Overview

H-CYTE, Inc ("the Company") is a hybrid-biopharmaceutical company dedicated to
developing and delivering new treatments for patients with chronic respiratory
and pulmonary disorders. During the last two years, the Company has evolved into
two separate divisions with its entrance into the biologics and device
development space ("Biotech Division"). This division is complementary to the
Company's current Lung Health Institute (LHI) autologous infusion therapy
business ("Infusion Division") and is focused on underserved disease states. On
September 8, 2021, the Company announced that its Lung Health Institute
facilities changed their names to Centers for Respiratory Health as the clinics
continue to deliver treatments for patients with chronic respiratory and
pulmonary disorders.



The consolidated results for H-CYTE include the following wholly-owned
subsidiaries: H-CYTE Management, LLC, Medovex Corp, Cognitive Health Institute,
LLC, and Lung Institute Tampa, LLC and the results include Lung Institute
Dallas, PLLC ("LI Dallas"), Lung Institute Nashville, PLLC ("LI Nashville"),
Lung Institute Pittsburgh, PLLC ("LI Pittsburgh"), and Lung Institute
Scottsdale, LLC ("LI Scottsdale"), as Variable Interest Entities ("VIEs").
Additionally, H-CYTE Management, LLC is the operator and manager of the various
Lung Health Institute (LHI) clinics: LI Dallas, LI Nashville, LI Pittsburgh, and
LI Scottsdale. The LI Dallas and LI Pittsburgh clinics did not reopen in 2020
after the temporary closure of all LI clinics due to COVID-19. These two clinics
will remain permanently closed. During the first quarter of 2022, the Company
decided to close the LI Tampa and LI Nashville clinics, the LI Scottsdale clinic
will remain open.




On September 11, 2020, with the closing of the Rights Offering, FWHC, LLC, FWHC
Bridge, LLC, and FWHC Bridge Friends, LLC (collectively known as "FWHC") gained
control of the Company by subsequently owning approximately 61% of the fully
diluted shares of the Company (for further discussion, see Notes 8 and 9-"Equity
Transactions" to the consolidated financial statements in the Company's 2020
Annual Report on Form 10-K).

The Company continues its efforts related to the development and commercialization of the DenerveX device outside of the U.S. As of and for the years ended December 31, 2021 and 2020, there has been no material activity.





Impact of COVID-19



COVID-19 has adversely affected the Company's financial condition and results of
operations. The impact of the COVID-19 outbreak on businesses and the economy in
the United States is expected to continue to be significant. The extent to which
the COVID-19 outbreak will continue to impact businesses and the economy is
highly uncertain. Accordingly, the Company cannot predict the extent to which
its financial condition and results of operation will be affected.



On January 30, 2020, the World Health Organization ("WHO") announced a global
health emergency caused by a new strain of the coronavirus and advised of the
risks to the international community as the virus spread globally. In March
2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid
increase in exposure globally. The spread of COVID-19 coronavirus has caused
public health officials to recommend precautions to mitigate the spread of the
virus, especially as to travel and congregating in large numbers. In addition,
certain states and municipalities have enacted quarantining regulations which
severely limit the ability of people to move and travel.



In addition, the Company is uncertain of the full effect the pandemic will have
on it for the longer term since the scope and duration of the pandemic is
unknown, and evolving factors such as the level and timing of the distribution
of efficacious vaccines across the world and the extent of any resurgences of
the virus or emergence of new variants of the virus, such as the Delta variant
and the Omicron variant, will impact the stability of economic recovery and
growth. The Company may experience long-term disruptions to its operations
resulting from changes in government policy or guidance; quarantines of
employees, customers and suppliers in areas affected by the pandemic; and
closures of businesses or manufacturing facilities critical to its business.



                             RESULTS OF OPERATIONS

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020





The following table sets forth certain operational data including their
respective percentages of revenues for the years ended December 31, 2021 and
2020:



                                  H-Cyte, Inc

                            Statement of Operations



                                       2021              2020             Change         Change %
Revenues                           $   1,611,518     $   2,150,672     $   (539,154 )           -25 %

Gross Profit                             906,813         1,383,715         (476,902 )           -34 %

Operating Expenses                     6,192,417         8,476,059       (2,283,642 )           -27 %

Operating Loss                        (5,285,604 )      (7,092,344 )      1,806,740              25 %

Other Income                             486,297           633,108         (146,811 )           -23 %

Net Loss                           $  (4,799,307 )   $  (6,459,236 )   $  1,659,929              26 %

Net Loss attributable to common
stockholders                       $  (4,799,307 )   $  (6,781,411 )   $  1,982,104              29 %

Loss per share - Basic and
diluted                            $       (0.03 )   $       (0.06 )

Weighted average outstanding
shares - basic and diluted           145,736,785       111,491,261




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Revenue and Gross Profit



Revenue is derived predominantly from the Company's Infusion Division, which
resulted in revenue, net of allowance for refunds, for the years ended December
31, 2021 and 2020, of approximately $1,612,000 and $2,151,000, respectively. The
decrease in revenue for the year ended December 31, 2021, as compared to the
prior year is attributable to the effect that COVID-19 continues to have on the
Company's vulnerable patient base, sufferers of chronic lung disorders. Due to
the disruption caused by COVID-19, the Company did not reopen the Dallas and
Pittsburgh clinics after they were closed in March 2020.



For the years ended December 31, 2021 and 2020, the Company generated a gross
profit totaling approximately $907,000 (56% of revenue) and $1,384,000 (64% of
revenue), respectively. The gross profit percentage decreased in 2021 compared
to 2020 due to the Company using higher priced part-time medical staff to treat
its patients.



Salaries and Related Costs



For the years ended December 31, 2021 and 2020, the Company incurred
approximately $2,214,000 and $3,199,000, respectively, in salaries and related
costs. The Company adjusted its corporate structure in 2021 in which it reduced
headcount in marketing, sales, and operations. This led to lower salaries and
related costs of approximately $985,000 in 2021 compared to 2020.

Other General and Administrative





For the years ended December 31, 2021 and 2020, the Company incurred
approximately $2,698,000 and $4,125,000, respectively, in other general and
administrative costs. The decrease is attributable to cost saving measures in
response to the COVID-19 pandemic. The Company made adjustments to its corporate
structure by reducing expenses in marketing, sales, and operations due to
decreased patient volume. The Company also closed the Dallas and Pittsburgh
clinics permanently in 2020 and reduced the Tampa and Scottsdale clinics to

part-time in 2021.



Other Income (Expense)



For the years ended December 31, 2021 and 2020, interest expense was
approximately $177,000 and $1,463,000, respectively. The decrease is related to
debt and warrants attached to convertible debt outstanding during the year ended
December 31, 2020 that were not applicable to 2021.



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The changes in fair value of redemption put liability and fair value of the derivative liability - warrants for the year ended December 31, 2020, were approximately $273,000 and $2,987,000, respectively, and were a result of the change in fair value at the end of the reporting period (see Note 1).

Liquidity, Sources of Liquidity, and Going Concern

The Company had approximately $95,000 and $1,641,000 of cash on hand at December 31, 2021 and 2020, respectively.


The Company incurred net losses of approximately $4,799,000 and $6,459,000 for
the years ended December 31, 2021 and 2020, respectively. The Company has
historically incurred losses from operations and expects to continue to generate
negative cash flows as the Company's revenue activities are curtailed and as the
Company implements its business plan. The consolidated financial statements are
prepared using generally accepted accounting principles in the United States
("U.S. GAAP") as applicable to a going concern.



COVID-19 has adversely affected the Company's financial condition and results of
operations. The impact of the outbreak of COVID-19 on the economy in the U.S.
and the rest of the world is expected to continue to be significant. The extent
to which the COVID-19 outbreak will continue to impact the economy is highly
uncertain and cannot be predicted. Accordingly, the Company cannot predict the
extent to which its financial condition and results of operations will be
affected.



Although cost reduction measures have been taken, the present level of cash is
insufficient to satisfy the Company's current operating requirements. The
Company is seeking additional sources of funds from the sale of equity or debt
securities or through a credit facility.



There can be no assurance that the Company will be able to raise additional
funds or that the terms and conditions of any future financings will be
acceptable to the Company or its shareholders. In the event the Company is
unable to fund its operations from existing cash on hand, operating cash flows,
additional borrowings, or raising equity capital, there is substantial doubt
about the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.



In January 2022, the Company offered certain warrant holders the opportunity to
receive an additional warrant to purchase the Company's Common Stock at $0.014
per share, for a period of five (5) years from issuance for the exercise of each
existing warrant originally issued in April 2020 prior to March 31, 2021. As of
February 23, 2022, the Company had ten warrant holders exercise an aggregate of
75,257,511 warrants at $0.014 per share resulting in cash proceeds of $1,053,605
to the Company.



The Company filed a Registration Statement on Form S-1 registering the resale of
the shares of common stock issuable upon exercise of the warrants issued in the
April 2020 financing. The registration statement was declared effective on
February 14, 2022.



Convertible Notes Payable



On April 1, 2021, the Company, entered into a Secured Convertible Note Purchase
Agreement (the "April 2021 Note Purchase Agreement") with five (5) investors
(the "Holders"). Pursuant to the terms of the April 2021 Note Purchase
Agreement, the Company sold promissory notes in the aggregate principal amount
of $2,575,000 maturing on March 31, 2022 with an annual interest rate of 8%. The
Notes, plus accrued interest, are convertible into shares of Common Stock at a
discount of 20% to the price paid for such New Securities in the next round of
financing that meets the definition of Qualified Financing as defined in the
April 2021 Note Purchase Agreement. The Notes are secured by the assets of the
Company under a security agreement with the Holders. The lead investor of the
April 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $1,500,000 of the
total amount to the Company. FWHC Bridge, LLC is an affiliated entity of FWHC,
LLC, which is a principal stockholder and related party of the Company. An
additional affiliate of FWHC, LLC provided an additional $25,000 as part of the
April 2021 Note Purchase Agreement.



On October 14, 2021, H-Cyte, Inc. (the "Company") entered into the Second
Closing Bring Down Agreement (the "October 2021 Note Purchase Agreement")
whereby the five (5) investors who had entered into the April 2021 Note Purchase
Agreement purchased new notes in the Company in the aggregate principal amount
of $750,000. The Notes are due and payable on March 31, 2022 and bear interest
at an annual rate of 8%. The Notes are convertible into shares of Common Stock
at a discount of 20% to the price paid for such New Securities in the next
financing that meets the definition of a Qualified Financing as defined in the
April 2021 Note Purchase Agreement. The Notes are secured by all of the assets
of the Company under a security agreement with the Holders. The lead investor of
the October 2021 Note Purchase Agreement, FWHC Bridge, LLC, advanced $437,000 of
the total amount to the Company. FWHC Bridge, LLC is an affiliated entity of
FWHC, LLC, which is a principal stockholder and related party of the Company. An
additional affiliate of FWHC, LLC provided an additional $7,000 as part of the
October 2021 Note Purchase Agreement. The Company analyzed the debt instruments
and determined the embedded conversion features did not qualify as
derivatives as described in Financial Accounting Standard Board's ("FASB")
Accounting Standards Codification ("ASC") 815-15-25 Derivatives and Hedging,
because there was no market mechanism for net settlement, and they were not
readily convertible into cash. Thus, the conversion features are not required to
be bifurcated from the host instruments and accounted for separately. The
Company chose early adoption of ASU 2020-06 Accounting for Convertible
Instruments and Contracts in an Entity's Own Equity effective January 1, 2021,
related to the April 2021 and October 2021 Note Purchase Agreements, which
resulted in the Notes being accounted for solely as debt on the balance sheet.

Critical Accounting Policies and Estimates





Our discussion and analysis of our financial condition and results of operations
are based on our consolidated financial statements, which we have prepared in
accordance with U.S. GAAP. The preparation of these consolidated financial
statements requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting periods.

On an ongoing basis, we evaluate our estimates and judgments, including those described in greater detail below.


We base our estimates on historical experience and on various other factors that
we believe are reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.



While our significant accounting policies are described in more detail in the
notes to our consolidated financial statements included elsewhere in this
report, we believe that the following accounting policies are the most critical
to aid you in fully understanding and evaluating our financial condition and
results of operations.



Fair Value Measurements



We measure certain non-financial assets at fair value on a non-recurring basis.
These non-recurring valuations include evaluating assets such as long-lived
assets and non-amortizing intangible assets for impairment; allocating value to
assets in an acquired asset group; and applying accounting for business
combinations and derivatives.

We use the fair value measurement framework to value these assets and report the fair values in the periods in which they are recorded or written down.

The fair value measurement framework includes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair values in their broad levels. These levels from highest to lowest priority are as follows:





       ?   Level 1: Quoted prices (unadjusted) in active markets that are
           accessible at the measurement date for identical assets or

liabilities;



       ?   Level 2: Quoted prices in active markets for similar assets or
           liabilities or observable prices that are based on inputs not quoted on
           active markets, but corroborated by market data; and

       ?   Level 3: Unobservable inputs or valuation techniques that are used when
           little or no market data is available.




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The determination of fair value and the assessment of a measurement's placement
within the hierarchy requires judgment. Level 3 valuations often involve a
higher degree of judgment and complexity. Level 3 valuations may require the use
of various cost, market, or income valuation methodologies applied to
unobservable management estimates and assumptions. Management's assumptions
could vary depending on the asset or liability valued and the valuation method
used. Such assumptions could include estimates of prices, earnings, costs,
actions of market participants, market factors, or the weighting of various
valuation methods. We may also engage external advisors to assist us in
determining fair value, as appropriate.



Although we believe that the recorded fair value of our financial instruments is
appropriate at December 31, 2021, these fair values may not be indicative of net
realizable value or reflective of future fair values.



Revenue Recognition




The Company recognizes revenue in accordance with U.S. GAAP as outlined in the
FASB ASC 606, Revenue From Contracts with Customers, which requires that five
steps be completed to determine when revenue can be recognized: (i) identify the
contract with the customer; (ii) identity the performance obligations in the
contract; (iii) determine the transaction price; (iv) allocate the transaction
price; and (v) recognize revenue when or as the entity satisfies a performance
obligation. The Company records revenue under ASC 606 when control is
transferred to the customer, which is consistent with past practice.



The Company uses a standard pricing model for the types of cellular therapy
treatments that is offered to its patients. The transaction price accounts for
medical, surgical, facility, and office services rendered by LHI for consented
procedures and is recorded as revenue. The Company recognizes revenue when the
terms of a contract with a patient are satisfied.

The Company offers two types of cellular therapy treatments to their patients:

1) The first type of treatment includes medical services rendered typically

over a two-day period in which the patient receives cellular therapy. For

this treatment type, revenue is recognized in full at time of service.

2) The Company also offers a four-day treatment in which medical services are

rendered typically over a two-day period and then again, approximately

three months later, medical services are rendered for an additional two

days of treatment. Payment is collected in full for both service periods


        at the time the first treatment is rendered. Revenue is recognized when
        services are performed based on the estimated stand-alone selling price
        for each session of treatment. The Company has deferred recognition of

revenue amounting to approximately $414,000 and $634,000 at December 31,


        2021 and 2020, respectively.




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Management performed an analysis of its customer refund history for refunds
issued related to prior year's revenue. Management used the results of this
historical refund analysis to record a reserve for anticipated future refunds
related to recognized revenue. At December 31, 2021 and 2020, the estimated
allowance for refunds was approximately $9,000 and $77,000, respectively and is
recorded as a contra revenue account.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4) during the periods presented, investments in special-purpose entities or undisclosed borrowings or debt. Additionally, we are not a party to any derivative contracts or synthetic leases.





Consulting Agreements




The Company entered into an agreement with Jesse Crowne, a former Director and
Co-Chairman of the Board of the Company, to provide business development
consulting services for a fee of $5,000 per month. The Company incurred expense
of approximately $35,000 and $10,000 for the years ended December 31, 2021 and
2020, respectively, related to these agreements.



The Company entered into a consulting agreement with Tanya Rhodes of Rhodes &
Associates, Inc, effective June 15, 2020, to serve as the Chief Science Officer
of the Company. The agreement has a minimum term of six months with an average
fee of $21,000 per month plus expenses which increases 5% per month on January 1
of each calendar year unless an alternative retainer amount is negotiated and
agreed upon by both parties. The Company extended the contract on January 1,
2021, resulting in monthly expenses of $22,500 plus expenses for services
rendered. The Company incurred expense of approximately $252,000 and $122,000
for the years ended December 31, 2021 and 2020, respectively, related to this
agreement.

Departure of Directors and Certain Officers, Election of Directors, Appointment of New Board Members and Officers





On January 12, 2021, Mr. William Horne stepped down as Chairman of the board of
directors (the "Board") of H-Cyte, Inc. (the "Company"). Mr. Horne will remain a
member of the Board.

On January 12, 2021, Mr. Raymond Monteleone, a member of the Board, was appointed the new Chairman of the Board.

On September 28, 2021, Mr. Robert Greif's employment agreement with H-Cyte, Inc. (the "Company") expired, ending his term as the Company's Chief Executive Officer. The Company chose not to renew his employment agreement.

On September 28, 2021, Ms. Tanya Rhodes, the Company's Chief Science Officer, was appointed as interim Chief Executive Officer.

On December 1, 2021, Mr. Michael Yurkowsky, a member of the Board, was appointed the new Chief Executive Officer.

On January 17, 2022, Mr. Richard Rosenblum was appointed as a member of the Board.

On January 17, 2022, Mr. Matthew Anderer was appointed as a member of the Board.





Indemnification



We have agreements whereby we indemnify our officers and directors for certain
events or occurrences while the officer or director is or was serving, at our
request, in such capacity, to the maximum extent permitted under the laws of the
State of Nevada.



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The maximum potential amount of future payments we could be required to make
under these indemnification agreements is unlimited. However, we maintain
directors and officers insurance coverage that may contribute, up to certain
limits, a portion of any future amounts paid for indemnification of directors
and officers. We believe the estimated fair value of these indemnification
agreements in excess of applicable insurance coverage is minimal. Historically,
we have not incurred any losses or recorded any liabilities related to
performance under these types of indemnities.



Additionally, in the normal course of business, we have made certain guarantees,
indemnities, and commitments under which we may be required to make payments in
relation to certain transactions. These indemnities include intellectual
property and other indemnities to our customers and distribution network
partners in connection with the sales of our products and therapies, and
indemnities to various lessors in connection with facility leases for certain
claims arising from such facility or lease.



It is not possible to determine the maximum potential loss under these
guarantees, indemnities, and commitments due to our limited history of prior
indemnification claims and the unique facts and circumstances involved in each
particular provision.

Recently Adopted Accounting Standards





In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740),
Simplifying the Accounting for Income Taxes, which amends the approaches and
methodologies in accounting for income taxes during interim periods and makes
changes to certain income tax classifications. The new standard allows
exceptions to the use of the incremental approach for intra-period tax
allocation, when there is a loss from continuing operations and income or a gain
from other items, and to the general methodology for calculating income taxes in
an interim period, when a year-to date loss exceeds the anticipated loss for the
year. The standard also requires franchise or similar taxes partially based on
income to be reported as income tax and the effects of enacted changes in tax
laws or rates to be included in the annual effective tax rate computation from
the date of enactment. Lastly, in any future acquisition, the Company would be
required to evaluate when the step-up in the tax basis of goodwill is part of
the business combination and when it should be considered a separate
transaction. The Company adopted ASU 2019-12, as required, on January 1, 2021
and the adoption did not have a material impact on our consolidated financial
statements.



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In August 2020, the FASB issued ASU 2020-06. Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity. The ASU simplifies the accounting for certain financial
instruments with characteristics of liabilities and equity. Specifically, ASU
2020-06 revises the requirements to separately account for conversion features
as a derivative under ASC Topic 815 and it removes the requirement to account
for beneficial conversion features on such instruments. The Company chose early
adoption of ASU 2020-06 effective January 1, 2021, related to the April 2021 and
October 2021 Note Purchase Agreements. Thus, the Notes did not require
consideration for a beneficial conversion feature under ASC 470-20 and the Notes
were accounted for solely as debt on the balance sheet.

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