See accompanying notes to the unaudited consolidated financial statements

MEDOVEX CORP.H-CYTE, INC AND SUBSIDIARYSUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF OPERATIONS

(Unaudited)

For the periods presented, there is no difference between the basic and diluted net loss per share: 32,756,181 warrants and 517,509 common stock options outstanding were considered anti-dilutive and excluded for the three and nine month periods ended September 30, 2019. For the nine month period ended September 30, 2018, there were no dilutive securities as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 is effective for public companies for annual reporting periods beginning after December 15, 2015, and interim periods within those fiscal years.The Company adopted the amendments of ASU 2015-03 effective January 1, 2016. The adoption of this standardaccounting acquirer did not historically have a material impact on our condensed consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, “Inventory (Topic 330),” which requires inventory measured using any method other than last-in, first-out or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than the lower of cost or market. ASU No. 2015-11 is effective for fiscal years beginning after December 15, 2016, including interim periods within those years. The Company adopted the amendments of ASU 2015-11 effective January 1, 2017. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

In November 2015, FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the presentation of deferred taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.

In February 2016, FASB issued ASU No. 2016-02, Leases (Topic 842). The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. The guidance may be adopted prospectively or retrospectively and early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-02 will have on its consolidated financial statements.stock compensation programs.

Note 3 – Accounts ReceivableBusiness Acquisition

Accounts receivable primarilyOn January 8, 2019, MedoveX completed its business combination with RMS under which MedoveX purchased certain assets and assumed certain liabilities of RMS, otherwise referred to as the Merger. Pursuant to the terms of the APA, MedoveX issued to the shareholders of RMS 33,661 shares plus 6,111 additional Exchange Shares (based on closing the sale of $2 million of new securities) for a total of 39,772 shares of Series C Preferred Stock where each share of Series C Preferred stock which automatically converted into 1,000 shares of common stock and represent amounts due from customersapproximately fifty-five percent (55%) of the outstanding voting shares of the Company.

Under the terms of the APA, the Company issued additional “Exchange Shares” to the shareholders of RMS to maintain the 55% ownership and not be diluted by the sale of convertible securities (“New Shares Sold”) until MedoveX raised an additional $5.65 million via the issuance of new securities. On the date of closing the Company issued 6,111 additional Exchange Shares to RMS Shareholders as a result of the issuance of additional securities, which are included in the 39,772 shares above. Subsequent to the closing of the purchase transaction, an incremental 11,153 additional Exchange Shares were issued, for which revenuea total of 17,264 additional Exchange Shares. All additional Exchange Shares have been issued to the shareholders of RMS and these Series C Preferred shares converted to 17,263,889 shares of common stock; no additional equity will be issued to RMS.

Because RMS shareholders owned approximately 55% of the voting stock of MedoveX after the transaction, RMS was deemed to be the acquiring company for accounting purposes (the “Acquirer”) and the transaction is accounted for as a reverse acquisition under the acquisition method of accounting for business combinations in accordance with U.S. GAAP. The assets acquired and the liabilities assumed of RMS included as part of the purchase transaction are recorded at historical cost. Accordingly, the assets and liabilities of MedoveX (the “Acquiree”) are recorded as of the Merger closing date at their estimated fair values.

Under the terms of the APA, MedoveX purchased certain assets and assumed certain liabilities of RMS. The assets of RMS reported on the MedoveX consolidated balance sheet as of December 31, 2018 that were excluded in the Merger on January 8, 2019 was cash of approximately $70,000. The Merger included the following: convertible debt to a related party of approximately $4,300,000, interest payable of approximately $158,000, accounts payable of approximately $224,000 and other current liabilities of approximately $285,000. Additionally, there were certain on-going litigation matters that were not assumed as part of the January 8, 2019 RMS reverse acquisition.

Purchase Price Allocation

The purchase price for the acquisition of the Acquiree has been recognized. Generally,allocated to the assets acquired and liabilities assumed based on their estimated fair values. The purchase price allocation herein is preliminary. The final purchase price allocation will be determined after completion of a thorough analysis to determine the fair value of all assets acquired and liabilities assumed but in no event later than one year following completion of the acquisition. Accordingly, the final acquisition accounting adjustments could differ materially from the allocation reflected as of September 30, 2019 presented herein. Any increase or decrease in the fair value of the assets acquired and liabilities assumed, as compared to the information shown herein, could also materially change the portion of purchase price allocated to goodwill and could materially impact the operating results of the Company doesfollowing the acquisition due to differences in purchase price allocation and depreciation and amortization related to some of these assets and liabilities.

The acquisition-date fair value of the consideration transferred is as follows:

Just prior to the transaction, MedoveX had 24.5 million shares of common stock outstanding at a market capitalization of $9.8 million. The estimated fair value of the net assets of MedoveX was $8.4 million as of January 8, 2019. Measuring the fair value of the net assets to be received by RMS was readily determinable based upon the underlying nature of the net assets. The fair value of the MedoveX common stock is above the fair value of its net assets. The MedoveX net asset value is primarily comprised of definite-lived intangibles as of the closing and the RMS interest in the merger is significantly related to obtaining access to the public market. Therefore, the fair value of the MedoveX stock price and market capitalization as of the closing date is considered to be the best indicator of the fair value and, therefore, the estimated purchase price consideration. During the three months ended September 30, 2019 the Company revised its purchase price allocation for the acquisition. As a result, the Company recorded a measurement period adjustment of $1,215,677 as an increase to goodwill adjusting the amount recorded as of January 8, 2019. The adjustment resulted in a corresponding increase to a derivative liability (see Note 12).

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition on January 8, 2019:

Intangible assets are recorded as definite-lived assets and amortized over the estimated period of economic benefit. Goodwill is calculated as the difference between the acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. Goodwill is not require collateralexpected to be deductible for income tax purposes. Goodwill is recorded as an indefinite-lived asset and is not amortized but tested for impairment on an annual basis or when indications of impairment exist.

Total interest bearing and other liabilities assumed are as follows:

Notes payable relate to promissory notes assumed by Acquiree in a 2015 acquisition, which was later divested in 2016, with the assumed promissory notes being retained by Acquiree. The Company finalized an eighteen-month extension on the notes extending the maturity date to March 1, 2021. Payments on both of the notes are due in aggregate monthly installments of approximately $5,800 and carry an interest rate of 5%. The promissory notes had outstanding balances of $95,000 as of September 30, 2019. The promissory notes had outstanding balances of approximately $99,000 plus accrued interest of approximately $3,000 at January 8, 2019 (see Note 11).

In the third quarter of 2018, convertible notes were issued pursuant to a securities purchase agreement with select accredited investors, whereby the Acquiree offered up to 1,000,000 units (the “Units”) at a purchase price of $50,000 per Unit. Each Unit consisted of (i) a 12% senior secured convertible note, initially convertible into shares of the Company’s common stock, par value $0.001 per share, at a conversion price equal to the lesser of $0.40 or ninety percent (90%) of the per share purchase price of any other securityshares of common stock or common stock equivalents issued in future private placements of equity and/or debt securities completed by the Company following this offering of Units, and (ii) a three-year warrant to supportpurchase such number of shares of the Company’s common stock equal to one hundred percent (100%) of the number of shares of common stock issuable upon conversion of the notes at $0.40. The warrants are exercisable at a price equal to the lesser of $0.75 or ninety percent (90%) of the per share purchase price of any shares of common stock or common stock equivalents issued in future private placements of the debt and/or equity securities completed by the Company following the issuance of warrants. As a result of the price adjustment feature, the conversion price of the convertible notes was adjusted to $0.36 per share.

In the offering, the Acquiree sold an aggregate of 15 Units and issued to investors an aggregate of $750,000 in principal amount of convertible notes and 1,875,000 warrants to purchase common stock, resulting in total gross proceeds of $750,000 to the Company. If converted at $0.40 the convertible notes sold in the offering are convertible into an aggregate of 1,875,000 shares of common stock. Due to the notes maturing during the third quarter of 2019, the warrants have fully accreted as of September 30, 2019. The Acquiree recorded the proceeds from the notes and the accompanying warrants, which accrete over the period the notes are outstanding, on a relative fair value basis of approximately $505,000 and $245,000, respectively. At acquisition date, the value of the notes was approximately $598,000.

The convertible notes had maturity dates between August and September 2019 and were renegotiated during the third quarter of 2019 (see Note 11).

The following schedule represents the amounts of revenue and net loss attributable to the MedoveX acquisition which have been included in the consolidated statements of operations for the periods subsequent to the acquisition date:

The following unaudited pro forma financial information represents the consolidated financial information as if the acquisition had been included in the consolidated results beginning on the first day of the fiscal year prior to its receivables.acquisition date. The pro forma results have been calculated after adjusting the results of the acquired entity to remove any intercompany transactions and transaction costs incurred and to reflect any additional depreciation and amortization that would have been charged assuming the fair value adjustments to property and equipment and intangible assets had been applied on the first day of the fiscal year prior to its acquisition date, together with the consequential tax effects. The pro forma results do not reflect any cost savings, operating synergies or revenue enhancements that the combined entities may achieve as a result of the acquisition; the costs to combine the companies’ operations; or the costs necessary to achieve these cost savings, operating synergies or revenue enhancements. The pro forma results do not necessarily reflect the actual results of operations of the combined companies under the current ownership and operation.

Note 4 – Other Receivables

Other receivables include input and importation value added tax (VAT) paid by the Company for conducting business in the European Union (“EU”) and for importing goods from outside the EU.

Note 5 - Inventory

Inventories consistInventory consists only of finished goods and areis valued at the lower of cost or net realizable value, using the first-in, first-out (FIFO) method. Inventories were acquired in the Merger and therefore there were no inventories prior to January 8, 2019.

InventoriesInventory consisted solely of the following items asPro-40 Generators totaling approximately $126,000 and $0 at September 30, 2019 and December 31, 2018, respectively.

Note 5 – Right-of-use Asset And Lease Liability

Upon adoption of ASU No. 2016-02 (as amended) (See Note 2), additional current liabilities of approximately $475,000 and long-term liabilities of approximately $713,000 with corresponding ROU assets of approximately $1,167,000 were recognized, based on the present value of the remaining minimum rental payments under the new leasing standards for existing operating leases.

The unaudited consolidated balance sheet at September 30, 2019 reflects current lease liabilities of approximately $481,000 and long-term liabilities of $396,000, with corresponding ROU assets of $859,000.

Operating lease expense and cash flows from operating leases for the three and nine months ending September 30, 2019 totaled approximately $140,000 and $389,000, respectively, and are included in the “Other general and administrative” section of the unaudited consolidated statement of operations.

The Company leases corporate office space in Tampa, FL and Atlanta, GA. The Company also leases medical clinic space in Tampa, FL, Nashville, TN, Scottsdale, AZ, Pittsburgh, PA, and Dallas, TX. The leasing arrangements contain various renewal options that are adjusted for increases in the consumer price index or agreed upon rates. Each location has its own expiration date ranging from April 30, 2020 to August 31, 2023. The Company expects to renew each lease upon expiration in order to continue operations.

As of September 30, 2017, and December 31, 2016:2019, the undiscounted minimum future maturities of lease liabilities are as follows:

Note 6 - Property andAnd Equipment

Property and equipment, net, consists of the following:

Depreciation expense amounted to $7,109was approximately $28,000 and $20,000,$80,000, respectively, for the three and nine months ended September 30, 2017.2019. Depreciation expense was approximately $35,000 and amortization expense, excluding depreciation and amortization from Streamline, amounted to $2,033 and $6,042,$84,000, respectively, for the three and nine months ended September 30, 2016.2018.

Note 79 - Equity Transactions

For the consolidated statements of stockholders’ equity (deficit) as of December 31, 2018, the common stock, preferred stock and additional paid in capital reflect the accounting for the stock received by the RMS members as of the Merger as if it was received as of the beginning of the periods presented and the historical accumulated deficit of RMS. As of the closing of the Merger, before the contingent additional exchange shares impact from the sale of new securities, the stock received by RMS was 33,661 shares of Series C Preferred Stock, which was later converted into approximately 33,661,000 shares of common stock, with common stock par value of approximately $33,700 and additional paid-in capital of approximately $3,566,000. The historical accumulated deficit of RMS as of the closing was approximately $9,296,000.

Common stock issuanceStock Issuance

In November 2016,On January 8, 2019, the Company entered into a securities purchase agreement (the “SPA”) with four purchasers (the “Purchasers”) pursuant to which the four Purchasers invested in the Company an aggregate amount of $2,000,000, with $1,800,000 in cash and $200,000 by cancellation of debt as explained below, in exchange for forty (40) units (the “Units”), each consisting of a convertible note (the “Convertible Note”) with the principal amount of $50,000 and a warrant (the “Warrant”) to purchase common stock (the “common stock”) of the Company at a purchase price of $.075 per share. Pursuant to this SPA, the Company initially offered a minimum of $1,000,000 and a maximum of $6,000,000 Units, and subsequently increased the maximum amount to $8,000,000 (the “Maximum Amount”) of Units at a price of $50,000 per Unit until the earlier of i) the closing of the subscription of the Maximum Amount and ii) March 31, 2019 (the “Termination Date”), subject to the Company’s earlier termination at its discretion. The SPA includes the customary representations and warranties from the Company and purchasers. Steve Gorlin, the Company’s former Chairman of the Board, authorizedconverted a $200,000 promissory note owed to him by the issuanceCompany in exchange for four (4) Units on the same terms as all other Purchasers. Mr. Gorlin subsequently converted the promissory note underlying the Units into an aggregate of 500,000 shares of common stock, eliminating the Company’s debt obligation.

Each Convertible Note had an interest rate of 12% per annum, a principal amount of $50,000 maturity date of January 8, 2020, and will be convertible into shares of common stock at a price of $0.40 subject to adjustment as provided for in the Convertible Note. Pursuant to the terms of the Convertible Note, each holder of the Convertible Note shall not own more than 4.99% of the number of shares of common stock outstanding immediately after giving effect to the issuance of common stock issuable upon exercise of such Convertible Note. If defaulted, the penalty interest rate of the Convertible Note shall rise to 18% per annum. In addition, each Warrant is exercisable at a price of $0.75 per share (the “Exercise Price”), subject to adjustments stated therein. The holder of each Warrant may purchase the number of shares of common stock equal to the number of shares of common stock issuable upon conversion of each Convertible Note while the Warrant is exercisable. The Warrants have a term of three years and shall be exercised in cash or on a cashless basis as described in the Warrant agreement. All Convertible Notes have been converted into an aggregate of 18,000,000 shares of common stock.

As reported on Form 8-K filings on January 25, 2019, February 8, 2019, March 15, 2019 and April 5, 2019, the Company entered into other SPA’s with additional purchasers, which brought the aggregate amount of capital raised in all Board members, both current and former, in an amount equivalentthese offerings to $240,000, representing their accrued but unpaid directors’ fees$7,200,000, as of December 31, 2016. that latest date.

As a result of the sales of new securities of at least $5,650,000, the Company issued an additional 17,264 Series C Preferred Stock which automatically converted to 17,263,889 shares of common stock.

All the Convertible Notes from the SPA, as well as the shares of Series C Preferred Stock issued to RMS members, were automatically converted into shares of common stock.

The foregoing description of the SPA, Convertible Note, and Warrant is qualified in its entirety by reference to the respective agreements.

In January 2017,February 2019, 250,000 shares of common stock were issued pursuant to conversion of short-term debt and accrued interest.

In March 2019, the Company issued an aggregate of 173,911130,085 shares of common stock at $1.38$0.40 per share for consulting fees in an amount equivalent to $52,034.

On April 25, 2019, the Company issued 4,225,634 shares of common stock valued at $0.40 per share to Mr. William E. Horne, the Company’s CEO, in a restricted stock award which was 100% vested when issued. The Company recognized approximately $1,690,000 of compensation expense in the average closing pricequarter ended June 30, 2019 related to the restricted stock award. This restricted stock award was issued pursuant to his employment agreement with the Company, which stated that this restricted stock award  (as well as the incentive stock options issued in the quarter ended March 31, 2019) would be fully vested if not issued within fifteen days of the Merger. Neither award was issued within that time frame and both awards became fully vested when issued. The aggregate number of shares of common stock from these two awards is 4,475,634 and was calculated based on 7% of the Company’s issued and outstanding common stock during 2016, to fulfill this obligation. Theas of the closing of the Merger.

During the third quarter of 2019, the Company raised $100,000 by selling 200,000 shares of common stock at $0.50 per share. They also issued the investors 100,000 warrants with an exercise price of the Company’s stock on January 17, 2017, the day the shares were issued, was $1.16$1.00 per share.

In August 2017, the Board authorizedthird quarter of 2019, the issuance ofCompany issued 150,000 shares of common stock to all Board members, both currenta consultant in consideration of consulting services rendered to the Company. At the time of issuance, the fair market value of the shares was $0.29, and, former,as a result, $43,500 was expensed in an amount equivalent to $135,000, representing their accrued but unpaid directors’ fees as ofthe three and nine months ended September 30, 2017. In October 2017, the Company issued an aggregate of 115,389 shares at $1.17 per share, which was the average closing price of the Company’s stock through September 30, 2017, to fulfill this obligation. The closing price of the Company’s stock on October 30, 2017, the day the shares were issued, was $1.09 per share. See Note 17.2019.

Stock-Based Compensation Plan

2013 Stock Option Incentive Plan

During the nine months ended September 30, 2017,2019, 636,480 shares were issued pursuant to conversions of some of our Series B Convertible Preferred Stock (“Stock B Preferred”) and accrued dividends thereunder.

Series B Preferred Stock Preferences

Voting Rights

Holders of our Series B Preferred Stock (“Series B Holders”) have the Boardright to receive notice of Directors authorizedany meeting of holders of common stock or Series B Preferred Stock and to vote upon any matter submitted to a vote of the holders of common stock or Series B Preferred Stock. Each Series B Holder shall vote on each matter submitted to them with the holders of common stock.

Liquidation

Upon the liquidation, dissolution or winding up of the business of the Company, whether voluntary or involuntary, each Series B Holder shall be entitled to issue optionsreceive, for each share thereof, out of assets of the Company legally available therefore, a preferential amount in cash equal to purchasethe stated value plus all accrued and unpaid dividends. All preferential amounts to be paid to the Series B Holders in connection with such liquidation, dissolution or winding up shall be paid before the payment or setting apart for payment of any amount for, or the distribution of any assets of the Company’s to the holders of the Company’s common stock. The Company accrues these dividends as they are earned each period.

On January 8, 2019, the Company completed the issuance of Convertible Notes with a conversion price of $0.40. As a result, the exercise price on all of the warrants issued with the Series B Preferred Stock was adjusted downward to 90% of that conversion price, or $0.36.

The Company recognized a beneficial conversion feature related to the Series B Preferred Stock of approximately $33,000, which was credited to additional paid-in capital, and reduced the income available to common shareholders. Because the Series B Preferred Stock can immediately be converted by the holder, the beneficial conversion feature was immediately accreted and recognized as a deemed dividend to the preferred shareholders.

Series B preferred Stock Conversions

During the nine months ended September 30, 2019, 9,250 shares of Series B Preferred Stock, par value $0.001, and accrued dividends were assumed with the Merger and an aggregate of 189,1592,250 shares of Series B Preferred Stock, and accrued dividends, were subsequently converted into an aggregate of 604,167 shares of the Company’s common stock.

Debt Conversion

Convertible Notes

The $750,000 convertible notes payable assumed in the Merger had a fair value of approximately $598,000 on the acquisition date. Subsequently, on February 6, 2019, $100,000 of the outstanding Convertible Notes was converted into an aggregate of 250,000 shares of common stock, to certain employees. The stock options vest as follows: 25% on date of grant and 25% on eacheliminating $100,000 of the next three years afterCompany’s debt obligation. The debt was converted into shares of common stock at $0.40 per share, in accordance with the grant date. The options granted were atSPA.

In connection with the market valueAPA, on January 8, 2019, Steve Gorlin, the Company’s former Chairman of the Board, converted a $200,000 promissory note owed to him by the Company pursuant to the same terms of the SPA entered into by other investors to consummate the acquisition on January 8, 2019. The promissory note was converted into an aggregate of 500,000 shares of common stock, oneliminating the date of the grant.Company’s debt obligation.

Stock-Based Compensation Plan

We utilize2013Stock Option Incentive Plan

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

We use a simplified method provided in SecuritiesIncluding the expense of approximately $1,690,000 related to the restricted stock award to the Company’s CEO, total stock-based compensation expense for the three and Exchange Commission release,Staff Accounting Bulletin No. 110,nine months ended September 30, 2019 was approximately $1,473 and $1,786,500, respectively. The nine months ended September 30, 2019 includes $1,690,000 of compensation expense related to the Company’s CEO restricted stock award which averages an award’s weighted average vesting period and contractual term for “plain vanilla” share options. The expected volatility was estimated by analyzing100% vested when issued. This restricted stock award was issued pursuant to his employment agreement with the historic volatility of similar public biotech companies in an early stage of development. No dividend payouts were assumed as we haveCompany, which stated that this option grant would be fully vested if not historically paid, and do not anticipate paying, dividends in the foreseeable future. The risk-free rate of return reflects the weighted average interest rate offered for US treasury rates over the expected termissued within fifteen days of the options.reverse merger transaction. The restricted stock award was not issued within that time frame and was fully vested when issued.

The significant assumptions used to estimate the fair value of the equity awards granted are:Stock Option Activity

For the three and nine months ended September 30, 2017,2019, the Company recognized approximately $111,000$1,500 and $612,000,$94,000, respectively, as compensation expense with respect to vested stock options. ForNo compensation expense was recorded prior to the three andMerger. Since these stock options were assumed on January 8, 2019 as part of the Merger, there were no historical costs related to this prior to January 8, 2019. The expense for the nine months ended September 30, 2016,2019 is primarily related to a fully-vested option to purchase 250,000 shares of the Company recognized approximately $230,000Company’s common stock that was issued to the Company’s CEO pursuant to his employment agreement, which stated that this option grant would be fully vested if it was not issued within fifteen days of the Merger. The option was not granted within that time frame and $562,000, respectively, as compensation expense with respect to stock options.was fully vested when issued.

Stock Option Activity

As of September 30, 2017,2019, there were 374,3199,501 shares of time-based, non-vestedunvested stock options outstanding. As of September 30, 2017, there wasand unrecognized compensation expense totaled approximately $298,000 of total unrecognized stock-based compensation related to these non-vested stock options. That$2,400. The remaining expense is expected towill be recognized as an expense on a straight-line basis over a remaining weighted average period of 1.84 years.service period.

The following is a summary of stock option activity atfor the nine months ending September 30, 2017:2019:

Private PlacementBiotechnology Agreement

On February 9, 2017,June 21, 2019, the Company entered into a Unit Purchase Agreement10-year exclusive and extendable product supply agreement with selected accredited investors wherebyRion that will enhance its existing cytotherapy product line, developing a disruptive technology for COPD, the Company hadfourth leading cause of death in the rightU.S. Rion has established a unique exosome technology to sell in a private placement a minimum of $3,000,000 and up to a maximum of $5,000,000 of units. Each Unit had a purchase price of $100,000 and consisted of (i) 96,154 sharesharness the healing power of the Company’s common stock, par value $0.001 per sharebody. Rion’s novel exosome technology, based on science developed at Mayo Clinic, provides an off-the-shelf platform to enhance healing in soft tissue, musculoskeletal, cardiovascular and neurological organ systems. With this agreement, Rion will serve as the product supplier and will co-develop a purchase priceproprietary cellular platform with H-CYTE for the treatment of $1.04 per share,COPD. H-CYTE will control the commercial development and (ii) a warrantfacilitate clinical trial investigation. After conducting joint research and development of these biologics, H-CYTE intends to purchase 48,077 sharespursue submission of common stock. Each warrant has an initial exercise priceinvestigational new drug (IND) application for review by the FDA for treatment of $1.50 per share and is exercisable for a period of five (5) years from the date of issuance. Investors had the option to request shares of the Company’s Series A Convertible Preferred Stock (the “Series A Preferred Stock”) in lieu of common stock, on a basis of one share of preferred stock for every one hundred shares of common stock.COPD.

Sublease Agreement

The offering resulted in gross proceeds of $3,022,000 and resulted in the issuance of an aggregate of 1,631,730 shares of common stock, 12,740 shares of Series A Preferred Stock and warrants to purchase 2,005,761 shares of common stock. The placement agent collected an aggregate of approximately $350,000 in total fees related to the offering and warrants to purchase an aggregate of 405,577 shares of common stock at a price of $1.50 per share.

Each share of Series A Preferred Stock may be converted into shares of fully paid and non-assessable shares of common stock at a rate of one hundred shares of the Company’s common stock for every share of Series A Preferred Stock.

On July 14, 2017, the Company entered into a Securities Purchase Agreement with selected accredited investors wherebysub-lease agreement for the lease in Alpharetta, Georgia. The period of the lease is from July 1, 2019 to December 31, 2020 and sublessee shall pay to sublessor a minimum rent, of $2,000 per month recognized by the Company sold an aggregate of 2,956,043 shares of common stock and 1,478,022 warrants to purchase common stock. The Offering resulted in $2,469,000 in net proceeds to the Company. The common stock shares were sold at $0.91 per share which was the closing price of the Company’s common stock on July 13, 2017, the day prior to the agreement. Each warrant has an exercise price of $1.15 and is exercisable for a period of five years commencing six months from the date of issuance.as rental income.

Debt ConversionConsulting Agreements

On February 9, 2017, the Company’s $1,150,000 short-term note payable was converted into an aggregate of 165,865 shares of common stockThe Company has reached a new agreement with Jesse Crowne, a former Director and 9,399 shares of Series A Preferred Stock, eliminating the Company’s debt obligation. The debt was converted into shares at $1.04 per share, which was the offering priceCo-Chairman of the Company’s stock in the February private placement. Each share of Series A Preferred Stock may be converted into shares of fully paid and non-assessable shares of common stock at a rate of one hundred sharesBoard of the Company’s common stockCompany, to provide business development consulting services for every sharea fee of Series A Preferred Stock.

As consideration for converting the debt, the noteholders’ agreed to receive common stock in lieu of the 200,000 warrants to purchase common stock that were issued in conjunction with the short-term loan. See Note 10.

As a result, the 200,000 warrants were cancelled, and the Company issued to the noteholders’ an aggregate of 200,000 shares of common stock. The closing price of the Company’s stock on February 9, 2017, the day the shares were issued, was $1.04$5,000 per share. The fair value of the common stock issued was approximately $208,000.

preferred Stock Conversion

On March 31, 2017, 4,147 shares of Series A Preferred Stock were converted into an aggregate of 414,663 restricted shares of authorized common stock, par value $0.001 per share.

On April 21, 2017, 5,252 shares of Series A Preferred Stock were converted into an aggregate of 525,240 restricted shares of authorized common stock, par value $0.001 per share.

Note 8 - Commitments

Operating Leases

Office Space

month. The Company pays TAG Aviation, a company owned by its Chief Executive Officer, Jarrett Gorlin (“Mr. Gorlin”) for office space that is currently being used as the Company’s principal business location plus utilities cost (see “Related Party Transactions”) on a monthly basis. Base annual rent is $2,147 per month. Rentincurred expense of approximately $10,000 and utilities cost paid to TAG Aviation amounted to approximately $9,500 and $25,000$50,000, for the three and nine months ended September 30, 2017, respectively. Rent expense2019, respectively, related to this consulting agreement. Since this agreement was assumed on January 8, 2019 as part of the Merger, there were no historical costs related to this prior to January 8, 2019.

The Company entered into a consulting agreement with LilyCon Investments, LLC effective February 1, 2019 for services related to evaluation and utilities costnegotiation of future acquisitions, joint ventures, and site evaluations/lease considerations. The duration of the consulting agreement is for a period of twelve months in the amount of $12,500 per month with a $15,000 signing bonus which was paid in full during the quarter ending March 31, 2019. The agreement also provides LilyCon Investments with $35,000 in stock (to be calculated using an annual Variable Weighted Average Price from February 2019 through January 2020) to TAG Aviation amountedbe granted on the one-year anniversary of this agreement, if the agreement has not been terminated prior to approximately $7,000 and $21,000 forthat date. Either party may terminate this agreement with or without cause upon 30 days written notice. For the three and nine months ended September 30, 2016,2019, the Company expensed a total of $37,500 and $115,000 in compensation to LilyCon Investments, respectively.

On July 8, 2015, theThe Company entered into a 3-year leasean oral consulting arrangement with St. Louis Family Office, LLC, controlled by Jimmy St. Louis, former CEO of RMS, in January 2019 in the amount of $10,000 per month plus benefits reimbursement for advisory services. The Company terminated this agreement for a commercial building which commenced on August 1, 2015. Base rent foreffective June 30, 2019. For the three and nine months ended September 30, 2017 was $2,849 per month. Total lease expense2019, the Company expensed $0 and $71,000 in consulting fees to St. Louis Family Office, respectively.

The Company entered into a consulting agreement with Strategos Public Affairs, LLC (Strategos) on February 15, 2019 for a period of twelve months, unless otherwise terminated by giving thirty days prior written notice. Strategos will provide information to key policymakers in the legislature and executive branches of government on the benefits of the cellular therapies offered by the Lung Health Institute, advocate for legislation that supports policies beneficial to patient access and oppose any legislation that negatively impacts the Company’s ability to expand treatment opportunities, and position the Company and its related entities as the expert for information and testimony. For the three and nine months ended September 30, 2017 was approximately $8,6002019, the Company expensed $22,500 and $26,000, respectively,$48,500, respectively.

The Company entered into a consulting agreement with Goldin Solutions, effective August 4, 2019, for media engagement and related to this lease. Total lease expense forefforts, including both proactive public relations and crisis management services. The agreement has a minimum term of six months, with a $33,000 monthly fee payable each month, with the exception of a first month discount of $12,000. For the three and nine months ended September 30, 2016 was approximately $8,300 and $25,000, respectively, related to this lease.

Future minimum lease payments under this rental agreement are approximately as follows:

For the year ending:

Equipment

The Company entered into a non-cancelable 36-month operating lease agreement for equipment on April 22, 2015. The agreement is renewable at the end of the term and requires2019, the Company to maintain comprehensive liability insurance. Total lease expense was approximately $900 and $2,900, respectively, for the three and nine months ended September 30, 2017. Total lease expense was approximately $900 and $2,500, respectively, for the three and nine months ended September 30, 2016.expensed $54,000.

Future minimum lease payments under this operating lease agreement are approximately as follows:

For the year ending:

Consulting Agreements

In January 2017, the consulting agreement with one of the Company’s founding stockholders to provide business development consulting services was modified from $5,000 per month to $10,000 per month and extended through January 2018. The Company paid $30,000 and $85,000, respectively, for the three and nine months ended September 30, 2017 under this new arrangement. The Company paid $15,000 and $40,000, respectively, for the three and nine months ended September 30, 2016 under the previous arrangement.

On August 23, 2017, the Company retained a consulting firm to provide advisory services specific on matters with respect to potential mergers and acquisitions over a nine-month period at a fee of $75,000. The fee is payable in quarterly installments of $25,000 beginning at the start of the advisory period and every three months thereafter. The engagement terminates on May 10, 2018. No amounts were due or paid at September 30, 2017 per the terms of the agreement.

In July 2017, the Company modified the consulting agreement with the sales, marketing, and distribution consultant in Latin America. The agreement to provide consulting services was modified from $5,000 per month to $7,000 per month and extended through December 31, 2017. The Company paid $21,000 and $45,000, respectively, for the three and nine months ended September 30, 2017.

The Company has consulting agreements with three sales, marketing, and distribution consultants in Europe who provide consulting services for aggregate compensation amounting to approximately €27,500 per month. The consulting agreements, while subject to modifications, commenced at separate dates and will also terminate at separate dates through April 30, 2019. The Company paid approximately $58,000 and $131,000, respectively, for the three and nine months ended September 30, 2017. The Company paid approximately $25,000 and $46,000, respectively, for the three and nine months ended September 30, 2016.

Employment Agreements

The Company has Employment Agreements with each of its six executive officers for aggregate compensation amounting to approximately $1,064,000 per annum, plus customary benefits. These employment agreements, having commenced at separate dates, are for terms of three years which began in October 2013 and end in January 2018.

Generator development agreement

The Company is obligated to reimburse Bovie up to $295,000 for the development of the Pro-40 electrocautery generator. The Company paid approximately $3,000 and $33,000, respectively, for the three and nine months ended September 30, 2017 under this agreement. The Company paid approximately $1,000 and $24,000, respectively, for the three and nine months ended September 30, 2016 under this agreement. Through September 30, 2017, we have paid approximately $422,000 to Bovie related to this agreement.

Distribution center and logistic services agreement

The Company has a non-exclusive distribution center agreement with a logistics service provider in Berlin, Germany pursuant to which they shall manage and coordinate the DenerveX System products which the Company exports to the EU through June 2019.2020 The Company payspaid a fixed monthly fee of €2,900€4,500 (approximately $5,000) for all accounting, customs declarations and office support, and a variable monthly fee ranging from €1,900 to €6,900 (approximately $2,300 to $8,300), based off volume of shipments, for logistics, warehousing and customer support services.

Total expenses paidincurred for the distribution center and logistics agreement waswere approximately $37,900$10,080 and $37,900,$40,080, respectively, for the three and nine months ended September 30, 2017.2019. Since this agreement was assumed on January 8, 2019 as part of the reverse merger transaction, there were no historical costs related to this prior to January 8, 2019.

Patent Assignment and Contribution Agreements

The terms of a Contribution and Royalty Agreement dated January 31, 2013 with Dr. Scott Haufe, M.D was assumed in the Merger as of January 8, 2019. This agreement provides for the Company to pay Dr. Haufe royalties equal to 1% of revenues earned from sales of any and all products derived from the use of the DenerveX technology. Royalties are payable to Dr. Haufe within 30 days after the close of each calendar quarter based on actual cash collected from sales of applicable products. The royalty period expires on September 6, 2030.

The Company incurred approximately $0 and $1,100 respectively, in royalty expense under the Contribution and Royalty agreement for the three months and nine months ended September 30, 2019, all of which was included in accounts payable at September 30, 2019. Since this agreement was assumed on January 8, 2019 as part of the Merger, there were no historical costs related to this prior to January 8, 2019.

Litigation

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

Guarantee

The Company has guaranteed payments based upon the terms found in the management services agreements to two affiliated physicians related to LI Nashville, LI Scottsdale, LI Pittsburgh, and LI Dallas. For the three and nine months ending September 30, 2019, payments totaling approximately $42,000 and $105,000 respectively were made to these affiliates.

Note 911 – Short Term LiabilitiesShort-term Debt

Finance Agreement

The Company entered into a commercial insurance premium finance and security agreement in December 2016. The agreement finances the Company’s annual D&O insurance premium. Payments are due in quarterly installments of approximately $23,000 and carry an annual percentage interest rate of 4.9%.

The Company had paid the yearly premium in full and had no outstanding balance at September 30, 2017 related to the agreement.

Promissory Notes Payable

In conjunction with the consummation of the Streamline acquisition on March 25, 2015, the Company assumedShort-term financing payable relates to financing arrangements for Directors and Officers and general liability insurance premiums that were financed at various points throughout 2018 and 2019 and two promissory notes assumed in the merger transaction.

These financing arrangements require aggregate monthly payments of approximately $18,000, with interest rates ranging from 7% to 12.8% and are to be paid in full by July 2020. The financing arrangements had balances of approximately $114,000 at September 30, 2019 and $31,000 at December 31, 2018. Interest expense related to these arrangements was approximately $2,000 and $4,300 for approximately $135,000the three and $125,000 tonine months ended September 30, 2019, respectively, and was $0 for the Bank of North Dakota New Venture Capital Programthree and North Dakota Development Fund, both outside non-related parties. Payments on bothnine months ended September 30, 2018 respectively.

Two promissory notes payable assumed in the Merger are due in aggregate monthly installments of approximately $5,700 and carry an interest rate of 5%. Both notes haveEach note originally had a maturity date of August 1, 2019. During the third quarter, the Company finalized an eighteen-month extension that extended the maturity date to March 1, 2021. The promissory notes including interest, hadhave an aggregate outstanding balancesbalance of approximately $130,000 and $181,000$95,000 at September 30, 2017 and December 31, 2016, respectively.

Expected future payments related to the promissory notes as of September 30, 2017, are approximately as follows: