Nuo Therapeutics Inc

Item 1. Consolidated Financial Statements

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’** EQUITY**

For the Three and Six Months Ended June 30, 2024 and 2023

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note1 – Description of Business

Description of Business

Nuo Therapeutics, Inc. (“Nuo,” the “Company,” “we,” “us,” or “our”) is a Delaware corporation organized in1998 under the name Informatix Holdings, Inc. In1999, 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. In2000, Autologous Wound Therapy, Inc. changed its name to Cytomedix, Inc. (“Cytomedix”). In2001, Cytomedix, filed for bankruptcy from which it emerged in2002 under a Plan of Reorganization. In* September 2007,Cytomedix received510*(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. In2014,* Cytomedix changed its name to Nuo Therapeutics, Inc. In2016, Nuo filed for and emerged from bankruptcy under Chapter11. 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.*Aldagen is a non-operational, wholly owned subsidiary of Nuo.

Note2 – 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 2021CMS issued an NCD mandating national reimbursement coverage for Aurix when used in chronic non-healing wounds where a diabetes clinical diagnosis exists for the patient. During thesix* months ended* June 30, 2024,the Company raised proceeds of (i) $650,875 from the sale of common stock to certain accredited investors in a private placement which closed in May 2024and (ii) $151,200 from the exercise of warrants. During the year ended December 31, 2023,the Company raised proceeds of approximately $1,997,500 from the sale of common stock to certain accredited investors intwo* equity private placements which closed in* Augustand December 2023.*

We have incurred, and continue to incur, recurring losses and negative cash flows. As of* June 30, 2024,*we have an accumulated deficit of approximately $31.2 million and cash and cash equivalents of approximately $0.5 million.

The accompanying unaudited 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 nexttwelve months that our current resources and projected revenue from sales of Aurix products are insufficient to support our operations for the next12 months. As such, we believe that substantial doubt about our ability to continue as a going concern exists. The unaudited consolidated financial statements donot 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, we anticipate requiring additional capital and will seek to continue financing our operations with external capital. Any equity financing* maycause further substantial dilution to our stockholders and could involve the issuance of securities with rights senior to the common stock. Any debt financing mayrequire 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 maynot* be able to obtain additional capital as required to finance our efforts, through equity or debt financing, other transactions, or any combination thereof, on satisfactory terms or at all. Additionally, any such financing, if at all obtained,* maynot* be adequate to meet our capital needs and to support our operations.

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Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Accordingly, they donot include all the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). In our opinion, the accompanying unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations and cash flows. The consolidated balance sheet at* December 31, 2023,has been derived from audited financial statements of the Company as of that date. The interim unaudited consolidated results of operations arenot* necessarily indicative of the results that* mayoccur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules and regulations prescribed by the SEC. We believe that the disclosures provided herein are adequate to make the information presentednot* misleading when these unaudited consolidated financial statements are read in conjunction with the audited financial statements and notes previously included in the Company’s Annual Report on Form10-K for the year ended* December 31, 2023.*

The unaudited 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 inone operating segment consisting ofone 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 unaudited consolidated financial statements, estimates are used for, butnot 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 credit losses. 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 of10% of total receivables at* June 30, 2024and December 31, 2023*is listed below.

• less than10%

Revenue from significant customers exceeding10% of total revenues for thethree andsix months ended* June 30, 2024and2023* is listed below. All our revenue for both periods was generated within the U.S.

• less than10%

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 isno assurance thatone or more of them willnot 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.

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Cash, Cash Equivalents, and Restricted Cash

We consider all highly liquid instruments purchased with an original maturity ofthree months or less to be cash equivalents. Cash and cash equivalents potentially subject us to a concentration of credit risk, as approximately $0.5 million held in financial institutions was in excess of the FDIC insurance limit of*$250,000* as of* June 30, 2024.We maintain our cash in the form of money market deposit accounts with financial institutions that we believe are credit worthy. We maintainedno* cash equivalents as of* June 30, 2024or December 31, 2023.As of June 30, 2023,*$55,000 of cash was considered as restricted as it collateralized a corporate credit card.

Accounts Receivable, net

We generate accounts receivable from the sale of Aurix products and accounts receivable as of* June 30, 2024and December 31, 2023reflects customer receivables from commercial sales activities since the re-initiation of such sales beginning in thethree* months ended* September 30, 2022.*

We provide for an allowance against receivables for estimated losses that* mayresult from a customer’s inability or unwillingness to pay. We estimate credit losses expected over the life of our trade receivables and contract assets based on historical information combined with current conditions that mayaffect a customer’s ability to pay and reasonable and supportable forecasts. While the Company uses various credit quality metrics, it primarily monitors collectability by reviewing the duration of collection pursuits on its delinquent trade receivables and historical write-off trends. Based on the Company’s experience, the customer's delinquency status, which is analyzed periodically, is the strongest indicator of the credit quality of the underlying trade receivables. Accounts are written off against the allowance for credit losses when we determine that amounts arenot* collectable. Recoveries of previously written-off accounts are recorded when collected. For thesix-month period ending* June 30, 2024,we recorded a provision for credit losses of $17,500. As of June 30, 2024,the allowance for credit losses was approximately $49,900. During the year ended December 31, 2023,we established a provision for credit losses of $160,000. As of December 31, 2023,*the allowance for credit losses was approximately $32,400.

Inventory, net

Our inventory is produced bythird-party manufacturers and consists of raw materials and finished goods. Inventory cost is determined on afirst-in,first-out basis and is stated at the lower of cost or net realizable value. We maintain an inventory of kits, reagents, and other disposables having shelf-lives that generally range from12 months totwo years.

As of* June 30, 2024,our inventory consisted of approximately $130,000 of finished goods inventory and approximately $87,000 of raw materials acquired to facilitate the manufacturing of finished goods at our contract manufacturer and our warehouse/distribution facility. As of December 31, 2023,*our inventory consisted of approximately $150,000 of finished goods inventory and approximately $60,000 of raw materials.

We provide for an allowance against inventory for estimated losses that* mayresult in excess and obsolete inventory (i.e., from the expiration of products). Our allowance for expired inventory is estimated based upon the inventory’s remaining shelf-life and our anticipated ability to sell such inventory, which is estimated using 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. For the year ended December 31, 2023,we established an allowance for expired inventory of approximately $16,000 which was maintained as of June 30, 2024.*

Property and Equipment, net

Property and equipment is stated at cost less accumulated depreciation. Assets are depreciated, using the straight-line method, over their estimated useful life ranging fromone tosix years. Maintenance and repairs are charged to operations as incurred.

Leases

At the inception of a contract, we determine if the arrangement is, or contains, a lease. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent the 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.

We have made certain accounting policy elections whereby we (i) donot recognize ROU assets or lease liabilities for short-term leases (those with original terms of12-months or less) and (ii) combine lease and non-lease elements of any operating leases.

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 recognize revenues upon the satisfaction of the performance obligations (upon transfer of control of promised goods or services to customers) in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. In certain instances where the revenue is variable and we cannot estimate the amount of consideration to which we expect to be entitled, we are constrained from initially recognizing revenue. In these cases, once the estimate isno longer constrained, we recognize revenue in the amount of consideration to which we expect to be entitled.

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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 donot maintain a reserve for returned products, as in the past those returns havenot been material and arenot expected to be material in the future. Direct costs associated with product sales are recorded at the time that revenue is recognized.

Stock-Based Compensation

The fair value of employee stock options is measured at the date of grant. Expected volatilities for the2016 Omnibus Plan options are based on the equally weighted average historical volatility fromfive 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. We assume that the dividend rate on our common stock will be zero. There wereno options granted during thesix months ended* June 30, 2024and June 30, 2023.*We recognize forfeitures of stock-based awards as they occur.

Income Taxes

We account 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. We expect that recent tax law changes contained in the Inflation Reduction Act and CHIPS Act willnot have a material impact on the 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 thannot that some portion or all of the deferred tax assets willnot be realized. All of our tax years remain subject to examination by the tax authorities.

Our policy for recording interest and penalties associated with audits is to record such items as a component of income before taxes. There wereno such items in thesix months ended* June 30, 2024and2023.*

Basic and Diluted 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. Becausenone 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.”

All of our potential dilutive securities are considered anti-dilutive for thethree andsix months ended* June 30, 2024and2023.* The following table sets forth the potential dilutive securities excluded from the calculation of diluted loss per share for the periods presented.

Recent Accounting Standards

In* December 2023,the FASB issued final guidance in ASUNo.* 2023-09, Income Taxes (ASC740): Improvements to Income Tax Disclosures requiring entities to provide additional information in the rate reconciliation and disclosures about income taxes paid. For public business entities, the guidance is effective for annual periods beginning after* December 15, 2024.We donot* expect this ASU to have a material impact on the consolidated financial statements.

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We have evaluated all other issued and unadopted Accounting Standards Updates and believe the adoption of these standards willnot have a material impact on our results of operations, financial position, or cash flows.

Note3 –** Property and Equipment**

Property and equipment, net consisted of the following:

Depreciation expense was $3,767 and $3,787 for thethree months ended* June 30, 2024and2023,* respectively. Depreciation expense was $7,535 and $7,888 for thesix months ended* June 30, 2024and2023,* respectively.None of our long-lived assets were deemed to be impaired during thesix months ended* June 30, 2024and2023.*

Note4 – Stock Purchase Warrants

The following schedule reflects outstanding stock purchase warrants as of* June 30, 2024and2023:*

During the year ended* December 31, 2022,we issuedtwo* warrants to purchase (i)250,000 shares of common stock at an exercise price of $1.00 per share and expiring* December 31, 2027and (ii)200,000 shares of common stock at an exercise price of $1.50 per share and expiring December 31, 2028to a distribution partner under an agreement whereby the warrants are exercisable subject to the distributor attaining certain performance goals set forth in the warrants based upon exceeding sales quota revenues for calendar years2023* through potentially2025. The warrants are equity classified. The aggregate intrinsic value for2022 sales incentive warrants as of* June 30, 2024waszero. Additionally, we agreed to issue certain additional warrants to acquire up to 500,000 shares of common stock to the same distribution partner where the issuance of the warrant was contingent upon future financing events. This warrant was issued as of January 1, 2024and exercised by the holder during thesix* months ended* June 30, 2024.A portion of the warrant was exercised for proceeds of $151,200 and the remaining balance of the warrant was exercised on a cashless basis and resulted in the issuance of 86,889 shares of common stock. SeeNote5 *–Equity and Stock Based Compensationfor further information.

Note5 – Equity and Stock-Based Compensation

Under the Second Amended and Restated Certificate of Incorporation, we have the authority to issue a total of 101,000,000 shares of capital stock, consisting of 100,000,000 shares of common stock and 1,000,000 shares of preferred stock, par value $0.0001 per share, which will have such rights, powers and preferences as the Board of Directors shall determine.

Pacific Medical Common Stock and Warrant Purchase Agreement

On* August 24, 2022,*Nuo 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 products within a territory that covers the states of Washington, Oregon, Idaho, Montana, Wyoming, most of California, the northern half of Nevada, plus Alaska.

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Pursuant to the Agreement, Pacific Med purchased 500,000 shares of common stock for $500,000. As part of the purchase of common stock, we agreed to grant to Pacific Med the right to participate in any future financing by Nuo through* December 31, 2023 (the “Participation Rights”) in connection with a listing of our common stock on a national securities exchange. The Participation Rights entitled 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 didnot* occur by* December 31, 2023,we agreed to issue Pacific Med a warrant with a January 1, 2024issuance 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 the20*-day volume weighted average closing price per share ending* December 31, 2023 (the“2024* Financing Participation warrant”). We issued the2024 Financing Participation warrant to Pacific Med on* January 1, 2024with an exercise price of $0.56 per share. Pacific Med exercised (i)270,000 of the warrants for cash proceeds of $151,200 and (ii) the remaining 230,000 warrants on a cashless basis in exchange for the issuance of 86,889 shares of common stock during thesix* months ended* June 30, 2024.The common stock, Participation Rights, and2024* Financing Participation warrant are equity classified.

As part of the Agreement and as additional incentive compensation with respect to Pacific Med’s performance under its existing sales and distribution arrangement, we also provided to Pacific Medtwo compensatory performance-based stock purchase warrants and certain contingently issuable performance shares. Thefirst warrant entitles Pacific Med to purchase up to 250,000 shares of common stock at a price of $1.00 per share (the “First Warrant”) upon Pacific Med attaining certain performance goals set forth in the First Warrant based upon exceeding sales quota revenue, as agreed between the Company and Pacific Med, for calendar years2023 and/or2024. Thesecond warrant entitles Pacific Med to purchase up to 200,000 shares of Common Stock at a price of $1.50 per share (the “Second Warrant”) upon Pacific Med attaining certain performance goals set forth in the Second Warrant based upon exceeding sales quota revenue, as agreed between the Company and Pacific Med, for calendar years2024 and/or2025. The First Warrant will expire* December 31, 2027and the Second Warrant will expire December 31, 2028.The fair value of the First Warrant and Second Warrant at the date of issuance was approximately $434,000 and $345,000, respectively, based on a Black-Scholes option pricing model. As the exercisability of thetwo* warrants isnot considered probable as of* June 30, 2024,there wasno recognition of stock-based compensation expense for thesix* months ended* June 30, 2024.When exercisability is determined to be probable, the issuance date fair value of the warrant earned through such date will be recognized with the balance of the fair value recognized ratably over the remaining period of performance. We also agreed to issue up to 300,000 shares of common stock to Pacific Med subject to and upon the achievement of certain milestones set forth in the Agreement based upon sales of our products over defined12*-month periods of between $4.5 million by* June 30, 2024through at least $12.5 million in calendar year2025* (the Performance Shares”). The fair value of the Performance Shares at the date of issuance was approximately $615,000 based on the closing stock price on the closing of the Agreement. As the issuance of the shares isnot considered probable as of* June 30, 2024,there wasno expense recognition for thesix* months ended* June 30, 2024.*When issuance is determined to be probable, the issuance date fair value of the shares through such date will be recognized with the balance of the fair value recognized ratably over the remaining period of performance.

2024 Private Placement Equity Issuance

We sold 867,833 shares of common stock to certain accredited investors pursuant to a Securities Purchase Agreement in a private placement which closed in* May 2024*for proceeds of $650,875. Certain related parties including a principal shareholder, a member of the Board of Directors, and a member of senior management invested an aggregate of $187,500 in the private placement transaction.

2023 Private Placement Equity Issuances

We sold 2,442,500 shares of common stock to certain accredited investors pursuant to Securities Purchase Agreements intwo private placements which closed in* Augustand December 2023for proceeds of $1,997,500. Certain related parties including a principal shareholder, a member of the Board of Directors, and a member of senior management invested an aggregate of $760,000 in thetwo* 2023 private placement transactions.

Stock-Based Compensation

In* July 2016,the Board of Directors approved the2016* Omnibus Incentive Plan (the*“2016* Omnibus Plan” or “Plan”), and in* November 2016,holders of a majority of our capital stock approved the2016* Omnibus Plan, as amended and restated, which provides for the grant of equity and cash incentive awards to officers, directors and employees of, and consultants to, Nuo Therapeutics and its subsidiaries. Further, in* March 2022,the Board approved an amendment to the2016* Omnibus Plan to increase the shares available under the Plan to 4,250,000 and remove an annual evergreen provision, which was approved by the holders of a majority of our outstanding common stock and which became effective in* June 2022.*

A summary of stock option activity under the2016 Omnibus Plan during thesix months ended* June 30, 2024*is presented below:

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There wereno stock options granted or exercised under the2016 Omnibus Plan during thesix months ended* June 30, 2024and June 30, 2023.The aggregate intrinsic value for outstanding and exercisable options as of June 30, 2024*was zero.

For thethree months ended* June 30, 2024and2023,* we recorded stock-based compensation expense of $3,081 and $2,420, respectively. For thesix months ended* June 30, 2024and2023,* we recorded stock-based compensation expense of $6,162 and $7,138, respectively. As of* June 30, 2024,there was approximately $68,000 of unrecognized compensation cost related to the non-vested stock options which is expected to be recognized prior to year-end2026.*

Note 6 – Commitments and Contingencies

Lease Agreements

In* January 2022,we entered into a commercial operating lease agreement for office space in Florida, expiring on December 31, 2024.The lease required us to pay for insurance, taxes, and our share of common operating expenses. The lease resulted in an increase in right of use assets and lease liabilities of $89,312, using a discount rate of 10%. Effective March 24, 2024,*Nuo and the landlord agreed to terminate the lease effective immediately. We incurredno costs related to the lease termination and the remaining right of use asset and operating lease liability were written off with the resulting immaterial difference recorded as a gain in other income.

In* February 2022,we entered into a commercial operating lease for our primary office and warehouse/distribution space in Texas. The lease requires us to pay for insurance, taxes, and our share of common operating expenses. This lease expires in March 2027.The space remained under buildout and landlord control during thethree* months ended* March 31, 2022with Nuo acquiring control of the lease space effective April 1, 2022;as a result, a right of use asset and lease liability was recognized of $337,226 as of April 1, 2022*using a discount rate of 10%.

Total operating lease costs were approximately $27,400 and $39,400 for thethree months ended* June 30, 2024and2023,* respectively, consisting solely of base rental and common area maintenance costs. Total operating lease costs were approximately $63,900 and $78,800 for thesix months ended* June 30, 2024and2023,* respectively. The Company hasno financing leases.

Future undiscounted cash flows under this lease are:

Note7 –** Subsequent Events**

On* July 17, 2024,*295,000 incentive stock options were granted to non-executive employees and 105,000 non-qualified stock options were granted to members of the Board of Directors. All options were granted at an exercise price of $0.33 and subject to vesting provisions ofone year for Board options andthree years for employee options.

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