Nuo Therapeutics, Inc.

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 from which it emerged 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 (“NCD”) 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.

Note 2–Liquidity and Summary of Significant Accounting Principles

Liquidity

Since our inception, we have financed our operations by raising debt, issuing equity and equity-linked instruments, and executing licensing arrangements, and to a lesser extent by generating royalties and product revenues. 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 the year ended December 31, 2024, the Company raised proceeds of (i) $1,500,000 from the sale of common stock to certain accredited investors in two private placements which closed in May and September 2024, (ii) $151,200 from the exercise of warrants, and (iii) $90,417 from the exercise of options. During the year ended December 31, 2023, the Company raised proceeds of $1,997,500 from the sale of common stock to certain accredited investors in two private placement which closed in August and December 2023.

We have incurred, and continue to incur, recurring losses and negative cash flows. As of December 31, 2024, we have an accumulated deficit of approximately $32.3 million and cash and cash equivalents on hand of approximately $0.3 million.

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 products 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 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 financing, 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. 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 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, 2024 and December 31, 2023 are listed below.

• less than 10%

Revenue from significant customers exceeding 10% of total revenues for the years ended December 31, 2024 and December 31, 2023 is listed below. All our revenue in both years was generated within the U.S.

• less than 10%

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

When applicable, we consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. Cash potentially subjects us to a concentration of credit risk, as approximately $0.3 million held in financial institutions was in excess of the FDIC insurance limit of $250,000 at December 31, 2024. We maintain our cash in the form of money market deposit accounts with financial institutions that we believe are credit-worthy.

Accounts Receivables, net

We generate accounts receivables from the sale of the Aurix products and accounts receivable as of December 31, 2024 reflects customer receivables from commercial sales activities.

We provide for an allowance against receivables for estimated losses that may result from a customer’s inability or unwillingness to pay. The Company estimates credit losses expected over the life of its trade receivables and contract assets based on historical information combined with current conditions that may affect 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 doubtful accounts when we determine that amounts are not collectable. Recoveries of previously written-off accounts are recorded when collected. During the years ended December 31, 2024 and 2023, we recorded provisions for credit losses of $79,445 and $160,000, respectively. As of December 31, 2024 and 2023, the allowance for credit losses was $25,000 and approximately $32,400, respectively.

Inventory, net

Our inventory is produced by third-party manufacturers and consists of raw materials and finished goods. Inventory cost is determined on a first-in, first-out basis and is stated at the lower of cost or net realizable value. We maintain an inventory of kits, reagents, and other disposables having shelf-lives that generally range from 12 months to two years.

As of December 31, 2024, our inventory consisted of approximately $89,000 of finished goods inventory and approximately $61,000 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 may result in excess and obsolete inventory (i.e., from the expiration of products). Our reserve for inventory obsolescence 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 years ended December 31, 2024 and 2023, we recorded provisions for inventory obsolescence of $30,000 and approximately $16,000, respectively. As of December 31, 2024 and December 31, 2023, the reserve for inventory obsolescence was approximately $18,700 and $16,100, respectively.

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 fromone tosix years. Maintenance and repairs are charged to operations as incurred.

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. 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 is no longer constrained, we recognize revenue in the amount of consideration to which we expect to be entitled.

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. 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 options are based on the equally weighted average historical volatility from 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 expected 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:

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 the 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 penalties and interest incurred in 2024 and 2023.

Fair Value Measurements

Our consolidated balance sheets may 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:

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 if applicable, 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.

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.

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, 2024 and 2023:

The following table sets forth the potential dilutive securities excluded from the calculation of diluted loss per share for the years ended December 31, 2024 and 2023:

Segment Information

Operating segments are defined as components of an enterprise (business activity from which it earns revenue and incurs expenses) for which discrete financial information is available and regularly reviewed by the chief operating decision maker ("CODM") in deciding how to allocate resources and in assessing performance. The Company’s CODM is its Chief Executive and Financial Officer. The Company views its operations and manages its business as asingle operating and reporting segment. All the Company’s long-lived assets are in the United States.

Recent Accounting Developments

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (ASC 280): Improvements to Reportable Segment Disclosures expanding reportable segment disclosure requirements for public business entities primarily through additional disclosures about significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit and loss. The Company adopted this standard for its fiscal year 2024 annual financial statements and has applied this standard retrospectively for all prior periods presented in the consolidated financial statements. See Note 9 for further information.

In December 2023, the FASB issued final guidance in ASU No. 2023-09, Income Taxes (ASC 740): 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 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 consolidated results of operations, financial position, or cash flows.

Note 3 –** Property and Equipment**

Property and equipment, net consisted of the following:

Depreciation expense was $23,022 (of which $7,543 was charged to cost of goods sold) and $15,327, respectively, for the years ended December 31, 2024 and December 31, 2023. None of the Company's long-lived assets were deemed to be impaired during the years ended December 31, 2024 and 2023.

Note 4 —Accrued Liabilities

Accrued liabilities consisted of the following:

Note 5 –** Stock Purchase Warrants**

The following schedule reflects outstanding stock purchase warrants as of December 31, 2024 and 2023:

During the year ended December 31, 2022, the Company issued two warrants to purchase (i)250,000 shares of common stock at an exercise price of $1.00 per share and expiring December 31, 2027 and (ii)200,000 shares of common stock at an exercise price of $1.50 per share and expiring December 31, 2028 to 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 years 2023 through potentially 2025. The Company also agreed to issue certain an additional warrant 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 and not reflected in the above table. This additional warrant was issued as of January 1, 2024 and exercised in its entirety by the holder during the year ended December 31, 2024. SeeNote 6–* Equity and Stock-Based Compensation* for further information.

Note 6–** 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 101,000,000 shares of capital stock, consisting of: (i)100,000,000 shares of common stock, par value $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share, which will have such rights, powers and preferences as the Board of Directors of the Company shall determine.

Pacific Medical Common Stock and Warrant Purchase Agreement

In August 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 500,000 shares of the Company’s common stock for $500,000. As part of the purchase of common stock, the Company agreed to grant to Pacific Med the right to participate in any financing by the Company 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. In the event such a financing did not occur by December 31, 2023, the Company agreed to 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 (the “2024 Financing Participation warrant”). The 2024 Financing Participation warrant was issued on January 1, 2024 with 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 cashlessly in exchange for the issuance of 86,889 shares of common stock during the year ended December 31, 2024. The common stock, Participation Rights, and 2024 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, 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 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 years 2023 and/or 2024. The second 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 years 2024 and/or 2025. The First Warrant will expire December 31, 2027 and 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 the two warrants was not considered probable as of December 31, 2024 or 2023, there wasno recognition of stock-based compensation expense for the years then ended. 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. The Company 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 defined 12-month periods of between $4.5 million by June 30, 2024 through at least $12.5 million in calendar year 2025 (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 is not considered probable as of December 31, 2024, there wasno expense recognition for the year ended December 31, 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.

2023 Private Placement Equity Issuances

The Company sold 2,442,500 shares of common stock to certain accredited investors pursuant to Securities Purchase Agreements in two private placements which closed in August and December 2023 for gross 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 the two 2023 private placement transactions.

2024 Private Placement Equity Issuances

The Company sold 2,000,000 shares of common stock to certain accredited investors pursuant to Securities Purchase Agreements in two private placements which closed in May and September 2024 for gross proceeds of $1,500,000. Certain related parties including a principal shareholder, a member of the Board of Directors, and a member of senior management invested an aggregate of $281,250 in the two 2024 private placement transactions.

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 (6%) of the shares reserved as of the last day of the preceding fiscal year, provided that the aggregate number of all such increases may not exceed 1,000,000 shares. In November 2016, holders of a majority of our capital stock approved the 2016 Omnibus Plan, as amended and restated, which provides for the Company to grant equity and cash incentive awards to officers, directors and employees of, and consultants to, the Company and its subsidiaries. Further, in March 2022, the Board approved an amendment to the 2016 Omnibus Plan to increase the shares available under to Plan to 4,250,000 and remove the annual evergreen provision, which was approved by the holders of a majority of our common stock outstanding, and which became effective in June 2022.

A summary of stock option activity under the 2016 Omnibus Plan during the two years ended December 31, 2024 is presented below:

During the year ended December 31, 2023, there were 100,000 incentive stock options granted to an employee under the 2016 Omnibus Plan. The fair value of the options vesting over three years was approximately $53,500. During the year ended December 31, 2024, there were 400,000 stock options granted to non-executive employees and members of the Board of Directors under the Plan. The fair value of the options vesting over one and three years was approximately $86,700.

The aggregate intrinsic value for outstanding and exercisable options as of December 31, 2024 was approximately $2.6 and $2.1 million, respectively.

For the years ended December 31, 2024 and 2023, the Company recorded total stock-based compensation expense of $56,652 and $21,746, respectively. As of December 31, 2024, there was approximately $104,000 unrecognized compensation cost related to non-vested stock options which is expected to be recognized prior to year-end 2027.

Note 7 —Income Taxes

Income tax expense (benefit) for the years ended December 31, 2024 and 2023 consisted of the following:

Significant components of the Company's deferred tax assets and liabilities consisted of the following at December 31, 2024 and 2023:

The following table presents a reconciliation between the U.S. federal statutory income tax rate and the Company's effective tax rate:

The Company has Federal net operating loss carry-forwards of approximately $156 million as of December 31, 2024. The Federal net operating loss carry-forwards are subject to annual limitation under Section 382 of the Internal Revenue Code as a result of the Company’s emergence from bankruptcy in 2016 as well as due to other changes in ownership subsequent to such emergence; any such limitation reduces the Company's ability to use its net operating loss carryforwards to offset future taxable income on an annual basis and may permanently reduce the Company’s ability to use such net operating loss carryforwards. Federal net operating loss carryforwards generated before 2018 have a 20-year life expiring through 2037, while net operating loss carryforwards generated after 2017 have an indefinite life. The Company hasnot filed its required state income tax returns since 2017 and intends to file all required state returns within the next 12-18 months. The Company has provided a full valuation allowance against its net deferred tax assets as it is more likely than not that those net assets will not be realized. The Company does not believe that it has any uncertain income tax positions.

Note 8 - Segment Information

Nuo manages its business activities on a consolidated basis and operates as asingle operating segment dedicated to developing and marketing products for chronic wound care that harness the regenerative capacity of the human body to trigger natural healing. The Company derives its revenue from product sales of the Aurix product line. The accounting policies of the segment are the same as those described in Note 2.

Nuo's CODM is the Company's Chief Executive and Financial Officer, David E. Jorden. The CODM uses net loss, as reported in the Company's Consolidated Statements of Operations, in evaluating the performance of its segment and determining how to allocate resources of the Company as a whole. The CODM does not review assets in evaluating the results of the segment, and therefore, such information is not presented.

The following table presents the operating results of the Company's segment:

(a)All other operating expenses included in consolidated net loss includes professional fees, lease expenses, insurance costs, travel and entertainment expenses, and all other selling, general and administrative expenses.

(b)Other expense (income), net included in consolidated net loss includes net gain from settlement of legacy accounts payable obligations and other expense (income).

Note 9 –** Commitments and Contingencies**

In February 2022, the Company entered into a 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 $337,226 as of April 1, 2022 using a discount rate of 10%.

The following table presents the components of rent expense:

Cash paid for amounts included in operating lease liabilities was approximately $86,600 and $109,400 for the years ended December 31, 2024 and December 31, 2023, respectively. The Company has no financing leases. The weighted average remaining lease term is 2.3 years at December 31, 2024. The Company’s only lease includes a renewal option to extend the lease for an additional 5 years. The Company has not included this term extension option as part of its present value calculation of lease liabilities as it is not reasonably certain to exercise the option.

Future undiscounted cash flows under this lease are:

Note 10 –** Subsequent Events**

On March 31, 2025, the Company entered into a Distribution Agreement (the “Distribution Agreement”) with a U.S. affiliate of Smith & Nephew PLC ("Smith+Nephew") to supply the Company’s Aurix product to Smith+Nephew under its own private label (the “Private Label product”). Under the Distribution Agreement, Smith+Nephew agreed to purchase Private Label product from the Company from time to time at agreed upon transfer pricing. The Distribution Agreement includes certain minimum purchase commitments by Smith+Nephew in order for Smith+Nephew to maintain exclusive distribution rights. The Distribution Agreement is for an initial term offive years and is renewable for additionaltwo-year terms.

As consideration for entering into the Distribution Agreement, Smith+Nephew agreed to pay the Company up to $2,250,000 for distribution rights and in exchange for the Company’s establishment and maintenance of reimbursement in certain categories for the Private Label products. Such fees are refundable to Smith+Nephew on a pro rata basis for the unexpired initial term of the Distribution Agreement if the Company does not comply with certain of its terms and conditions.