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Form 10-Q U.S. Stem Cell, Inc. For: Jun 30

August 22, 2022 12:44 PM EDT

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 


 

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

For the quarterly period ended June 30, 2022

OR

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

For the transition period from                             to                          

 

Commission File Number: 001-33718

 

U.S. STEM CELL, INC.

(Exact name of registrant as specified in its charter)

 

Florida

65-0945967

(State or other jurisdiction of incorporation or organization

(I.R.S. Employer Identification No.)

 

1560 Sawgrass Corporate Pkwy 4th Floor, Sunrise, FL 33323

(Address of principal executive offices) (Zip Code)

 

(954) 835-1500

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

 

Large accelerated filer

Accelerated filer

Non-Accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

USRM

OTC

 

As of August 22, 2022, there were 598,102,281 outstanding shares of the Registrant’s common stock, par value $0.001 per share.

 

Transitional Small Business Disclosure Format Yes ☐ No ☒

 

 

 

 

TABLE OF CONTENTS

 

 

U.S. STEM CELL, INC.

 

 

 

 

 

PART I.

FINANCIAL INFORMATION

Page
 No.

Item 1.

Financial Statements

 

 

Condensed Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021

3

 

Condensed Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)

4

 

Condensed Statements of Changes in Stockholders' Deficit for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)

5

 

Condensed Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited)

7

 

Notes to Condensed Financial Statements (Unaudited)

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

38

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

40

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3.

Defaults Upon Senior Securities

41

Item 4.

Mine Safety Disclosures

41

Item 5.

Other Information

41

Item 6.

Exhibits

41

 

Signatures

44

 

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statement

 

U.S. STEM CELL, INC.

CONDENSED BALANCE SHEETS

 

   

June 30,

   

December 31,

 
   

2022

   

2021

 
   

(unaudited)

         

ASSETS

               

Current assets:

               

Cash and cash equivalents

  $ 10,330     $ 39,393  

Accounts receivable, net of allowance of $75,000

    8,067       1,213  

Inventories

    701       393  

Prepaid expenses and other current assets

    52,000       10,000  

Total current assets

    71,098       50,999  
                 

Total assets

  $ 71,098     $ 50,999  
                 

LIABILITIES AND STOCKHOLDERS' DEFICIT

               

Current liabilities:

               

Accounts payable

  $ 1,512,696     $ 1,373,413  

Accrued expenses

    2,250,736       1,951,390  

Advances - related parties

    1,082,102       951,432  

Contract liabilities, current portion

    3,000       3,000  

Deposits

    465,286       465,286  

Notes payable - related parties

    3,519,200       3,144,200  

Notes payable, current portion, net of debt discount of $10,280 and $10,052, respectively

    2,564,279       2,557,881  

Promissory note payable

    1,397,762       1,397,762  

Convertible notes payable, net of debt discount of $50,333 and $0, respectively

    377,667       194,411  

Total current liabilities

    13,172,728       12,038,775  
                 

Long-term liabilities:

               

Contract liabilities

    55,000       56,500  

Notes payable, net of debt discount of $16,420 and $21,575, respectively

    702,222       722,060  

Total long-term liabilities

    757,222       778,560  
                 

Total liabilities

    13,929,950       12,817,335  
                 

Commitments and contingencies (See Note 11)

   
 
     
 
 
                 

Stockholders' deficit:

               

Preferred stock, par value $0.001; 20,000,000 shares authorized, -0- issued and outstanding

    -       -  

Common stock, par value $0.001; 2,000,000,000 shares authorized, 598,102,281 and 503,525,051 shares issued and outstanding, respectively

    598,102       503,525  

Additional paid-in capital

    126,928,307       126,532,063  

Accumulated deficit

    (141,385,261 )     (139,801,924 )

Total stockholders' deficit

    (13,858,852 )     (12,766,336 )
                 

Total liabilities and stockholders' deficit

  $ 71,098     $ 50,999  

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 

U.S. STEM CELL, INC.

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Revenue:

                               

Products

  $ 21,423     $ 29,639     $ 38,568     $ 108,730  

Services

    3,095       5,803       9,260       11,092  

Total revenue

    24,518       35,442       47,828       119,822  
                                 

Cost of revenues

    6,247       13,677       13,582       29,198  
                                 

Gross profit

    18,271       21,765       34,246       90,624  
                                 

Operating expenses:

                               

Selling, general and administrative

    453,312       802,970       983,926       1,358,985  

Total operating expenses

    453,312       802,970       983,926       1,358,985  
                                 

Loss from operations

    (435,041 )     (781,205 )     (949,680 )     (1,268,361 )
                                 

Other income (expense):

                               

Gain (loss) on settlement of accounts payable and accrued interest, net

    (3,644 )     (45,995 )     746       (383,870 )

Interest expense

    (175,527 )     (166,994 )     (329,494 )     (321,719 )

Gain (loss) on debt extinguishment

    44,113       -       (447,494 )     -  

Total other income (expense)

    (135,058 )     (212,989 )     (776,242 )     (705,589 )
                                 

Net loss before income taxes

    (570,099 )     (994,194 )     (1,725,922 )     (1,973,950 )
                                 

Income taxes (benefit)

    -       -       -       -  
                                 

NET LOSS

  $ (570,099 )   $ (994,194 )   $ (1,725,922 )   $ (1,973,950 )
                                 

Net loss per common share, basic and diluted

  $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
                                 

Weighted average number of common shares outstanding, basic and diluted

    597,325,241       451,724,735       560,731,252       448,303,465  

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 

U.S. STEM CELL, INC.

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022

(unaudited)

 

                                   

Additional

                 
   

Preferred Stock

   

Common Stock

   

Paid-in

   

Accumulated

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Total

 

Balance, March 31, 2022

    -     $ -       591,876,258     $ 591,876     $ 126,855,961     $ (140,815,162 )   $ (13,367,325 )

Common shares issued in settlement of accounts payable

    -       -       2,604,869       2,605       20,318       -       22,923  

Common shares issued in lieu of interest

    -       -       1,121,154       1,121       8,745       -       9,866  

Common shares issued for cash

    -       -       2,500,000       2,500       7,500       -       10,000  

Share-based compensation

    -       -       -       -       35,783       -       35,783  

Net loss

    -       -       -       -       -       (570,099 )     (570,099 )

Balance, June 30, 2022 (unaudited)

    -     $ -       598,102,281     $ 598,102     $ 126,928,307     $ (141,385,261 )   $ (13,858,852 )

 

                                   

Additional

                 
   

Preferred Stock

   

Common Stock

   

Paid-in

   

Accumulated

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Total

 

Balance, December 31, 2021

    -     $ -       503,525,051     $ 503,525     $ 126,532,063     $ (139,801,924 )   $ (12,766,336 )

Modified retrospective adoption of ASU 2020-06

    -       -       -       -       (384,174 )     142,585       (241,589 )

Adjusted balance, December 31, 2021

    -       -       503,525,051       503,525       126,147,889       (139,659,339 )     (13,007,925 )
                                                         

Common shares issued in settlement of accounts payable

    -       -       4,556,076       4,556       33,976       -       38,532  

Common shares issued in lieu of interest

    -       -       1,121,154       1,121       8,745       -       9,866  

Common shares issued for services

    -       -       20,000,000       20,000       120,000       -       140,000  

Common shares and warrants issued to noteholders per addendums to convertible notes payable

    -       -       53,400,000       53,400       438,207       -       491,607  

Common shares issued as equity kicker for convertible notes payable

    -       -       6,750,000       6,750       11,813       -       18,563  

Common shares issued upon conversion of convertible notes payable

    -       -       3,125,000       3,125       21,875       -       25,000  

Common shares issued for cash

    -       -       5,625,000       5,625       29,375       -       35,000  

Share-based compensation

    -       -       -       -       116,427       -       116,427  

Net loss

    -       -       -       -       -       (1,725,922 )     (1,725,922 )

Balance, June 30, 2022 (unaudited)

    -     $ -       598,102,281     $ 598,102     $ 126,928,307     $ (141,385,261 )   $ (13,858,852 )

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 

U.S. STEM CELL, INC.

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021

(unaudited)

 

                                   

Additional

                 
   

Preferred Stock

   

Common Stock

   

Paid-in

   

Accumulated

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Total

 

Balance, March 31, 2021 (unaudited)

    -     $ -       450,443,462     $ 450,444     $ 125,916,818     $ (137,494,264 )   $ (11,127,002 )

Common shares issued in settlement of accounts payable

    -       -       1,107,934       1,108       63,152       -       64,260  

Common shares issued in lieu of interest

    -       -       187,575       187       10,692       -       10,879  

Beneficial conversion feature recognized on convertible notes

    -       -       -       -       2,400       -       2,400  

Share-based compensation

    -       -       -       -       157,387       -       157,387  

Net loss

    -       -       -       -       -       (994,194 )     (994,194 )

Balance, June 30, 2021 (unaudited)

    -     $ -       451,738,971     $ 451,739     $ 126,150,449     $ (138,488,458 )   $ (11,886,270 )

 

                                   

Additional

                 
   

Preferred Stock

   

Common Stock

   

Paid-in

   

Accumulated

         
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Total

 

Balance, December 31, 2020

    -     $ -       435,560,794     $ 435,561     $ 124,499,655     $ (136,514,508 )   $ (11,579,292 )

Common shares issued in settlement of accounts payable

    -       -       4,471,805       4,472       197,707       -       202,179  

Common shares issued in lieu of interest

    -       -       187,575       187       10,692       -       10,879  

Common shares issued for services

    -       -       4,000,000       4,000       124,000       -       128,000  

Beneficial conversion feature recognized on convertible notes

    -       -       -       -       634,250       -       634,250  

Share-based compensation

    -       -       -       -       315,724       -       315,724  

Common shares issued upon conversion of convertible notes payable

    -       -       7,518,797       7,519       368,421       -       375,940  

Net loss

    -       -       -       -       -       (1,973,950 )     (1,973,950 )

Balance, June 30, 2021 (unaudited)

    -     $ -       451,738,971     $ 451,739     $ 126,150,449     $ (138,488,458 )   $ (11,886,270 )

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 

U.S. STEM CELL, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

 

   

For the Six Months Ended June 30,

 
   

2022

   

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss

  $ (1,725,922 )   $ (1,973,950 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Bad debt (recoveries)

    -       61,797  

Interest and amortization of debt discount

    324,112       310,094  

Loss (gain) on settlement of accounts payable and accrued interest

    (746 )     383,870  

Loss on debt extinguishment

    447,494       -  

Related party notes payable issued for services rendered

    375,000       134,260  

Share-based compensation

    214,427       431,635  

Changes in operating assets and liabilities:

               

Accounts receivable

    (6,854 )     (41,595 )

Inventories

    (308 )     725  

Accounts payable

    168,038       54,153  

Accrued expenses

    9,144       5,278  

Contract liabilities

    (1,500 )     (1,500 )

Net cash used in operating activities

    (197,115 )     (635,233 )
                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds from sale of common shares

    35,000       -  

Proceeds from related party advances

    130,670       30,000  

Repayments of notes payable

    (14,618 )     (24,375 )

Proceeds from convertible note payable

    27,000       749,000  

Repayments of convertible note payable

    (10,000 )     -  

Net cash provided by financing activities

    168,052       754,625  
                 

Net increase (decrease) in cash and cash equivalents

    (29,063 )     119,392  

Cash and cash equivalents, beginning of period

    39,393       18,570  

Cash and cash equivalents, end of period

  $ 10,330     $ 137,962  
                 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

               

Interest paid

  $ 5,382     $ 11,625  

Income taxes paid

  $ -     $ -  
                 

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:

               

Modified retrospective adoption of ASU 2020-06

  $ 384,174     $ -  

Common shares issued for prepaid services

  $ 42,000     $ 12,089  

Common shares issued upon conversion of convertible notes and accrued interest

  $ 25,000     $ 375,940  

Common shares issued as equity kicker for convertible notes payable

  $ 18,563     $ -  

Common shares issued in settlement of accounts payable

  $ 38,532     $ 202,179  

Common shares issued in lieu of interest

  $ 9,866     $ 10,879  

Beneficial conversion feature recognized on convertible note

  $ -     $ 634,250  

Monthly payments on notes payable made on behalf of the Company

  $ -     $ 3,750  

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

NOTE 1 NATURE OF OPERATIONS

 

Overview

 

U.S. Stem Cell, Inc. was incorporated under the laws of the State of Florida in August 1999. The Company is in the cardiovascular sector of the cell technology industry delivering cell therapies and biologics that help address congestive heart failure, lower limb ischemia, chronic heart ischemia, acute myocardial infarctions and other issues. The business includes the development of proprietary cell therapy products as well as revenue generating physician and patient-based regenerative medicine/cell therapy training services, cell collection and cell storage services, the sale of cell collection and treatment kits for humans and animals, and the operation of cell therapy clinics. To date, the Company has not generated significant revenues in that they remain less than their total operating expenses, has incurred expenses, and has sustained losses. Consequently, its operations are subject to all the risks inherent in the establishment of a research and development business enterprise.

 

Basis of Presentation

 

The interim unaudited condensed financial statements included herein reflect all material adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) which, in the opinion of the Company’s management, are ordinary and necessary for a fair presentation of results for the interim periods. Certain information and footnote disclosures required under generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company’s management believes the disclosures are adequate to make the information presented not misleading.

 

The condensed balance sheet information as of December 31, 2021 was derived from the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2021 (“2021 Annual Report”), filed with the SEC pursuant to Section 13 or 15(d) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on March 31, 2022. These interim unaudited condensed financial statements should be read in conjunction with the 2021 Annual Report. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the entire fiscal year or for any other period.

 

NOTE 2 GOING CONCERN AND MANAGEMENTS LIQUIDITY PLANS

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

As shown in the accompanying financial statements, as of June 30, 2022, the Company had cash on hand of $10,330 and a working capital deficit (current liabilities in excess of current assets) of $13,101,630. During the six months ended June 30, 2022, the net loss was $1,725,922 and net cash used in operating activities was $197,115. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the financial statements.

 

The Company’s primary source of operating funds has been from revenue generated from sales with additional cash proceeds from the sale of common stock and the issuances of promissory notes and other debt. The Company has experienced net losses from operations since inception, but it expects these conditions to improve in the future as it develops its business model. The Company had a stockholders’ deficit at June 30, 2022 and requires additional financing to fund future operations.

 

The Company’s existence is dependent upon management’s ability to develop profitable operations and to obtain additional funding sources. There can be no assurance that the Company’s financing efforts will result in profitable operations or the resolution of the Company’s liquidity problems. The accompanying statements do not include any adjustments that might result should the Company be unable to continue as a going concern.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

NOTE 3 SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include stock-based compensation, debt discounts and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.

 

Cash

 

The Company considers cash to consist of cash on hand and temporary investments having an original maturity of 90 days or less that are readily convertible into cash.

 

Fair Value Measurements

 

Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable, accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

 

The Company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are non-interest bearing and are stated at gross invoice amounts less an allowance for doubtful accounts. Credit is extended to customers based on an evaluation of their financial condition, industry reputation, and other judgmental factors considered by the Company’s management. The Company generally does not require collateral or other security interest to support accounts receivable. Based on trends and specific factors, the customer’s credit terms may be modified, including required payment upon delivery.

 

The Company performs regular on-going credit evaluations of its customers as deemed relevant. As events, trends, and circumstance warrant, the Company’s management estimates the amounts that are more likely than not to be uncollectible. These amounts are recognized as bad debt expense and are reflected within selling, general, administrative and other expenses on the Company’s accompanying statements of operations.

 

Any charges to the allowance for doubtful accounts on accounts receivable are charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. As of June 30, 2022 and December 31, 2021, the allowance for doubtful accounts was $75,000.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

Inventories

 

Inventories are stated at the lower of cost or market with cost being determined on a first-in, first-out (FIFO) basis. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. During the periods presented, there were no inventory write-downs.

 

Investments

 

The Company follows Accounting Standards Codification subtopic 323-10, Investments-Equity Methods and Joint Ventures (“ASC 323-10”) which requires the accounting for investments where the Company can exert significant influence, but not control of a joint venture or equity investment. The Company accounted for its 49.9% member interest ownership of U.S. Stem Cell Clinic, LLC and its 49% member interest ownership of U.S. Stem Cell Clinic of the Villages utilizing the equity method of accounting (See Note 4).

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Accounting Standards Codification Topic 606 “Revenue from Contracts with Customers” (“ASC 606”). ASC 606 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

 

The Company’s primary sources of revenue are from the sale of test kits and equipment, training services, patient treatments, laboratory services and cell banking.

 

Revenues for kits and equipment sold are not recorded until kits and equipment are received by the customer. Revenues from in-person trainings are recognized when the training occurs and revenues from on demand online trainings are recognized when the customer purchases the rights to the training course. Any cash received as a deposit for trainings are recorded by the Company as a liability.

 

Patient treatments and laboratory services revenue are recognized when those services have been completed or satisfied.

 

Revenues for cell banking are accounted for as multiple performance obligations as described in ASC 606 and addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. Because the Company sells its services separately, on more than a limited basis and at a price within a narrow range, the Company was able to allocate revenue based on stand-alone pricing. The multiple performance obligations include stem cell banking, dose retrieval and yearly storage fees. Revenues for stem cell banking and dose retrieval is recognized at the point of service and revenues for the yearly storage fees is recognized over the term of the banking contract, which is typically one year with annual renewals.

 

At June 30, 2022 and December 31, 2021, the Company had contract liabilities of $58,000 and $59,500, respectively, all of which relates to the Intellectual Property Licensing Agreement.

 

Research and Development

 

The Company accounts for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company did not incur any research and development expenses during the periods presented.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

Stock-Based Compensation

 

Stock-based compensation expense is measured at the grant date fair value of the award and is expensed over the requisite service period. For stock-based awards to employees, non-employees and directors, the Company calculates the fair value of the award on the date of grant using the Black-Scholes option pricing model. Determining the fair value of stock-based awards at the grant date under this model requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based awards represent the Company’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment.

 

Income Taxes

 

The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.

 

Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial.

 

Net Loss per Common Share

 

The Company computes earnings (loss) per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “if converted” method.

 

The computation of basic and diluted income (loss) per share as excludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period.

 

Potentially dilutive securities excluded from the computation of basic and diluted net loss per share are as follows:

 

   

June 30,

 
   

2022

   

2021

 

Options

    110,643,384       110,644,914  

Warrants

    13,603,127       1,110,468  

Convertible notes

    36,455,827       36,259,837  

Total potentially dilutive shares

    160,702,338       148,015,219  

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

Reclassifications

 

Certain reclassifications have been made to the prior years’ data to conform to the current year presentation. These reclassifications had no effect on reported income (losses).

 

Recent Accounting Pronouncements

 

In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on accounting for convertible debt instruments by removing the separation models for: (1) convertible debt with a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. As a result, the Company will not separately present in equity an embedded conversion feature in such debt. Instead, we will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. We expect the elimination of these models will reduce reported interest expense and increase reported net income for the Company’s convertible instruments falling under the scope of those models before the adoption of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The Company adopted ASU 2020-06 in the first quarter of 2022 utilizing the modified retrospective method. As a result, the Company adjusted its beginning balance sheet with a decrease in additional paid-in capital of $384,174, offset by a decrease in debt discount on convertible debt of $241,589 and an increase in accumulated deficit of $142,585.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which significantly changes how entities will measure credit losses for most financial assets, including accounts receivable. ASU No. 2016-13 will replace today’s “incurred loss” approach with an “expected loss” model, under which companies will recognize allowances based on expected rather than incurred losses. On November 15, 2019, the FASB delayed the effective date of Topic 326 for certain small public companies and other private companies until fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities. The Company does not expect the new guidance will have a material impact on its financial statements.

 

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s financial position, results of operations or cash flows.

 

NOTE 4 INVESTMENTS

 

During March 2021, we divested ourselves of our Member Interest in U.S. Stem Cell Clinic, LLC, while U.S. Stem Cell Clinic of the Villages, LLC is currently dormant.

 

U.S. Stem Cell Clinic, LLC

 

The investment in U.S. Stem Cell Clinic, LLC was comprised of a 49.9% (increased from 33.3% on January 29, 2019) member interest ownership and is accounted for using the equity method of accounting. The Company’s income (loss) earned by U.S. Stem Cell Clinic, LLC member interest was $0 for the three and six months ended June 30, 2022 and 2021, (inception to date income of $599,721) and is included in other income (expense) in the accompanying statements of operations. In addition, during the six months ended June 30, 2022 and 2021, the Company received distributions totaling $0 from U.S. Stem Cell Clinic, LLC (inception to date of $663,870). In March 2021, the Company divested its entire interest in U.S. Stem Cell Clinic, LLC (See Note 5, 6 and 11). The carrying value of the investment at June 30, 2022 and December 31, 2021 is $0.

 

Revenues earned from sales to U.S. Stem Clinic, LLC for the three and six months ended June 30, 2022 were $0, and for the three and six months ended June 30, 2021 were $250 and $2,531 (prior to divestiture), respectively.

 

An affiliate of one of the Company’s officers is a minority investor in the U.S. Stem Cell Clinic, LLC.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

U.S. Stem Cell of the Villages LLC

 

On January 30, 2018, Greg Knutson, a director of the Company (“Knutson”) and the Company agreed to open and operate a regenerative medicine/cell therapy clinic providing cellular treatments for patients afflicted with neurological, autoimmune, orthopedic and degenerative diseases in Florida. To that end, U.S. Stem Cell Clinic of The Villages LLC (the “Villages”) was formed January 30, 2018. Knutson provided the Company with the sum of Three Hundred Thousand Dollars ($300,000) (the “Investment”) to be utilized for the formation and initial operation of the Villages. Currently, Knutson holds a 51% member interest in the Villages and the Company holds a 49% member interest. The Company will provide operating assistance as well as management services, the latter to be compensated at fee of five percent (5%) of the Villages gross revenues.

 

As of December 31, 2018, upon completion of U.S. Stem Cell of the Villages LLC, the Company received $189,909 from Greg Knutson, the holder of the 51% member interest. Accordingly, this was recognized as additional paid-in capital. Subsequently, the Company contributed $86,750 as its initial investment in the Villages. The Company’s 49% income (loss) earned by the Villages member interest was $0 for the three and six months ended June 30, 2022 and 2021, (inception to date loss of $23,050) and is included in other income (expense) in the accompanying statements of operations. In addition, during the six months ended June 30, 2022 and 2021, the Company received distributions totaling $0 from the Villages. The carrying value of the investment at June 30, 2022 and December 31, 2021 is $0.

 

At June 30, 2022 and December 31, 2021, accounts receivable for sales of products and services to the Villages was $0. Revenues earned from sales to the Villages for the three and six months ended June 30, 2022 and 2021 was $0.

 

During the three and six months ended June 30, 2022 and 2021, the Company received $0 in management fees from the Villages.

 

As of the date of this filing, U.S. Stem Cell Clinic of the Villages, LLC is currently dormant.

 

NOTE 5 ACCRUED EXPENSES

 

Accrued expenses consisted of the following as of June 30, 2022 and December 31, 2021:

 

   

June 30,

   

December 31,

 
   

2022

   

2021

 

Interest and fees payable to the Guarantors of the Company’s loan agreement with Seaside Bank

  $ 705,444     $ 644,670  

Accrued interest payable

    1,466,160       1,227,588  

Vendor accruals and other

    79,132       79,132  

Total Accrued expenses

  $ 2,250,736     $ 1,951,390  

 

On February 10, 2021, as part of a settlement agreement, the Company transferred its entire member interest in U.S. Stem Cell, LLC to Dr. Kristen Comella as settlement for $100,000 of accrued interest owed to Dr. Comella, resulting in a gain on settlement of $100,000 (See Note 4, Note 6 and Note 11 “Litigation”).

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

NOTE 6 NOTES PAYABLE

 

Notes payable were comprised of the following as of June 30, 2022 and December 31, 2021:

 

   

June 30,

   

December 31,

 
   

2022

   

2021

 

Seaside Bank note payable

  $ 980,000     $ 980,000  

Dr. Comella note payable*

    255,579       255,579  

Dr. Comella note payable*

    300,000       300,000  

Dr. Comella note payable*

    300,000       300,000  

Dr. Comella note payable*

    300,000       300,000  

Hunton & Williams note payable

    376,500       380,000  

Weider note payable

    403,622       413,239  

Mallard note payable

    227,500       232,750  

EIDL note payable

    150,000       150,000  

Total notes payable

    3,293,201       3,311,568  

Less unamortized debt discount

    (26,700 )     (31,627 )

Total notes payable net of unamortized debt discount

    3,266,501       3,279,941  

Less current portion

    (2,564,279 )     (2,557,881 )

Long-term portion

  $ 702,222     $ 722,060  
                 

* Dr. Comella is a former member of the Board of Directors and resigned on December 1, 2019.

 

This note was previously included in notes payable - related parties.

 

 

Seaside Bank

 

On October 25, 2010, the Company entered into a Loan Agreement with Seaside National Bank and Trust for a $980,000 loan at 4.25% per annum interest that was used to refinance the Company’s loan with Bank of America. The obligation is guaranteed by certain stockholders of the Company. At the last renewal in 2018, the loan with Seaside National Bank and Trust was converted to a demand note. While the loan no longer has a fixed maturity date, it must be re-documented every four years.

 

Dr. Comella, former Chief Science Officer

 

On September 6, 2016, the Company issued a $300,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due upon demand. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $255,579.

 

On August 7, 2017, the Company issued a $300,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due one year from date of issuance. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $300,000.

 

On May 7, 2018, the Company issued a $300,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due six months from date of issuance. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $300,000.

 

On July 1, 2019, the Company issued a $300,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due November 7, 2019. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $300,000.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

On February 10, 2021, as part of a settlement agreement, the Company transferred its entire member interest in U.S. Stem Cell, LLC to Dr. Kristen Comella as settlement for $100,000 of accrued interest owed to Dr. Comella, resulting in a gain on settlement of $100,000 (See Note 4, Note 5 and Note 11 “Litigation”). At June 30, 2022 and December 31, 2021, accrued interest on the notes was $195,076 and $166,424, respectively, and is included in accrued expenses on the accompanying balance sheet.

 

Dr. Comella has not served as member of the Board of Directors since September 1, 2019.

 

Hunton & Williams

 

At December 31, 2016, the Company has two outstanding notes payable with interest at 8% per annum due at maturity. The two notes, $61,150 and $323,822, are payable in one balloon payment upon the date the Noteholder provides written demand, however the Company is not obligated to make payments until the Northstar Biotech Group, LLC (or successor) Loan is paid off.

 

On August 31, 2017, the Company and the noteholder entered into a Note Forbearance, Modification and Repayment Agreement (“Agreement”). The two notes, $61,150 and $323,822, were payable in one balloon payment upon the date of a written demand and upon certain triggering events occurring. The sum of unpaid principal and accumulated interest for both notes as of August 31, 2017 of $747,680 and an accounts payable of $40,596 result in an aggregate balance due of $788,276.

 

The noteholder agreed to accept full payment of their obligation over a four (4) year period in 48 monthly installments on an adjusted debt obligation in aggregate of $624,000 (reducing the outstanding balance), with such payments staggered in amounts such that the Company will pay $10,000 monthly the first year, $12,000 monthly the second year, $14,000 monthly the third year, and $16,000 monthly the final year. In addition, the noteholder agreed to suspend accrual interest on the notes commencing September 1, 2017.

 

The Agreement remains in full force and effect provided the Company continues to make the monthly payments, there is no event of default as defined in the notes and an agreement to a subordination agreement by Northstar Biotech Group, LLC, which has been provided. In May 2019, the Company did not make the required scheduled payment. In September 2019, the noteholder agreed to waive their default rights under the agreement provided a minimum of $5,000 was paid by the end of 2019 and to reduce the required monthly payment to $500 per month commencing in January 2020. The Company satisfied the $5,000 payment requirement by the end of 2019 and commenced making the required $500 monthly payments in January 2020. The Company last made a $500 payment in March 2021 and thereby became delinquent until making three $1,500 payments during the fourth quarter of 2021 (a total of $6,000 in payments were made during 2021) thereby becoming current as of December 31, 2021.

 

The Company imputed an interest rate of 5% and discounted the note accordingly. The imputed debt discount of $69,700 was amortized to interest expense using the effective interest method. In September 2019, the Company was in default and was negotiating a revised payment structure. Thus, the remaining unamortized debt discount was charged to interest expense at September 30, 2019. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $376,500 and $380,000, respectively.

 

Weider

 

The Company, as one of the parties entered into a Settlement Agreement and General Release (the “Agreement”) dated June 3, 2019 related to certain medical procedures. Without admitting any liability, and as part of that Agreement, the Company agreed to provide a five-year 5.25% unsecured promissory note, dated June 15, 2019, in the principal amount of $500,000, payable in monthly increments of $5,000 per month, with a final balloon payment due on June 15, 2024. Accordingly, the Company recognized Pre-litigation expense of $500,000. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $403,622 and $413,239, respectively. At June 30, 2022 and December 31, 2021, accrued interest on the note was $6,978 and $1,808, respectively, and is included in accrued expenses on the accompanying balance sheet. The Company last made a $5,000 payment in March 2022 and thereby became delinquent on this note payable.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

Mallard

 

The Company, as one of the parties entered into a Settlement Agreement and General Release (the “Agreement”) dated December 6, 2019 related to certain medical procedures. Without admitting any liability, and as part of that Agreement, the Company agreed to provide a five-year non-interest bearing unsecured promissory note, dated December 6, 2019, in the principal amount of $250,000, payable in monthly increments of $750 per month, with a final balloon payment of $205,000 due on January 1, 2025. The Company imputed an interest rate of 5% and discounted the note accordingly. The imputed debt discount of $51,063 is being amortized to interest expense using the effective interest method. Accordingly, the Company recognized Pre-litigation expense of $198,937. During the six months ended June 30, 2022, U.S. Stem Cell Clinic made five monthly payments of $750 (total of $3,750) on behalf of the Company. For the three and six months ended June 30, 2022, the Company amortized $2,491 and $4,928, respectively; and $2,382 and $4,711 during the three and six months ended June 30, 2021, respectively, of debt discount to interest expense. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $200,800 and $201,123, net of debt discount of $26,700 and $31,627, respectively.

 

Economic Injury Disaster Loan (EIDL)

 

On June 20, 2020, the Company executed the standard loan documents for an EIDL from the U.S. Small Business Administration in light of the impact of the COVID-19 pandemic on our business. Pursuant to that certain Loan Authorization and Agreement (the “SBA Loan Agreement”), the principal amount of the EIDL received was $150,000, with proceeds to be used for working capital purposes. Interest accrues at the rate of 3.75% per annum. Installment payments, including principal and interest, are due monthly beginning June 20, 2021 (twelve months from the date of the SBA Loan Agreement) in the amount of $731. On March 15, 2021, the initial payment date was extended 12 months to June 20, 2022. On March 15, 2022, the initial payment date was extended 6 months to December 20, 2022. The balance of principal and interest is payable thirty years from the date of the SBA Loan Agreement. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $150,000. At June 30, 2022 and December 31, 2021, accrued interest on the note was $200,800 and $201,123, respectively, and is included in accrued expenses on the accompanying balance sheet.

 

NOTE 7 PROMISSORY NOTE PAYABLE

 

On June 1, 2015, the Company issued an amended and restated promissory note of $1,697,762 in settlement of the $1,500,000 outstanding subordinated debt, related accrued interest of $373,469 and accumulated and unpaid guarantor fees of $624,737.

 

The note is unsecured and non-interest bearing and required four semi-annual payments of $75,000 beginning on December 31, 2015 with the remaining unpaid balance due June 1, 2020. On June 1, 2020, the Company defaulted on the promissory note. Upon default, the note became due in full and the Company began accruing interest at the default interest rate of 18%.

 

The Company imputed an interest rate of 5% and discounted the promissory note accordingly. The imputed debt discount of $368,615 was amortized to interest expense using the effective interest method. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $1,397,762. At June 30, 2022 and December 31, 2021, accrued interest on the note was $523,184 and $398,420, respectively, and is included in accrued expenses on the accompanying balance sheet.

 

NOTE 8 CONVERTIBLE NOTES PAYABLE

 

The Company adopted ASU 2020-06 in the first quarter of 2022 utilizing the modified retrospective method. As a result, the Company eliminated an aggregate of $241,589 of debt discount stemming from beneficial conversion features on convertible debt. Accordingly, the Company will not separately present in equity an embedded conversion feature in such debt.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

On February 5, 2020, the Company issued an unsecured convertible promissory note in the principal amount of $35,000 that matured on February 5, 2021 and bears interest at a rate of 5% per annum. The investor has the right to convert the outstanding balance of the note at any time into shares of common stock of the Company at a conversion price equal to a thirty percent (30%) discount of the average closing price of the Company’s common stock on the OTC Markets electronic exchange for the prior thirty (30) trading days prior to conversion, subject to adjustment. Upon the occurrence of an event of default, the investor may accelerate the note pursuant to which the outstanding balance will become, at the noteholder’s election, immediately due and payable. As a result of the beneficial conversion feature of the note, debt discount of $15,000 was recognized with a corresponding increase in additional paid-in capital. As of February 5, 2021, the maturity date, the note was in default. On July 30, 2021, the investor converted the full value of the note into 3,804,348 shares of the Company’s common stock, having a fair value of $50,000, resulting in a loss on conversion of $15,000. The agreement contains a provision that in the event the conversion right is exercised, then the Holder waives all outstanding interest. Accordingly, all outstanding accrued interest at the time of conversion was reversed. The debt discount was amortized to interest expense using the effective interest method. For the three and six months ended June 30, 2021, the Company amortized $0 and $1,874, respectively, of debt discount to interest expense. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $0. At June 30, 2022 and December 31, 2021, accrued interest on the note was $0.

 

On September 8, 2020, the Company issued an unsecured convertible promissory note in the principal amount of $10,000 that was due on demand and accrued interest at a rate of 5% per annum. The investor had the right to convert the outstanding balance of the note at any time into shares of common stock of the Company at a conversion price of $0.0467. Upon the occurrence of an event of default, the remaining principal and accrued interest become immediately due and payable, with interest accruing at 18% per annum on any unpaid amounts. On November 9, 2021, the investor converted the entire principal balance of $10,000 and accrued interest of $588 into 226,713 shares of the Company’s common stock. As the conversion was at a fixed conversion price, no gain or loss was recognized on conversion. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $0. As of June 30, 2022 and December 31, 2021, accrued interest on the note was $0.

 

From February 17, 2021 through February 26, 2021, the Company issued unsecured convertible promissory notes in the aggregate principal amount of $619,000 that matured 12 months after the respective issuance date. The notes are non-interest bearing and the investor has the right to convert the outstanding balance of the note at any time into shares of common stock of the Company at a conversion price of $0.0266. The agreements contain a provision that in the event the conversion right is exercised, then the Holder waives all outstanding interest. Upon the occurrence of an event of default, the remaining principal and accrued interest become immediately due and payable. As a result of the beneficial conversion feature of the notes, an aggregate of $521,850 of debt discount was recognized with a corresponding increase in additional paid-in capital. The debt discount was being amortized to interest expense using the effective interest method. On March 23, 2021, one of the holders, a related party, converted a convertible note with a face value of $200,000, dated February 26, 2021, into 7,518,797 shares of the Company’s common stock. Upon conversion, the remaining unamortized debt discount was expensed immediately. In addition, all outstanding accrued interest at the time of conversion was reversed. As the conversion was at a fixed conversion price, no gain or loss was recognized on conversion (See Note 9 and 12). During the three months ended March 31, 2022, the Company entered into addendums with certain holders owning an aggregate of $294,000 of the convertible notes whereby: for $214,000 of the convertible notes, the conversion price was changed from $0.0266 to $0.008, the maturity date was extended for two years and an aggregate of 53,400,000 common shares and five-year warrants to purchase 12,500,000 common shares at $0.008 per share were issued, having an aggregate fair value of $491,607; and for $80,000 of the convertible notes, the interest rate was changed from 0% to 12% and the maturity date was extended for one year. As a result of the changes in the conversion price and the interest rate, the addendums resulted in an extinguishment of $294,000 of the old debt in exchange for new debt with the same face value, having aggregate debt discount of $44,113, and different terms. Accordingly, a loss on debt extinguishment of $447,494 was recognized in the accompanying statements of operations. On March 11, 2022, one of the holders converted a convertible note with a face value of $25,000, dated February 26, 2021 (as amended on February 26, 2022), into 3,125,000 shares of the Company’s common stock. As the conversion was at a fixed conversion price, no gain or loss was recognized on conversion. During the three and six months ended June 30, 2022, $0 and $10,000, respectively, and for the three and six months ended June 30, 2021, $0 of convertible notes were repaid. As of June 30, 2022, $115,000 of convertible notes payable were in default. For the three and six months ended June 30, 2021, the Company amortized $11,887 and $12,342, respectively, and for the three and six months ended June 30, 2021, $18,289 and $23,541, respectively, of debt discount to interest expense. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the notes was $384,000 and 419,000, respectively.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

On March 24, 2021, the Company issued an unsecured convertible promissory note in the principal amount of $110,000 that matured 12 months after the issuance date. The note was non-interest bearing and the investor had the right to convert the outstanding balance of the note at any time into shares of common stock of the Company at a conversion price of $0.0070. The agreement contains a provision that in the event the conversion right is exercised, then the Holder waives all outstanding interest. Upon the occurrence of an event of default, the remaining principal and accrued interest become immediately due and payable. As a result of the beneficial conversion feature of the note, $110,000 of debt discount was recognized with a corresponding increase in additional paid-in capital. The debt discount was being amortized to interest expense using the effective interest method. On November 9, 2021, the holder converted the full value of the note into 15,741,286 shares of the Company’s common stock. Upon conversion, the remaining unamortized debt discount was expensed immediately. In addition, all outstanding accrued interest at the time of conversion was reversed. As the conversion was at a fixed conversion price, no gain or loss was recognized on conversion. For the three and six months ended June 30, 2021, the Company amortized $0 of debt discount to interest expense. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $0.

 

On June 20, 2021, the Company issued an unsecured convertible promissory note in the principal amount of $20,000 that matured 12 months after the issuance date. The note was non-interest bearing and the investor had the right to convert the outstanding balance of the note at any time into shares of common stock of the Company at a conversion price of $0.0125. The agreement contains a provision that in the event the conversion right is exercised, then the Holder waives all outstanding interest. Upon the occurrence of an event of default, the remaining principal and accrued interest become immediately due and payable. As a result of the beneficial conversion feature of the note, $2,400 of debt discount was recognized with a corresponding increase in additional paid-in capital. The debt discount was being amortized to interest expense using the effective interest method. On November 9, 2021, the holder converted the full value of the note into 1,600,000 shares of the Company’s common stock. Upon conversion, the remaining unamortized debt discount was expensed immediately. In addition, all outstanding accrued interest at the time of conversion was reversed. As the conversion was at a fixed conversion price, no gain or loss was recognized on conversion. For the three and six months ended June 30, 2021, the Company amortized $0 of debt discount to interest expense. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $0.

 

On October 29, 2021, the Company issued an unsecured convertible promissory note in the principal amount of $17,000 that matures 12 months after the issuance date. The note is non-interest bearing and the investor has the right to convert the outstanding balance of the note at any time into shares of common stock of the Company at a conversion price of $0.008. Upon the occurrence of an event of default, the remaining principal and accrued interest become immediately due and payable. As a result of the beneficial conversion feature of the note, $7,438 of debt discount was recognized with a corresponding increase in additional paid-in capital. The debt discount was being amortized to interest expense using the effective interest method. For the three and six months ended June 30, 2021, the Company amortized $0 of debt discount to interest expense. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $17,000.

 

On February 26, 2022, the Company issued an unsecured convertible promissory note in the principal amount of $27,000 that matures 24 months after the issuance date and 6,750,000 shares of common stock in exchange for proceeds of $27,000. The note is non-interest bearing and the investor has the right to convert the outstanding balance of the note at any time into shares of common stock of the Company at a conversion price of $0.008. The value ascribed to the common shares was $18,563, which was recognized as debt discount with a corresponding increase in additional paid-in capital. The debt discount is being amortized to interest expense using the effective interest method. For the three and six months ended June 30, 2022, the Company amortized $1,387 and $1843, respectively, of debt discount to interest expense. As of June 30, 2022, the remaining carrying value of the note was $10,281, net of debt discount of $16,720.

 

NOTE 9 RELATED PARTY TRANSACTIONS

 

Advances – Related Parties

 

As of June 30, 2022 and December 31, 2021, the Company’s officers and directors have provided advances that are unsecured, non-interest bearing and due on demand. During the six months ended June 30, 2022 and 2021, the Company received aggregate proceeds from advances $130,670 and $30,000, respectively. As of June 30, 2022 and December 31, 2021, the Company owed $1,082,102 and $951,432, respectively, for related party advances.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

Notes Payable – Related Parties

 

Northstar Biotechnology Group, LLC

 

On February 29, 2012, a promissory note issued to BlueCrest Master Fund Limited (“BlueCrest”) was assigned to Northstar Biotechnology Group, LLC (“Northstar”), owned partly by certain directors and existing shareholders of the Company at the time, including Dr. William P. Murphy Jr., Dr. Samuel Ahn and Charles Hart. At the date of the assignment, the principal amount of the BlueCrest note was $544,267 (the “Note”).

 

On March 30, 2012, the Company and Northstar agreed to extend until May 1, 2012 the initial payment date for any and all required monthly under the Note, such that the first of the four monthly payments required under the Note will be due and payable on May 1, 2012 and all subsequent payments will be due on a monthly basis thereafter commencing on June 1, 2012, and to waive any and all defaults and/or events of default under the Note with respect to such payments. The Company did not make the required payment, and as a result, was in default of the revised agreement. The Company renegotiated the terms of the Note and Northstar agreed to suspend the requirement of principal payments by the Company and allow payment of interest-only in common stock.

 

On September 21, 2012, the Company issued 5,000 common stock purchase warrants to Northstar that was treated as additional interest expense upon issuance.

 

On October 1, 2012, the Company and Northstar entered into a limited waiver and forbearance agreement providing a recapitalized new note balance comprised of all sums due Northstar with a maturity date extended perpetually. The Company agreed to issue 5,000,000 shares of Series A Convertible Preferred Stock and 10,000 shares of common stock in exchange for $210,000 as payment towards outstanding debt, default interest, penalties, professional fees outstanding and due Northstar. In addition, the Company executed a security agreement granting Northstar a lien on all patents, patent applications, trademarks, service marks, copyrights and intellectual property rights of any nature, as well as the results of all clinical trials, know-how for preparing Myoblasts, old and new clinical data, existing approved trials, all right and title to Myoblasts, clinical trial protocols and other property rights.

 

In addition, the Company granted Northstar a perpetual license on products as described for resale, relicensing, and commercialization outside the United States. In connection with the granted license, Northstar shall pay the Company a royalty of up to 8% on revenues generated.

 

Effective October 1, 2012, the interest rate was 12.85% per annum. The parties agreed, as of February 28, 2013, to reduce the interest rate to 7% per annum.

 

In connection with the consideration paid, Northstar waived, from the effective date through the earlier of termination or expiration of the agreement, satisfaction of the obligations as described in the forbearance agreement.

 

In 2012, 5,000,000 shares of Series A Convertible Preferred Stock were approved to be issued, which was subsequently increased to 20,000,000 shares of preferred stock as Series A Convertible Preferred Stock. In addition, the Company was obligated to issue additional preferred stock equal in lieu of payment of cash of accrued and unpaid interest on each six-month anniversary of the effective date (October 1, 2012). In lieu of the initial two payments in preferred stock, the parties agreed to modify the voting rights of the subsequently cancelled Series A Convertible Preferred Stock from 20 votes per share on matters to be voted on by the common stockholders to 25 votes per share on matters to be voted on by the common stockholders and all prior and subsequent payments of interest will be in common stock. The Company is required to issue additional shares of its common stock (as amended), in lieu of cash, each six-month anniversary of the effective date for any accrued and unpaid interest.

 

On September 30, 2013, the Company issued 8,772 shares of its common stock as payment of $100,000 towards principal.

 

On December 24, 2013, the Company issued 3,916 shares of its common stock as payment of accrued interest through June 30, 2013 of $85,447.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

On April 2, 2014, the Company issued 275 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,635 due April 1, 2014 per the forbearance agreement.

 

On September 17, 2014, the limited waiver and forbearance agreement entered into on October 1, 2012 to provide that the perpetual license on products as described for resale, relicensing and commercialization outside the United States was amended as such on the condition that Northstar provide certain financing, which financing the Company, in its sole discretion, could decline and retain the license.

 

On October 3, 2014, the Company issued 515 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705 due October 1, 2014 per the forbearance agreement.

 

On April 3, 2015, the Company issued 1,363 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,635 due April 1, 2015 per the forbearance agreement.

 

On October 2, 2015, the Company issued 4,156 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705 due October 1, 2015 per the forbearance agreement.

 

On October 7, 2015, the Company issued 34,522 shares of its common stock in settlement of $100,000 principal payment towards the outstanding debt.

 

On April 7, 2016, the Company issued 57,778 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705 due April 1, 2016 per the forbearance agreement.

 

On October 6, 2016, the Company issued 848,490 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705 due October 1, 2016 per the forbearance agreement.

 

On March 1, 2017, Northstar and the Company entered into a settlement agreement (“Settlement Agreement “) related to then pending litigation. Pursuant to the terms and conditions of the Settlement Agreement, Northstar converted its outstanding Series A Convertible preferred stock, into twenty million (20,000,000) shares of common stock according to the original conversion terms. In addition, and separate and apart from the conversion, Northstar received eleven million (11,000,000) shares of the Company’s common stock. Northstar will receive ten percent (10%) of all Company international sales (based on a gross sales basis). There was no effect of the 10% obligation as there were no international sales in 2017 or through 2019. Furthermore, a Northstar designee, Greg Knutson, was appointed as a member of the Board of Directors of the Company and two Company directors, Michael Tomas and Kristin Comella, each exercised their prior Northstar options to each receive a five percent (5%) member interest in Northstar. The parties agreed to a mutual release and Northstar agreed to terminate any UCC lien on the Company assets previously filed for the benefit of Northstar. On March 9, 2017 and April 1, 2017, the Company issued 30,000,000 and 1,000,000 shares of its common stock, respectively, as described above. In connection with the settlement, the Company recorded a loss on litigation settlement of $316,800.

 

On April 1, 2017, the Company issued 286,315 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,703.

 

On October 2, 2017, the Company issued 559,187 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $12,705.

 

On October 19, 2018, the Company issued 164,523 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $9,195.

 

On April 19, 2019, the Company issued 379,141 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $9,145.

 

On October 1, 2019, the Company issued 1,692,353 shares of its common stock in lieu of payment in cash of accrued and unpaid interest of $9,195.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

On April 1, 2020, the Company issued 1,445,647 shares of its common stock, having a fair value of $11,565, in lieu of payment in cash of accrued and unpaid interest of $9,145, resulting in a loss on settlement of $2,420.

 

On October 1, 2020, the Company issued 2,035,820 shares of its common stock, having a fair value of $10,179, in lieu of payment in cash of accrued and unpaid interest of $9,195, resulting in a loss on settlement of $984.

 

On April 1, 2021, the Company issued 187,575 shares of its common stock, having a fair value of $10,879, in lieu of payment in cash of accrued and unpaid interest of $9,145, resulting in a loss on settlement of $1,734.

 

On October 1, 2021, the Company issued 743,341 shares of its common stock, having a fair value of $8,921, in lieu of payment in cash of accrued and unpaid interest of $9,195, resulting in a gain on settlement of $274.

 

On April 5, 2022, the Company issued 1,121,154 shares of its common stock, having a fair value of $9,866, in lieu of payment in cash of accrued and unpaid interest of $9,144, resulting in a loss on settlement of $722.

 

As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $262,000. At June 30, 2022 and December 31, 2021, accrued interest on the note was $8,700 and $8,751, respectively, and is included in accrued expenses on the accompanying balance sheet.

 

Notes Payable - Mr. Tomas, President and Chief Executive Officer

 

On August 7, 2017, the Company issued a $500,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due one year from date of issuance. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $161,786.

 

On May 7, 2018, the Company issued a $500,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due six months from date of issuance. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $500,000.

 

On July 1, 2019, the Company issued a $500,000 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due November 7, 2019. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $500,000.

 

On December 31, 2019, the Company issued a $178,077 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due on demand. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $178,077.

 

On March 31, 2020, the Company issued a $187,500 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due on demand. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $187,500.

 

On June 30, 2020, the Company issued a $187,500 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due on demand. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $187,500.

 

On July 1, 2020, the Company issued a $500,000 promissory note as payment of an annual bonus awarded. The promissory note bears interest of 5% per annum and is due on demand. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $500,000.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

On June 30, 2021, the Company issued a $100,962 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due on demand. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $100,962.

 

On December 31, 2021, the Company issued a $143,654 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due on demand. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $143,654.

 

On March 31, 2021, the Company issued a $90,990 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due on demand. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $90,990.

 

On June 30, 2021, the Company issued a $43,269 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due on demand. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $43,269.

 

On June 30, 2022, the Company issued a $187,500 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due on demand. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $187,500.

 

On December 31, 2021, the Company issued a $100,962 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due on demand. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $100,962.

 

On March 31, 2022, the Company issued a $187,500 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due on demand. As of June 30, 2022, the remaining carrying value of the note was $187,500.

 

On June 30, 2022, the Company issued a $187,500 promissory note in exchange for compensation earned. The promissory note bears interest of 5% per annum and is due on demand. As of June 30, 2022, the remaining carrying value of the note was $187,500.

 

At June 30, 2022 and December 31, 2021, accrued interest on the notes was $686,123 and $612,323, respectively, and is included in accrued expenses on the accompanying balance sheet.

 

   

June 30,

   

December 31,

 
   

2022

   

2021

 

Northstar

  $ 262,000     $ 262,000  

Note payable, Mr. Tomas

    161,786       161,786  

Note payable, Mr. Tomas

    500,000       500,000  

Note payable, Mr. Tomas

    500,000       500,000  

Note payable, Mr. Tomas

    178,077       178,077  

Note payable, Mr. Tomas

    187,500       187,500  

Note payable, Mr. Tomas

    187,500       187,500  

Note payable, Mr. Tomas

    500,000       500,000  

Note payable, Mr. Tomas

    100,962       100,962  

Note payable, Mr. Tomas

    143,654       143,654  

Note payable, Mr. Tomas

    90,990       90,990  

Note payable, Mr. Tomas

    43,269       43,269  

Note payable, Mr. Tomas

    187,500       187,500  

Note payable, Mr. Tomas

    100,962       100,962  

Note payable, Mr. Tomas

    187,500       -  

Note payable, Mr. Tomas

    187,500       -  

Total notes payable - related parties

  $ 3,519,200     $ 3,144,200  

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

Note Payable - William P. Murphy Jr., M.D

 

On February 26, 2021, Dr. Murphy purchased an unsecured convertible promissory note in the aggregate principal amount of $200,000 maturing 12 months after the issuance date. The note was non-interest bearing and Dr. Murphy had the right to convert the outstanding balance of the note at any time into shares of common stock of the Company at a conversion price of $0.0266. On March 23, 2021, Dr Murphy converted the full value of the note into 7,518,797 shares of the Company’s common stock (See Note 8 and Note 12).

 

NOTE 10 FAIR VALUE MEASUREMENT

 

The Company adopted the provisions of ASC 825-10. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of non-performance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

 

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

 

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

 

 

Level 3 – Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

 

All items required to be recorded or measured on a recurring basis are based upon Level 3 inputs.

 

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

 

As of June 30, 2022 and December 31, 2021, the Company did not have any items that would be classified as level 1, 2 or 3 disclosures.

 

As of June 30, 2022 and December 31, 2021, the Company did not have any derivative instruments that were designated as hedges.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

NOTE 11 COMMITMENTS AND CONTINGENCIES

 

Leases

 

In October 2019, the Company relocated to a new location within the same city and entered into a month-to-month lease. During the three and six months ended June 30, 2022 and 2021, lease expense was comprised of the following:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Operating lease expense

  $ 1,702     $ 1,001     $ 3,136     $ 2,433  

Total lease expense

  $ 1,702     $ 1,001     $ 3,136     $ 2,433  

 

Royalty Agreement / Middle East

 

On November 9, 2016, the Company entered into an Intellectual Property License Agreement whereby the Company granted High Rise Group Company the exclusive right to the Company’s intellectual property (as defined) for the licensed use and development in Kuwait and other GCC/Middle East countries for 25 years in exchange for a payment of $75,000 and a 5% royalty generated under the agreement. The licensing agreement is recorded as contract liabilities and amortized over the term of the agreement. The carrying balance as of June 30, 2022 and December 31, 2021 was $58,000 and $59,500, respectively.

 

The intent is for U.S. Stem Cell Middle East to offer regenerative treatment options to patients, based on U.S. Stem Cell, Inc. products and technologies like MyoCell™. To date, the first clinic in Kuwait City has been completed but has not begun operations as High Rising Group has not yet been able to secure regulatory approvals to operate.

 

Litigation

 

On September 17, 2015, a product liability lawsuit was filed in Broward County, specifically Patsy Bade v. Bioheart, Inc. US Stem Cell Clinics LLC, Alejandro Perez, ARNP, and Shareen Greenbaum, M.D., and on November 30, 2015, a product liability lawsuit was filed in Broward County, specifically Elizabeth Noble v. Bioheart, Inc. US Stem Cell Clinics LLC, Alejandro Perez, ARNP, and Shareen Greenbaum, M.D. During the year ended December 31, 2016, both matters settled by the Company’s insurance policy with no additional cost to the Company, except for the obligation to pay the insurance company deductible of $100,000, of which $11,000 was paid in fiscal 2017. The remaining amount due under this settlement is $25,810 and $26,600 as of June 30, 2022 and December 31, 2021, respectively, and is included in accounts payable.

 

On July 27, 2020, Brenda Leonhardt filed a lawsuit against U.S. Stem Cell, Inc., Mike Tomas, Dr. William P. Murphy, Jr., Richard T. Spencer, III, Mark Borman, Dr. Samuel S. Ahn, Charles Hart, Sheldon T. Anderson, Greg Knutson, and Kristin Comella in Broward County Court, Case No. CACE-10-012095. The lawsuit alleges breach of a settlement agreement, breach of contract with respect to failure to make a balloon payment under a promissory note, and several tort theories such as misrepresentation and fraudulent transfer. The Company denies most of the allegations in the lawsuit and moved to dismiss almost all of the claims. The motions to dismiss was recently denied. U.S. Stem Cell, Inc. does note that it provided a promissory note to Ms. Leonhardt, which has not been fully satisfied. The stated due date of the promissory note was June 1, 2020 in the amount of $1,397,762.

 

The Company, as one of the parties entered into a Settlement Agreement and General Release (the “Agreement”) dated June 3, 2019 related to certain medical procedures. Without admitting any liability, and as part of that Agreement, the Company agreed to provide a five-year 5.25% unsecured promissory note, dated June 15, 2019, in the principal amount of $500,000, payable in monthly increments of $5,000 per month, with a final balloon payment due on June 15, 2024. Accordingly, the Company recognized Pre-litigation expense of $500,000. As of June 30, 2022 and December 31, 2021, the remaining carrying value of the note was $403,621 and $413,239, respectively. As of June 30, 2022, the Company is delinquent four payments and, if not cured, would be considered in default of the promissory note underlying the Agreement.

 

On February 10, 2021, as part of a settlement agreement, the Company transferred its entire member interest in U.S. Stem Cell Clinic, LLC to Dr. Kristin Comella as settlement for $100,000 of accrued interest owed to Dr. Comella (See Note 4, 5 and 6).

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

The Company is subject at times to other legal proceedings and claims, which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity. There was no outstanding litigation as of June 30, 2022 other than that described above.

 

Government Claim

 

On May 9, 2018, the U.S. Department of Justice filed an injunctive action, specifically United States of America v. U.S. Stem Clinic, LLC, U.S. Stem Cell, Inc., Kristin C. Comella, and Theodore Gradel. The Complaint alleges, among other matters that the defendants manufacture “stromal vascular fraction” (SVF) products from patient adipose (fat) tissue, which the companies then market as stem cell-based treatments, and which U.S. Stem Cell Clinic, LLC administers to patients, without first obtaining what the government alleges are necessary FDA approvals. Although Theodore Gradel was initially listed as a defendant, he subsequently entered into a consent agreement and is no longer party to this case.

 

The U.S. and the defendants filed cross motions for summary judgment, each asking for a ruling in its favor. On June 3, 2019, the Court entered an order granting Summary Judgment for the government and denying the defendants’ motion for summary judgment. The order focused on the defendants’ actions in providing and marketing SVF therapy. In an order dated June 4, 2019, the Court granted the defendants’ request to allow it the opportunity to work out the language of the form of injunction with the government, and if unsuccessful, to provide a status report to the Court by June 14, 2019, outlining areas of disagreement. The Court further ordered that the defendants (U.S. Stem Clinic, LLC, U.S. Stem Cell, Inc., and Kristin C. Comella) ‘not sell, provide or otherwise engage in any SVF therapy or any other activities to be regulated by the FDA as explained in the Court’s Order on the Parties’ Motions for Summary Judgment.” On June 25, 2019, the Court entered an Order of Permanent Injunction, generally enjoining the defendants with respect to the SVF Product and requiring other actions. The Company filed an appeal on August 23, 2019 and attended oral argument on January 13, 2021. On June 2, 2021, the Eleventh Circuit Court ruled to affirm lower courts’ judgement. The Company is not able to predict the duration, scope, results, or consequences of the U.S. Department of Justice actions and final rulings and management is assessing its options on a going forward basis. The Company, in having divested certain equipment and other assets and assigning its lease, has and will continue to experience a decrease in revenues as the Company both maintains the remainder of the business and transitions into similar or unrelated business opportunities as determined by management. However, management is not able to predict the duration, scope, results, or consequences of the summary judgment and any transition of the business plan.

 

After the Court’s issuance of the Order of Permanent Injunction, the Company has received demand letters for compensation from persons who store their SVF Product and/or other tissue product with the tissue bank (several of the persons have requested refunds of the monies paid to the tissue bank and one person has requested a full refund of monies paid to an altogether separate company due to her not receiving the full amount of treatments she requested; such requests for compensation, to date, have not been material) and requests that the Company preserve cells in the Company’s possession. The Company sought guidance from the Court, which entered an order generally staying the requirement to destroy any SVF Product, pending a decision on the Company’s appeal. However, that appeal has now been concluded and the stay order is no longer in place.

 

NOTE 12 STOCKHOLDERS DEFICIT

 

Adjustment to Opening Balances Upon Adoption of ASU 2020-06

 

Upon adoption of ASU 2020-06 during the first quarter of 2022, the Company adjusted its beginning balance sheet with a decrease in additional paid-in capital of $384,174, offset by a decrease in debt discount on convertible debt of $241,589 and an increase in accumulated deficit of $142,585.

 

Common Stock

 

During the six months ended June 30, 2022, the Company issued an aggregate of 4,556,076 shares of its common stock, having a fair value of $38,532, in settlement of outstanding accounts payable of $40,000. In connection with the issuances, the Company incurred a $1,468 net gain on settlement.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

During the six months ended June 30, 2022, the Company issued an aggregate of 1,121,154 shares of its common stock, having a fair value of $9,866, in lieu of accrued interest of $9,144. In connection with the issuances, the Company incurred a $722 net loss on settlement.

 

On February 24, 2022, the Company issued an aggregate of 20,000,000 shares of its common stock, having a fair value of $140,000, for services to be rendered, which are being amortized to expense over the term of the agreement of 180 days.

 

During the three months ended March 31, 2022, the Company entered into addendums with certain holders owning an aggregate of $214,000 of the convertible notes whereby the conversion price was changed from $0.0266 to $0.008, the maturity date was extended for two years and an aggregate of 53,400,000 commons shares and five-year warrants to purchase 12,500,000 common shares at $0.008 per share were issued, having an aggregate fair value of $491,607. As a result of the changes in the conversion price and the interest rate, the addendums resulted in an extinguishment of $294,000 of the old debt in exchange for new debt with the same face value, having aggregate debt discount of $44,113, and different terms. Accordingly, a loss on debt extinguishment of $447,494 was recognized in the accompanying statements of operations.

 

On February 26, 2022, the Company issued an unsecured convertible promissory note in the principal amount of $27,000 that matures 24 months after the issuance date and 6,750,000 shares of common stock in exchange for proceeds of $27,000. The value ascribed to the common shares was $18,563, which was recognized as debt discount with a corresponding increase in additional paid-in capital.

 

On March 23, 2022, a convertible note with a face value of $25,000, having a net book value of $25,000 at the date of conversion, was converted into 3,125,000 shares of the Company’s common stock. As the conversion was at a fixed conversion price, no gain or loss was recognized on conversion (See Note 8).

 

On September 10, 2021, the Company filing of an Offering Circular on Form 1-A, pursuant to Regulation A (File Number: 024-11617) was qualified by the Securities and Exchange Commission. The Company registered 250,000,000 shares of common stock for maximum proceeds of $2,500,000 (before deducting the maximum broker discount and costs of the offering). During the six months ended June 30, 2022, the Company issued an aggregate of 5,625,000 shares of common stock to investors for cash proceeds of $35,000, net of fees and commission, pursuant to the Offering Circular.

 

Stock Options

 

On April 1, 2013, the Board of Directors approved, subject to subsequently received stockholder approval, the establishment of the Bioheart 2013 Omnibus Equity Compensation Plan, or the “2013 Omnibus Plan” (replacing the 1999 Officers and Employees Stock Option Plan, or the Employee Plan, and the 1999 Directors and Consultants Stock Option Plan). The 2013 Omnibus Plan initially reserved up to fifty thousand (50,000) shares of common stock for issuance. On August 4, 2014, the Board of Directors approved to set the reserve to one hundred thousand (100,000) shares of common stock for issuance and to close the 1999 Officers and Employees Stock Option Plan. On February 2, 2015, at the annual meeting of stockholders, the 2013 Omnibus Equity Compensation Plan was approved.

 

On November 2, 2015, the Company increased the shares reserved under the 2013 Omnibus Plan to five hundred million (500,000,000) shares of common stock for issuance. Effective September 16, 2016, the Company approved an additional twenty five million (25,000,000) shares of common stock to the reserve; effective April 21, 2017, the Company approved an additional twenty five million (25,000,000) shares of common stock to the reserve; effective August 7, 2017, the Company approved an additional thirty million (30,000,000) shares of common stock to the reserve; and effective May 7, 2018, the Company approved an additional one hundred million (100,000,000) shares of common stock to reserve.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

A summary of the stock option activity for the six months ended June 30, 2022 is as follows:

 

           

Weighted

   

Weighted

         
           

Average

   

Average

         
   

Number of

   

Exercise

   

Remaining Life

   

Intrinsic

 
   

Options

   

Price

   

In Years

   

Value

 

Outstanding, December 31, 2021

    110,643,884     $ 0.0247       6.3     $ 36,686  

Granted

    -                          

Exercised

    -                          

Forfeited/Expired

    (500 )   $ 0.1540                  

Outstanding, June 30, 2022

    110,643,384     $ 0.0247       5.8     $ 19,966  
                                 

Exercisable, June 30, 2022

    98,490,884     $ 0.0270       5.6     $ 19,582  

 

Options Outstanding

   

Options Exercisable

 
             

Weighted

   

Weighted

           

Weighted

 
     

Outstanding

   

Average

   

Average

   

Exercisable

   

Average

 

Exercise

   

Number of

   

Exercise

   

Remaining Life

   

Number of

   

Exercise

 

Price

   

Options

   

Price

   

In Years

   

Options

   

Price

 
                                           

$0.004 to $0.010

      41,800,000     $ 0.0051       6.5       30,150,000     $ 0.0050  

$0.011 to $0.020

      16,250,000     $ 0.0196       4.2       16,250,000     $ 0.0196  

$0.021 to $0.030

      9,510,000     $ 0.0252       6.4       9,007,500     $ 0.0252  
$0.0363       22,635,000     $ 0.0363       5.1       22,635,000     $ 0.0363  
$0.0536       20,000,000     $ 0.0536       5.9       20,000,000     $ 0.0536  
$0.1540       448,384     $ 0.1540       3.3       448,384     $ 0.1540  
        110,643,384     $ 0.0247       5.8       98,490,884     $ 0.0270  

 

The aggregate intrinsic value of outstanding stock options was $19,966, based on options with an exercise price less than the Company’s stock price of $0.0056 as of June 30, 2022, which would have been received by the option holders had those option holders exercised their options as of that date.

 

The fair value of all options that vested during the six months ended June 30, 2022 and 2021 was $116,427 and $315,724, respectively. As of June 30, 2022, the Company had $40,862 of total unrecognized compensation cost related to non-vested awards granted under the 2013 Omnibus Plan, which the Company expects to recognize over a weighted average period of 0.70 years.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

Warrants

 

A summary of the warrant activity for the six months ended June 30, 2022 is as follows:

 

                   

Weighted

         
           

Weighted

   

Average

         
           

Average

   

Remaining

         
   

Number of

   

Exercise

   

Life

   

Intrinsic

 
   

Warrants

   

Price

   

In Years

   

Value

 

Outstanding, December 31, 2021

    1,103,127     $ 12.41       6.2     $ -  

Granted

    12,500,000       0.008                  

Exercised

    -                          

Expired

    -                          

Outstanding, June 30, 2022

    13,603,127     $ 1.01       4.8     $ -  
                                 

Exercisable, June 30, 2022

    13,601,582     $ 0.14       4.8     $ -  

 

Warrants Outstanding

   

Warrants Exercisable

 
             

Weighted

   

Weighted

           

Weighted

 
     

Outstanding

   

Average

   

Average

   

Exercisable

   

Average

 

Exercise

   

Number of

   

Exercise

   

Remaining Life

   

Number of

   

Exercise

 

Price

   

Warrants

   

Price

   

In Years

   

Warrants

   

Price

 
                                           

$0.008 to $0.03

      13,500,000     $ 0.01       4.8       13,500,000     $ 0.01  

$10.00 to $20.00

      81,036     $ 15.29       1.0       81,036     $ 15.29  

$20.01 to $30.00

      19,543     $ 25.06       1.7       19,543     $ 25.06  
$49.86       1,003     $ 49.86       1.7       1,003     $ 49.86  
$7,690.00       1,545     $ 7,690.00       4.5       -     $ 7,690.00  
        13,603,127     $ 1.01       4.8       13,601,582     $ 0.14  

 

The aggregate intrinsic value of the issued and exercisable warrants of $0 represents the total pretax intrinsic value, based on warrants with an exercise price less than the Company’s stock price of $0.0056 as of June 30, 2022, which would have been received by the warrant holders had those warrants holders exercised their warrants as of that date.

 

NOTE 13 CONCENTRATIONS

 

Concentrations of Credit Risk

 

The Company’s financial instruments that are exposed to a concentration of credit risk are cash and accounts receivable. Generally, the Company’s cash and cash equivalents in interest-bearing accounts does not exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.

 

 

U.S. STEM CELL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2022

(unaudited)

 

Concentrations of Revenues

 

For the three and six months ended June 30, 2022 and 2021, the following customers accounted for more than 10% of the Company’s net revenues:

 

   

For the Three Months

Ended June 30,

   

For the Six Months

Ended June 30,

 
   

2022

   

2021

   

2022

   

2021

 

Customer 1

    22 %     21 %     14 %     11 %

Customer 2

    15 %     11 %     -       -  

Customer 3

    14 %     -       12 %     -  

Customer 4

    11 %     -       14 %     -  

Customer 5

    -       17 %     -       -  

Customer 6

    -       10 %     -       -  

Customer 7

    -       -       -       33 %

Totals

    62 %     59 %     40 %     44 %

 

Concentrations of Accounts Receivable

 

As of June 30, 2022 and December 31, 2021, the following customers represented more than 10% of the Company’s accounts receivable:

 

   

June 30,

   

December 31,

 
   

2022

   

2021

 

Customer 1

    90 %     98 %

Totals

    90 %     98 %

 

NOTE 14 SUBSEQUENT EVENTS

 

None.

 

 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

Unless otherwise indicated, references in this Quarterly Report on Form 10-Q to we, us, and our are to the Company, unless the context requires otherwise. The following discussion and analysis by our management of our financial condition and results of operations should be read in conjunction with our unaudited condensed interim financial statements and the accompanying related notes included in this quarterly report and our audited financial statements and related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K and form 10-K/A for the year ended December 31, 2021 filed with the Securities and Exchange Commission.

 

Cautionary Statement Regarding Forward-Looking Statements

 

This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act, and we intend that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Any such forward-looking statements would be contained principally in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.” Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities and the effects of regulation. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.

 

This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act, and we intend that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Any such forward-looking statements would be contained principally in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.” Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities and the effects of regulation. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.

 

Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in greater detail in “Risk Factors.” Risk factors include, but are not limited to, the economic effects of the pandemic, the promptness of distribution of vaccines, domestically and internationally to limit the impact of COVID-19, and the short and long term economic impact of COVID-19 on the marketplace, as well as the effect of inflation and a possible economic recession,. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits to the report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

 

Additional information concerning these, and other risks and uncertainties is contained in our filings with the Securities and Exchange Commission, including the section entitled “Risk Factors” in our Annual Report on Form 10-K and Form 10K/A for the year ended December 31, 2021.

 

Unless otherwise indicated or the context otherwise requires, all references in this Form 10-Q to “we,” “us,” “our,” “our company,” “U. S. Stem Cell, Inc.” or the “Company” refer to U.S. Stem Cell, Inc. and its subsidiaries.

 

 

Our Ability to Continue as a Going Concern

 

Our independent registered public accounting firm has issued its report dated March 31, 2022, in connection with the audit of our annual financial statements as of December 31, 2021, that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern and Note 2 to the unaudited financial statements for the period ended June 30, 2022 also describes the existence of conditions that raise substantial doubt about our ability to continue as a going concern.

 

On July 8, 2022, we modified Item 9A. Controls and Procedures of our Annual Report on Form 10-K to reflect the material weaknesses in our disclosure controls and procedures, addressing the tenants of the Committee of Sponsoring Organizations (establishing the framework for control environment, risk assessment, information and communication, monitoring activities, and existing control activities for internal control and procedures) See Part I, Item 4.

 

Overview

 

We are an enterprise in the regenerative medicine/cellular therapy industry. Our prior focus was on the discovery, development, and commercialization of cell based therapeutics. Our business included the development of proprietary cell therapy products as well as revenue generating physician and patient based regenerative medicine/cell therapy training services,

 

US Stem Cell Training, Inc. (“SCT”), an operating division of our company, is a content developer of regenerative medicine/cell therapy informational and training materials for physicians and patients. SCT also provides in-person and online training courses which are delivered through in-person presentations at SCT’s state of the art facilities and globally at university, hospital and physician’s office locations as well as through online webinars. Additionally, SCT provides hands-on clinical application training for physicians and health care professionals interested in providing regenerative medicine / cell therapy procedures.

 

Vet biologics, (“VBI”), an operating division of our company, is a veterinary regenerative medicine company committed to providing veterinarians with the ability to deliver the highest quality regenerative medicine therapies to dogs, cats and horses. VBI provides veterinarians with extensive regenerative medicine capabilities including the ability to isolate regenerative stem cells from a patient’s own adipose (fat) tissue directly on-site within their own clinic or stall-side.

 

We also hold a 49% Member Interest in US Stem Cell Clinic of the Villages, LLC. US Stem Cell Clinic of the Villages, LLC is currently dormant.

 

Our comprehensive map of products and services:

 

As of June 30, 2022 and as of the date of this filing:

usstem_chart1.jpg

 

Our mission is to advance to market novel regenerative medicine and cellular therapy products that substantially benefit humankind. Our business strategy is, to the extent possible, finance our clinical development pipeline through revenue (cash in-flows) generated through the marketing and sales of unique educational and training services, animal health products and personalized cellular therapeutic treatments. Accordingly, we have developed a multifaceted portfolio of revenue generating products and services in our US Stem Cell Training, Vetbiologics, operating divisions that will, if successful, financially support its clinical development programs. Our goal is to maximize shareholder value through the generation of short-term profits that increase cash in-flows and decrease the need for venture financings – a modern biotechnology company development strategy.

 

Today, our company is a combination of opportunistic business enterprises. What we are establishing is a foundation of value in the products and services we are and plan to sell from US Stem Cell Training and Vetbiologics. Our strategy is to expand the revenues generated from each of these operating divisions and to reinvest the profits we generate into our clinical development pipeline.

 

On November 9, 2016, we executed a Commercial Agency Agreement with High Rising Group Company (General Trading and Construction) and subsequently, on February 10, 2017, we authorized High Rising Group Company as an independent contractor and Licensee for our company for the territories of Kuwait and the Middle East (expressly excluding prohibited countries pursuant to the Patriot Act and The Iran Threat Reduction and Syria Human Rights Act of 2012). The intent of the agreement is for High Rising Group Company to establish clinics specializing in regenerative medicine, stem cell treatment and therapy, including stem cell bank, training, and all related stem cell machines and equipment. To date, the first clinic in Kuwait City has been completed but has not begun operations as High Rising Group has not yet been able to secure regulatory approvals to operate. With the ongoing construction of the The Sheikha Salwa Sabah Al-Ahmad Center for Stem Cell and Umbilical Cord, a public/private partnership with the government of Kuwait, (see http://news.kuwaittimes.net/website/stem-cell-center-epitomizes-ppp which is expressly not incorporated by reference to this filing), management hopes (but cannot guarantee) that private sector stem cell centers, as described above, will get regulatory approval.

 

We will continue to evaluate and act upon opportunities to increase our top line revenue position and that correspondingly increase cash in-flows. These opportunities include but are not limited to the development and marketing of new products and services, mergers and acquisitions, joint ventures, licensing deals and more.