Secured Notes (“Noteholders”) pursuant to which:
| ● | Deerfield exchanged its Series A Preferred Stock for |
| ● | The Noteholders converted $ |
| ● | The Noteholders agreed to purchase |
| ● | The Noteholders received warrants to purchase |
| ● | The Noteholders agreed to cancel the warrants originally issued with the 2019 Senior Secured Notes. |
The settlement of the Series A Preferred Stock was accounted for at fair value. The Company recognized a deemed dividend (contribution) resulting from the gain on the cancellation of its equity classified preferred stock, calculated as the difference between the fair value of the consideration transferred and the carrying value of the preferred stock. In addition, Lawrence S. Atinsky, the Deerfield Investors’ representative on the Company’s board, resigned and the number of Company directors was reduced to four. Outstanding options to purchase common stock held by Mr. Atinsky as of the Effective Date were forfeited.
The settlement of the 2019 Senior Secured Notes resulted in the conversion of the $
As part of the Recapitalization, the Company granted to each of three (3) individuals an aggregate of (i)
2021 Warrant Modification
In December 2021, the Company entered into a Warrant Modification Agreement (the “Agreement”) with the employee holders and Investor holders of
See Note 6 - Stock Purchase Warrants and Note 7 – Equity and Stock-Based Compensation for further discussion.
Note 3 –Liquidity and Summary of Significant Accounting Principles
Liquidity
Since our inception, we have financed our operations by raising debt, issuing equity and equity-linked instruments, and executing licensing arrangements, and to a lesser extent by generating royalties and product revenues. In mid-2019, we ceased ongoing operational activities as we worked to reach a favorable outcome to Medicare reimbursement coverage for the Aurix System. In April 2021 CMS issued an NCD establishing national reimbursement coverage for Aurix when used in chronic non-healing wounds where a diabetes clinical diagnosis exists for the patient. During 2021, 2020 and 2019, the Company raised net cash proceeds of $
We have incurred, and continue to incur, recurring losses and negative cash flows. As of December 31, 2022, we have an accumulated deficit of approximately $
The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations, and potential other funding sources, including cash on hand, to meet our obligations as they become due.
We believe based on the operating cash requirements and capital expenditures expected for the next twelve months that our current resources and projected revenue from sales of Aurix are insufficient to support our operations for the next 12 months. As such, we believe that substantial doubt about our ability to continue as a going concern exists. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Even assuming we succeed in raising sufficient additional funds in the near future to avoid a cessation of business operations, we require additional capital and will seek to continue financing our operations with external capital for the foreseeable future. Any equity financings may cause further substantial dilution to our stockholders and could involve the issuance of securities with rights senior to the common stock. Any debt financings may require us to comply with additional onerous financial covenants and restrict our business operations. Our ability to complete additional financings is dependent on, among other things, market reception of the Company and perceived likelihood of success of our business model, the state of the capital markets at the time of any proposed equity or debt offering, state of the credit markets at the time of any proposed loan financing, and on the relevant transaction terms, among other things. We may not be able to obtain additional capital as required to finance our efforts, through equity or debt financings, other transactions or any combination thereof, on satisfactory terms or at all. Additionally, any such financing, if at all obtained, may not be adequate to meet our capital needs and to support our operations.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its wholly-owned, controlled, and inactive subsidiary Aldagen, Inc. (“Aldagen”). All significant inter-company accounts and transactions are eliminated in consolidation. The Company operates its business in one operating segment consisting of one reporting unit.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but not limited to stock-based compensation, the fair value of common stock and equity-linked and derivative financial instruments, recoverability and depreciable lives of long-lived assets, deferred taxes and associated valuation allowance, the valuation and classification of debt instruments, and allowances for inventory obsolescence and doubtful accounts. Actual results could differ from those estimates
.
Credit Concentration
We generate accounts receivable from the sale of our products. Specific customer receivable balances in excess of 10% of total receivables at December 31, 2022 is listed below. We had no trade receivables as of December 31, 2021.
| December 31, 2022 | ||||
| Customer A | ||||
| Customer B | ||||
| Customer C | ||||
| Customer D | ||||
| Customer E | ||||
Revenue from significant customers exceeding 10% of total revenues for the year ended December 31, 2022 is listed below. All our revenue in 2022 was generated within the U.S. We generated no revenues in the year ended December 31, 2021.
| Year Ended December 31, 2022 | ||||
| Customer A | ||||
| Customer B | ||||
| Customer F | ||||
| Customer C | ||||
| Customer D | ||||
Historically, we used single suppliers for several components of the Aurix™ product line. We outsource the manufacturing of various product components to contract manufacturers. While we believe these manufacturers demonstrate competency, reliability and stability, there is no assurance that one or more of them will not experience an interruption or inability to provide us with the products needed to satisfy customer demand. Additionally, while most of the components of Aurix™ are generally readily available on the open market, a reagent, bovine thrombin, is available exclusively through Pfizer, with whom we have an established vendor relationship.
Cash, Cash Equivalents, and Restricted Cash
We consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents potentially subject us to a concentration of credit risk, as approximately $
Accounts Receivables, net
We generate accounts receivables from the sale of the Aurix product and accounts receivable as of December 31, 2022 reflects customer receivables from the initial commercial sales activities since the re-initiation of commercial sales activities beginning in the three months ended September 30, 2022. We will provide for an allowance against receivables for estimated losses that may result from a customer’s inability or unwillingness to pay. The allowance for doubtful accounts is estimated primarily based upon historical write-off percentages, known problem accounts, and current economic conditions. Accounts are written off against the allowance for doubtful accounts when we determine that amounts are not collectable. Recoveries of previously written-off accounts are recorded when collected. At December 31, 2022, we did maintain an allowance for doubtful accounts as it was not considered necessary based on the recent initiation of commercial sales. We had
Inventory, net
Our inventory is produced by third-party manufacturers and consists of raw materials and finished goods. Inventory cost is determined on a first-in, first-out basis and is stated at the lower of cost or net realizable value. We will maintain an inventory of kits, reagents, and other disposables having shelf-lives that generally range from 12 months to two years.
As of December 31, 2022, our inventory consisted of approximately $
We will provide for an allowance against inventory for estimated losses that may result in excess and obsolete inventory (i.e., from the expiration of products). Our allowance for expired inventory will be estimated based upon the inventory’s remaining shelf-life and our anticipated ability to sell such inventory, which is estimated using past experience and future forecasts, within its remaining shelf life. Expired products are segregated and used for demonstration purposes only; we will record the associated expense for this reserve to cost of sales in the consolidated statements of operations. At December 31, 2022, we did maintain an allowance for inventory obsolescence as it was not considered necessary based on the recent initiation of commercial sales and the relatively recent vintage of product inventory.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization. Assets are depreciated, using the straight-line method, over their estimated useful life ranging from to years. Maintenance and repairs are charged to operations as incurred. Our medical equipment was fully depreciated as of December 31, 2022, while depreciation on property and equipment acquired during the year ended December 31, 2022 was initiated at the beginning of the second quarter 2022 in the month following the date the property was placed in service.
Leases
At the inception of a contract, the Company determines if the arrangement is, or contains, a lease. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Rent expense is recognized on a straight-line basis over the lease term.
The Company has made certain accounting policy elections whereby the Company (i) does not recognize ROU assets or lease liabilities for short-term leases (those with original terms of 12-months or less) and (ii) combines lease and non-lease elements of its operating leases.
Revenue Recognition
The Company analyzes its revenue arrangements to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers; (ii) identification of distinct performance obligations in the contract; (iii) determination of contract transaction price; (iv) allocation of contract transaction price to the performance obligations; and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation. The Company recognizes revenues upon the satisfaction of its performance obligations (upon transfer of control of promised goods or services to customers) in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.
We provide for the sale of our products, including disposable processing sets and supplies to customers. Revenue from the sale of products is recognized upon shipment of products to the customers. We do not maintain a reserve for returned products, as in the past those returns have not been material and are not expected to be material in the future. Percentage-based fees on licensee sales of covered products are generally recorded as products are sold by licensees and are reflected as royalties in the consolidated statements of operations. Direct costs associated with product sales and royalty revenues are recorded at the time that revenue is recognized.
We recognized initial revenues from commercial sales activities beginning in the three months ended September 30, 2022. We had
Stock-Based Compensation
The fair value of employee stock options is measured at the date of grant. Expected volatilities for the 2016 Omnibus Plan options are based on the equally weighted average historical volatility from five comparable public companies with an expected term consistent with ours. Expected years until exercise represents the period of time that options are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company estimated that the dividend rate on its common stock will be zero. The assumptions are summarized in the following table:
| 2022 | 2021 | |||||||||
| Risk free rate | – | |||||||||
| Weighted average expected years until exercise | - | |||||||||
| Expected stock volatility | ||||||||||
| Dividend yield | ||||||||||
The Company recognizes forfeitures of stock-based awards as they occur.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. Tax rate changes are reflected in income during the period such changes are enacted. We measure our deferred tax assets and liabilities using the enacted tax rates that we believe will apply in the years in which the temporary differences are expected to be recovered or paid. The Company expects that recent tax law changes contained in Inflation Reduction Act and CHIPS Act will not have a material impact on its provision for income taxes.
A deferred income tax asset or liability is recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. All of our tax years remain subject to examination by the tax authorities.
The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income before taxes. There were no material penalties and interest incurred in 2022 and 2021.
Basic and Diluted Earnings (Loss) per Share
In periods of net loss, basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. In periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all potential dilutive common shares is anti-dilutive.
For periods of net income, diluted earnings per share is computed using the more dilutive of the “treasury method” or “two class method.” Dilutive earnings per share under the “treasury method” is calculated by dividing net income available to common stockholders by the weighted- average number of shares outstanding plus the dilutive impact of all potential dilutive common shares, consisting primarily of common shares underlying common stock options and stock purchase warrants using the treasury stock method, and convertible notes using the if-converted method. Because none of the Company’s equity-linked financial instruments contain non-forfeitable rights to dividends, the “two class” method results in the same diluted earnings per share as the “treasury method.”
The following table provides a reconciliation of the numerator and denominators used in the calculation of basic and diluted earnings (loss) per share for the years ended December 31, 2022 and 2021:
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Deemed dividend (contribution): | ||||||||
| Warrant modification | ( | ) | ||||||
| Net Loss Available to Common Shareholders – basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average shares outstanding – basic and diluted | ||||||||
| Net Loss per Share – basic and diluted | $ | ( | ) | $ | ( | ) | ||
The following table sets forth the potential dilutive securities excluded from the calculation of diluted loss per share for the years ended December 31, 2022 and 2021:
| For the year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Options | ||||||||
| Warrants | ||||||||
| Financing Participation Right and Contingent Warrant | ||||||||
| Performance Shares | ||||||||
Recent Accounting Developments
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is designed to provide financial statement users with more information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. When determining such expected credit losses, the guidance requires companies to apply a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective on a modified retrospective basis for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating ASU 2016-13 and its impact on its financial position, results of operations and cashflows.
In August 2020, the FASB issued new accounting guidance (ASU 2020-06) with respect to the accounting for convertible debt instruments and contracts in an entity’s own equity. The guidance simplifies the accounting for convertible instruments by reducing the various accounting models that can require the instrument to be separated into a debt component and equity component or derivative component. Additionally, the guidance eliminated certain settlement conditions previously required to be able to classify a derivative in equity. The new guidance is effective on a modified or full retrospective basis for fiscal years beginning after December 15, 2023, including interim periods with those fiscal years. The Company is currently evaluating the impact on the consolidated financial statements.
We have evaluated all other issued and unadopted Accounting Standards Updates and believe the adoption of these standards will not have a material impact on our results of operations, financial position, or cash flows.
Note 4 – Property and Equipment
Property and equipment, net consisted of the following:
| December 31, 2022 | December 31, 2021 | |||||||
| Medical equipment | $ | $ | ||||||
| Office/warehouse equipment | ||||||||
| Warehouse/production equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense was $
Note 5 — Accrued Liabilities
Accrued liabilities consisted of the following:
| December 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Accrued vacation payable | $ | $ | ||||||
| Accrued compensation payable | ||||||||
| Accrued professional fees | ||||||||
| Other payables | ||||||||
| Total accrued liabilities | $ | $ | ||||||
Note 6 – Stock Purchase Warrants
The following schedule reflects outstanding stock purchase warrants as of December 31, 2022 and 2021:
| Description | December 31, 2022 | December 31, 2021 | ||||||
| 2018 Convertible Notes warrants | ||||||||
| 2022 Sales incentive warrants | ||||||||
| Total | ||||||||
During the year ended December 31, 2022, the Company issued two warrants to purchase (i)
The 2018 Convertible Notes warrants were exercised under a cashless exercise provision during the year ended December 31, 2022 with the resulting issuance of
In connection with the issuance of the 2019 Senior Secured Notes, the Company issued to the noteholders stock purchase warrants to acquire
In connection with the Recapitalization and the extinguishment of the 2019 Senior Secured Note, the Company issued to the noteholders stock purchase warrants to acquire
In connection with the Modification, the Company induced the exercise of existing stock purchase warrants to acquire
Note 7 – Equity and Stock-Based Compensation
Under the Company’s Second Amended and Restated Certificate of Incorporation, it has the authority to issue a total of
Private Placement Equity Issuances
The Company sold
Pacific Medical Common Stock and Warrant Purchase Agreement
On August 24, 2022, the Company entered into a Common Stock and Warrant Purchase Agreement (the “Agreement”) with Pacific Medical, Inc. (“Pacific Med”) for the sale and issuance of shares of common stock and warrants to purchase shares of common stock. Pacific Med is the exclusive distributor for the Aurix System product within a territory that covers the states of Washington, Oregon, Idaho, Montana, Wyoming, most of California, the northern half of Nevada, plus Alaska.
Pursuant to the Agreement, Pacific Med purchased
As part of the Agreement and as additional incentive compensation with respect to Pacific Med’s performance under its existing sales and distribution arrangement, the Company also provided to Pacific Med two compensatory performance-based stock purchase warrants and certain contingently issuable performance shares. The first warrant entitles Pacific Med to purchase up to
Stock-Based Compensation
In July 2016, the Board of Directors approved the Company’s 2016 Omnibus Incentive Plan (the “2016 Omnibus Plan”), and in August 2016, the Board amended such plan to include an evergreen provision, intended to increase the maximum number of shares issuable under the Omnibus Plan on the first day of each fiscal year (starting on January 1, 2017) by an amount equal to six percent (
A summary of stock option activity under the 2016 Omnibus Plan during the year ended December 31, 2022 is presented below:
| Stock Options – 2016 Omnibus Plan | Shares | Weighted Average | Weighted | |||||||||
| Outstanding at January 1, 2021 | $ | |||||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Forfeited or expired | - | |||||||||||
| Outstanding at January 1, 2022 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | - | |||||||||||
| Forfeited or expired | - | |||||||||||
| Outstanding at December 31, 2022 | $ | |||||||||||
| Exercisable at December 31, 2022 | $ | |||||||||||
There were
For the year ended December 31, 2022, the Company recorded total stock-based compensation expense of $
Note 8 — Income Taxes
Income tax expense (benefit) for the years ended December 31, 2022 and 2021 consisted of the following:
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Current provision (benefit) | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| - | - | |||||||
| Deferred provision (benefit) | ||||||||
| Federal | ( | ) | ||||||
| State | ( | ) | ( | ) | ||||
| ( | ) | ( | ) | |||||
| Change in valuation allowance | ||||||||
| Consolidated provision (benefit) | $ | $ | ||||||
Significant components of the Company's deferred tax assets and liabilities consisted of the following at December 31, 2022 and 2021:
| December 31, | ||||||||
| 2022 | 2021 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards and credits | $ | $ | ||||||
| Property, equipment, intangible assets, and other | ||||||||
| Stock-based compensation | ||||||||
| Deferred tax liabilities | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
The following table presents a reconciliation between the U.S. federal statutory income tax rate and the Company's effective tax rate:
| Year ended December 31, | ||||||||
| 2022 | 2021 | |||||||
| Federal tax rate | ( | )% | ( | )% | ||||
| State tax rate, net of Federal benefit | ( | )% | ( | )% | ||||
| Change in valuation allowance | % | % | ||||||
| Permanent differences and other | ( | )% | % | |||||
| Effective tax rate | % | % | ||||||
The Company has Federal net operating loss carry-forwards of approximately $
Note 9 – Fair Value Measurements
Financial Instruments Carried at Cost
Short-term financial instruments in our consolidated balance sheets, including cash and cash equivalents, accounts payable and accrued expenses, are carried at cost which approximates fair value, due to their short-term nature.
Fair Value Measurements
Our consolidated balance sheets include certain financial instruments that are carried at fair value. Fair value is the price that would be received from the sale of an asset or paid to transfer a liability assuming an orderly transaction in the most advantageous market at the measurement date. U.S. GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of observability of inputs used in measuring fair value. These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices in active markets for identical assets; |
| ● | Level 2, defined as observable inputs other than Level 1 prices such as quoted prices for similar assets; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. At each reporting period, we perform a detailed analysis of our assets and liabilities that are measured at fair value. All assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently, and therefore have little or no price transparency are classified as Level 3.
Financial Assets and Liabilities Measured at Fair Value
The Company has financial assets and liabilities measured at fair value.
The Company had no financial assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2021.
Non-Financial Assets and Liabilities Measured at Fair Value
The Company’s property and equipment is measured at fair value on a non-recurring basis when there are indicators of impairment. There were
During 2021, the Company measured certain equity-linked financial instruments at fair value. The financial instruments measured at fair value are as follows:
| Equity-linked financial instrument | Issue date | Issued date fair value | Classification | Valuation methodology | |||
| 3,977,961 stock purchase warrants modified | 12/1/2021 | $ |
| Black-Scholes option pricing model | |||
| 2,877,500 stock purchase warrants modified | 12/1/2021 | $ |
| Black-Scholes option pricing model | |||
The fair value of “plain vanilla” stock purchase warrants is measured on the issuance date using the Black-Scholes option pricing model, and uses estimated of stock price volatility, estimated period of time that warrants are expected to be outstanding, the risk-free rate based on the U.S. Treasury yield curve in effect at the time of issuance, an estimated dividend rate and the price of our common stock at the issuance date. The assumptions are summarized in the following table:
| 2021 | ||||
| Risk free rate | % | |||
| Weighted average expected years until exercise | ||||
| Expected stock volatility | % | |||
| Dividend yield | ||||
Note 10 – Commitments and Contingencies
In January 2022, the Company entered into a commercial operating lease agreement for its office space in Florida, expiring on December 31, 2024. The lease requires the Company to pay for its insurance, taxes, and its share of common operating expenses. The lease resulted in an increase in its right of use assets and lease liabilities of $
In February 2022, the Company entered into an additional commercial operating lease for its primary office and warehouse/distribution space in Texas. The lease requires the Company to pay for its insurance, taxes, and its share of common operating expenses. This lease expires in March 2027. The space remained under buildout and Landlord control during the three months ended March 31, 2022 with the Company acquiring control of the lease space effective April 1, 2022; as a result, a right of use asset and lease liability was recognized of $
Operating lease liabilities are classified as other current and non-current liabilities in the Company’s consolidated balance sheet.
Total operating lease costs were approximately $
Future undiscounted cash flows under these leases are:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total operating lease payments | ||||
| Discount factor | ( | ) | ||
| Present value of operating lease liabilities | ||||
| Current portion of operating lease liabilities | ( | ) | ||
| Non-current portion of operating lease liabilities | $ |
Note 11 – Subsequent Events
The Company has evaluated subsequent events through the date the consolidated financial statements were available to be issued. No material events requiring disclosure were identified.
Exhibit 10.5
| Option Recipient: [ ] | |
| Total Number of Shares Covered by the Option: [ ] |
NUO THERAPEUTICS, INC.
[NONQUALIFIED] [INCENTIVE] STOCK OPTION AWARD AGREEMENT
Nuo Therapeutics, Inc., a Delaware corporation (the “Company”), is pleased to grant to the Eligible Person signing below (“you” or “Grantee”) the stock option (the “Option”) described herein under the Nuo Therapeutics, Inc. 2016 Omnibus Incentive Compensation Plan (as amended, the “Plan”). This [Nonqualified] [Incentive] Stock Option Award Agreement (this “Agreement”) is the Award Agreement for the Option.
Basic Terms and Conditions of Option:
| Grant Date: | [ ] |
| Exercise Price per Share: | $[ ] |
| Term of the Option: | 10 years |
| Shares Covered by Option: | [ ] Shares |
Vesting Schedule: Subject to the Plan and this Agreement, the Option vests and may be exercised in whole or in part in accordance with the following schedule, provided, that, in each case, vesting will occur only if no Termination of Affiliation with respect to Grantee occurs at any time prior to the applicable vesting date:
| Vesting Date |
Cumulative Number of Shares Purchasable Upon Exercise of Option |
|
[ ] |
[ ] |
The Additional Terms and Conditions and the Plan described below are incorporated in this Agreement by reference and contain important information about your Option. Copies of all of the documents set forth below are being provided to you concurrently with this Agreement. Please review them carefully and contact the Company’s Chief Executive Officer or Chief Financial Officer if you have any questions.
|
● |
Additional Terms and Conditions describes how to exercise your Option, what happens if you cease to remain employed with, or cease to remain in a director or consulting relationship (as applicable) with, the Company before you exercise your Option, and where to send notices. |
|
● |
The Plan contains the detailed terms that govern your Option. If anything in this Agreement or the other attachments is inconsistent with the Plan, the terms of the Plan, as amended from time to time, will control. All capitalized terms used herein that are not defined herein but that are defined in the Plan have the same meanings given them in the Plan. |
[SIGNATURE PAGE FOLLOWS]
Please sign in the space provided below, keep a copy of this Agreement for your records, and return two originals to the Company’s Chief Executive Officer or Chief Financial Officer.
|
Signature of Grantee: |
Nuo Therapeutics, Inc. |
|
|
_____________________________________ Name: [ ] |
By: |
___________________________________ Name: David Jorden Title: CEO/CFO |
|
Residence Address: _____________________________________ _____________________________________ _____________________________________ |
Notice Address:
8285 El Rio, Suite 190 _____________ Houston, TX 77054 ________________ |
|
ADDITIONAL TERMS AND CONDITIONS OF YOUR OPTION
1. Acceptance. The grant of the Option will be revoked automatically without further action or notice if you do not, within thirty (30) days after the Grant Date, accept this Agreement by signing and returning this Agreement to the Company. By accepting this Agreement, you accept the grant of the Option on the terms and conditions of this Agreement and the Plan, acknowledge receipt of a copy of the Plan, and warrant that you are free to enter into this Agreement and do not have any legal obligations that are inconsistent with this Agreement.
2. Exercise Procedures.
(a) The Option is not exercisable until you accept this Agreement. Thereafter, the Option is exercisable only to the extent and in the manner described in this Agreement and the Plan.
(b) To the extent that the Option is vested and exercisable as provided in the Basic Terms and Conditions of this Agreement, and it has not been forfeited or expired under Section 3 or Section 4 below, you may exercise the Option as to all or any portion of the Shares for which it is vested and exercisable.
(c) Unless otherwise expressly permitted by the Committee, the Option must be exercised for whole Shares only. The exercise date of your Option is the date of delivery to the Committee of your notice of exercise (in the form promulgated by the Company for this purpose). The notice of exercise must be accompanied by payment of the Exercise Price and any applicable tax withholding in full. You may pay the Exercise Price (a) in cash, personal check or wire transfer, (b) by delivery of Shares you own prior to exercise, valued at their Fair Market Value on the date of exercise, (c) with the approval of the Committee, by Shares acquired upon the exercise of the Option, such Shares valued at their Fair Market Value on the date of exercise, (d) with the approval of the Committee, by Restricted Shares you hold prior to the exercise of the Option, each such share valued at the Fair Market Value of a Share on the date of exercise; or (e) subject to applicable law (including the prohibited loan provisions of Section 402 of the Sarbanes Oxley Act of 2002), through the sale of the Shares acquired on exercise of the Option through a broker-dealer to whom you have submitted an irrevocable notice of exercise and irrevocable instructions to deliver promptly to the Company the amount of sale proceeds sufficient to pay for such Shares. Upon exercise, you must pay the applicable tax withholding in full in accordance with a method specified in Section 18.1 of the Plan that is acceptable to the Committee in its sole discretion. You will need to contact the Committee before you exercise your Option to determine the amount of any required tax withholding and required payment method.
(d) The Committee may in its discretion specify that, if any Restricted Shares (“Tendered Restricted Shares”) are used to pay the Exercise Price, (i) all the Shares acquired on exercise of the Option shall be subject to the same restrictions as the Tendered Restricted Shares, determined as of the date of exercise of the Option, or (ii) a number of Shares acquired on exercise of the Option equal to the number of Tendered Restricted Shares shall be subject to the same restrictions as the Tendered Restricted Shares, determined as of the date of exercise of the Option.
3. Effect of Termination of Affiliation.
(a) If you experience a Termination of Affiliation for any reason, the Option, to the extent it is not vested and exercisable at the time of the Termination of Affiliation, shall be forfeited to the Company simultaneously with the Termination of Affiliation.
(b) If you experience a Termination of Affiliation by reason of a termination by the Company (or Affiliate) for Cause (or a resignation or other voluntary termination at a time in which Cause for termination exists), the entire Option shall be forfeited to the Company simultaneously with such Termination of Affiliation, including to the extent the Option is otherwise vested and exercisable at the time of such Termination of Affiliation.
(c) If you experience a Termination of Affiliation by reason of your death or Disability (within the meaning of Section 2.13(a) of the Plan), the Option, to the extent it is otherwise vested and exercisable at the time of such Termination of Affiliation, shall expire at 5:00 p.m., Eastern time, on the date that is one year after the date of such Termination of Affiliation.
(d) If you experience a Termination of Affiliation for any reason not specified in Section 3(b) or Section 3(c) above, the Option, to the extent it is otherwise vested and exercisable at the time of such Termination of Affiliation, shall expire at 5:00 p.m., Eastern time, on the date that is ninety (90) days after the date of such Termination of Affiliation.
(e) For purposes of this Agreement, “Cause” shall mean the occurrence of any of the following: you (i) commit, are convicted of or plead guilty or no contest to, a felony or crime involving dishonesty, theft, violence or moral turpitude; (ii) commit a material act constituting fraud, theft, dishonesty (including relating to financial matters) or material deceit, whether or not related to your services to the Company; (iii) improperly and without authorization from the Board disclose to any Person any material information constituting confidential information or a trade secret of the Company or its Affiliates; (iv) commit an act constituting a violation of applicable law relating to the workplace environment (including laws relating to sexual harassment or age, race, sex or other prohibited discrimination); (v) use or possess any unprescribed controlled substance or are intoxicated while performing your duties to the Company; (vi) substantially fail or are unable (other than by reason of your death or Disability) to perform such duties, complete such tasks or follow such direction as reasonably prescribed by the Board or officers of the Company to whom you report, or to carry out effectively any other obligations to the Company or its Affiliates; (vii) fail to observe material policies of the Company or its Affiliates; (viii) act with gross negligence or willful misconduct in the performance of your duties to the Company or its Affiliates; (ix) are chronically absent from work other than for reasonable medical or other reasons; or (x) breach any material term of any agreement you have with the Company or any of its Affiliates. Notwithstanding the foregoing, if you have an employment or other agreement in effect with the Company specifying a different definition for the term “Cause”, then the definition in such agreement will also control and govern for purposes of this Agreement.
4. Expiration. Notwithstanding anything to the contrary, the Option shall expire at 5:00 p.m., Eastern Time, on the last day of the Term of the Option provided in the Basic Terms and Conditions of this Agreement, unless earlier forfeited or expired under Section 3 above.
5. Effect of Expiration or Forfeiture. If and to the extent that the Option is forfeited or expires under this Agreement, as of the time of forfeiture or expiration, the Option shall no longer be outstanding or exercisable under any circumstances. Forfeiture or expiration shall occur automatically, without the need for consideration and without the need for further action by or notice from the Company. The Company is under no obligation to provide notice of any pending expiration of the Option to you.
6. No Transfers. Except as otherwise expressly permitted by the Plan, this Option is not assignable or transferable other than by will or the laws of descent and distribution and may be exercised, during the Grantee’s lifetime, only by the Grantee.
7. Corporate Transaction. Upon a Corporate Transaction, unless assumed by the Surviving Company or replaced with an equivalent Award granted by the Surviving Company in substitution for the Option, (a) the Option, to the extent it is not vested and exercisable as of the consummation of such Corporate Transaction, shall be cancelled without any payment to you as of the consummation of the Corporate Transaction (unless the Committee, in its sole discretion, accelerates the vesting of the Option), and (b) to the extent that the Option is vested and exercisable as of the consummation of such Corporate Transaction, the Committee may either (i) allow you to exercise the Option within a reasonable period prior to the consummation of the Corporate Transaction and cancel the Option to the extent that it remains unexercised upon consummation of the Corporate Transaction, or (ii) cancel the Option in exchange for a payment (in cash, or in securities or other property) in an amount equal to the amount that you would have received (net of the Exercise Price) if such vested Option was exercised immediately prior to the consummation of the Corporate Transaction. Notwithstanding the foregoing, if the Option is not assumed by the Surviving Company or replaced with an equivalent Award issued by the Surviving Company and the Exercise Price with respect to the Option exceeds the Fair Market Value of the Shares immediately prior to the consummation of the Corporate Transaction, the entire Option shall be cancelled as of the consummation of the Corporate Transaction without any payment to you.
8. Notices. All notices pursuant to this Agreement will be in writing and either (a) delivered by hand, (b) mailed by United States certified mail, return receipt requested, postage prepaid, or (c) sent by an internationally recognized courier that maintains evidence of delivery and receipt. All notices or other communications will be directed to the parties’ respective addresses set forth on the signature page of this Agreement (or to such other addresses as either party may designate by notice to the other).
9. Miscellaneous. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, other than its laws respecting choice of law. Any waiver by you or the Company of any condition or the breach of any term or provision in this Agreement, whether by conduct or otherwise, in any one or more instances, shall apply only to that instance and will not be deemed to waive conditions or breaches in the future. This Agreement may be executed in multiple copies and each executed copy shall be deemed an original of this Agreement. Except as permitted by the Plan, no amendment of this Agreement shall be valid unless it is in writing and signed by you and the Company. This Agreement shall be binding on all successors and permitted assigns of the Company and you, including your estate and the executor, liquidator, administrator or trustee of such estate, and any receiver or trustee in bankruptcy or representative of your creditors. This Agreement contains the entire Agreement of the parties hereto and no representation, inducement, promise, or agreement or otherwise between the parties not embodied herein shall be of any force or effect, and no party will be liable or bound in any manner for any warranty, representation, or covenant except as specifically set forth herein.
10. Employment/Relationship. Nothing in this Agreement shall interfere with or limit in any way the right of the Company or its Affiliates to terminate your employment or other relationship at any time (with or without Cause), nor confer upon you any right to continue in the employ of, or other relationship with, the Company or its Affiliates for any period of time or to continue your present (or other) rate of compensation.
11. Time is of the Essence. Time is of the essence with respect to your exercise of the Option.
6
Exhibit 31
Certification of Principal Executive and Principal Financial Officer Pursuant to Exchange Act Rule
13a-14(a)/15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, David E. Jorden, certify that:
|
1. |
I have reviewed this Annual Report on Form 10-K of Nuo Therapeutics, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: April 14, 2023
/s/ David E. Jorden
David E. Jorden
Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer)
Exhibit 32
Certification of Principal Executive and Principal Financial Officer Pursuant to
18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. §1350 and in connection with the Annual Report on Form 10-K of Nuo Therapeutics, Inc. (the “Company”) for the year ended December 31, 2022 (the “Report”), I, David E. Jorden, Chief Executive and Chief Financial Officer of the Company, hereby certify that to my knowledge:
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: April 14, 2023
/s/ David E. Jorden
David E. Jorden
Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer)