Note

– Liquidity and Summary of Significant Accounting Principles

Liquidity

Our operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, dependence on significant customers, lack of operating history, uncertainty of future profitability and possible fluctuations in financial results. Since our inception, we have financed our operations by raising debt, issuing equity and equity-linked instruments, and executing licensing arrangements, and to a lesser extent by generating royalties and product revenues. We have incurred, and continue to incur, recurring losses and negative cash flows. As of

June 30, 2018,

we have negative working capital and a shareholder deficit. During the quarter ended

September 30, 2017,

we withdrew our attempted registered offering and related refinancing of our Series A preferred stock, and exercised our rights under the Backstop Commitment in full. As a result of that exercise, we issued an aggregate of

12,800,000

shares of common stock (the "Backstop Shares") for gross proceeds of approximately

$3.0

million, which more than doubled the number of our outstanding shares of common stock. In

June 2018,

the Company issued

1,000,000

shares of common stock for gross proceeds of

$0.5

million pursuant to a

May 28, 2018

securities purchase agreement with Rohto Pharmaceutical Co., Ltd. (“Rohto”).At

June 30, 2018,

we had cash and cash equivalents on hand of approximately

$0.4

million and had

outstanding debt.

The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business. The propriety of using the going-concern basis is dependent upon, among other things, the achievement of future profitable operations, the ability to generate sufficient cash from operations, and potential other funding sources, including cash on hand, to meet our obligations as they become due.

We believe based on the operating cash requirements and capital expenditures expected for the next

twelve

months, that our current resources, projected revenue from sales of Aurix, and limited license fees and royalties from our license of certain aspects of the ALDH technology, are insufficient to support our operations beyond the next

days. As such, we believe that substantial doubt about our ability to continue as a going concern exists.

We require additional capital and seek to continue financing our operations with external capital for the foreseeable future. Any equity financings

may

cause further substantial dilution to our stockholders and could involve the issuance of securities with rights senior to the common stock. Any allowed debt financings (which are restricted under the terms of the Certificate of Designations for our Series A Preferred Stock)

may

require us to comply with onerous financial covenants and restrict our business operations. Our ability to complete additional financings is dependent on, among other things, the state of the capital markets at the time of any proposed equity or debt offering, state of the credit markets at the time of any proposed loan financing, market reception of the Company and perceived likelihood of success of our business model, and on the relevant transaction terms, among other things. We

may

not

be able to obtain additional capital as required to finance our efforts, through asset sales, equity or debt financings, or any combination thereof, on satisfactory terms or at all. Additionally, any such financing, if at all obtained,

may

not

be adequate to meet our capital needs and to support our operations.

If we are unable to secure sufficient capital to fund our operating activities or we are unable to increase revenues significantly, we

may

be forced to further delay the completion of, or significantly reduce the scope of, our current business plan, including our plan to penetrate the market serving Medicare beneficiaries and fulfill the related data gathering requirements as stipulated by the Medicare CED coverage determination, delay the pursuit of commercial insurance reimbursement for our wound treatment technologies, and postpone the hiring of new personnel. Moreover, if we are unable within the next

days to secure sufficient capital to fund our ongoing operating activities, we will likely be required to cease operations.

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do

not

include all the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). In our opinion, the accompanying unaudited interim consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly our financial position, results of operations and cash flows. The consolidated balance sheet at

December 31, 2017,

has been derived from audited financial statements of the Company as of that date. The interim unaudited consolidated results of operations are

not

necessarily indicative of the results that

may

occur for the full fiscal year. Certain information and footnote disclosure normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to instructions, rules and regulations prescribed by the SEC. We believe that the disclosures provided herein are adequate to make the information presented

not

misleading when these unaudited interim consolidated financial statements are read in conjunction with the audited financial statements and notes previously included in the Company’s Annual Report on Form

-K for the year ended

December 31, 2017.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned and controlled subsidiary Aldagen, Inc. (“Aldagen”). All significant inter-company accounts and transactions are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. In the accompanying consolidated financial statements, estimates are used for, but

not

limited to, stock-based compensation, allowance for inventory obsolescence, allowance for doubtful accounts, contingent liabilities, fair value and depreciable lives of long-lived assets (including property and equipment, intangible assets and goodwill), deferred taxes and associated valuation allowance and the classification of our long-term debt. Actual results could differ from those estimates.

Credit Concentration

We generate accounts receivable from the sale of our products. In addition, other receivables consist primarily of receivable for royalties due for sales of Aldeflour as of

June 30, 2018

and

December 31, 2017

and a settlement amount for a prior value added tax receivable due from the contract manufacturer of the prior Angel product line as of

December 31, 2017.

Customers or other receivables balances in excess of

10%

of total receivables at

June 30, 2018

and

December 31, 2017

were as follows:

	June 30 , 2018		December 31, 2017
Customer A		-%		72%
Customer B		52%		12%
Customer C		14%		-%

Revenue from significant customers exceeding

10%

of total revenues for the periods presented was as follows:

	Three Months ended June 30, 2018		Three Months ended June 30, 2017
Customer B		42%		22%
Customer C		15%		-%
Customer D		-%		15%
Customer F		-%		13%

	Six Months ended June 30, 2018		Six Months ended June 30, 2017
Customer B		31%		28%
Customer C		12%		-%
Customer D		-%		10%
Customer E		11%		-%

Historically, we used single suppliers for several components of the Aurix product line. We outsource the manufacturing of various products to contract manufacturers. While we believe these manufacturers demonstrate competency, reliability and stability, there is

assurance that

one

or more of them will

not

experience an interruption or inability to provide us with the products needed to satisfy customer demand. Additionally, while most of the components of Aurix are generally readily available on the open market, a reagent, bovine thrombin, is available exclusively through Pfizer, with whom we have an established vendor relationship.

Cash Equivalents

We consider all highly liquid instruments purchased with an original maturity of

three

months or less to be cash equivalents. Cash and cash equivalents potentially subject us to a concentration of credit risk as

$123,287

held in financial institutions was in excess of the FDIC insurance limit of

$250,000

June 30, 2018.

We maintain our cash and cash equivalents in the form of money market deposit accounts and qualifying money market funds, and checking accounts with financial institutions that we believe are credit worthy.

Accounts Receivables, net

We generate accounts receivables from the sale of our products. We provide for an allowance against receivables for estimated losses that

may

result from a customer’s inability or unwillingness to pay. The allowance for doubtful accounts is estimated primarily based upon historical write-off percentages, known problem accounts, and current economic conditions. Accounts are written off against the allowance for doubtful accounts when we determine that amounts are

not

collectable. Recoveries of previously written-off accounts are recorded when collected. At

June 30, 2018,

we maintained an allowance for doubtful accounts of approximately

$2,000.

December 31, 2017,

we maintained an allowance for doubtful accounts of approximately

$306,000

as we fully reserved for a value added tax receivable. Effective with an executed settlement agreement as of

March

29,

2018,

we recognized a bad debt recovery of approximately

$240,000

and received the settlement amount on

April 9, 2018.

Inventory, net

Our inventory is produced by

third

-party manufacturers and consists of raw materials and finished goods. Inventory cost is determined on a

first

-in,

first

-out basis and is stated at the lower of cost or net realizable value. We maintain an inventory of kits, reagents, and other disposables that have shelf-lives that generally range from

months to

two

years.

As of

June 30, 2018,

our inventory consisted of approximately

$32,000

of finished goods and

$28,000

of raw materials. As of

December 31, 2017,

our inventory consisted of approximately

$40,000

of finished goods and

$18,000

of raw materials.

We provide for an allowance against inventory for estimated losses that

may

result in excess and obsolete inventory (i.e., from the expiration of products). Our allowance for expired inventory is estimated based upon the inventory’s remaining shelf-life and our anticipated ability to sell such inventory, which is estimated using historical usage and future forecasts, within its remaining shelf life. At

June 30, 2018

and

December 31, 2017,

the Company maintained an allowance for expired and excess and obsolete inventory of approximately

$23,000

Expired products are segregated and used for demonstration purposes only; the Company records the associated expense for this reserve to cost of sales in the consolidated statements of operations.

Property and Equipment, net

Property and equipment is stated at cost less accumulated depreciation and is depreciated, using the straight-line method, over its estimated useful life ranging from

one

six

years. Leasehold improvements are amortized, using the straight-line method, over the lesser of the expected lease term or its estimated useful life ranging from

one

three

years. Amortization of leasehold improvements is included in depreciation expense. Maintenance and repairs are charged to operations as incurred. When assets are disposed of, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in other income (expense).

Centrifuges

may

be sold or placed at

charge with customers. Depreciation expense for centrifuges that are available for sale or placed at

charge with customers are charged to cost of sales. Depreciation expense for centrifuges used for sales and marketing and other internal purposes are charged to general and administrative expenses.

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Recoverability measurement and estimating of undiscounted cash flows is done at the lowest possible level for which we can identify assets. If such assets are considered to be impaired, impairment is recognized as the amount by which the carrying amount of assets exceeds the fair value of the assets.

Revenue Recognition

Prior to

January 1, 2018,

revenues were recognized when the

four

basic criteria for recognition were met: (

) persuasive evidence of an arrangement exists; (

) delivery has occurred or services have been rendered; (

) consideration is fixed or determinable; and (

) collectability is reasonably assured. The Company adopted new accounting guidance for revenue recognition effective

January 1, 2018

which did

not

have a material impact on the Company’s financial statements.

Beginning

January 1, 2018,

the Company analyzes contracts to determine the appropriate revenue recognition using the following steps: (i) identification of contracts with customers; (ii) identification of distinct performance obligations in the contract; (iii) determination of contract transaction price; (iv) allocation of contract transaction price to the performance obligations; and (v) determination of revenue recognition based on timing of satisfaction of the performance obligation. The Company recognizes revenues upon the satisfaction of its performance obligations (upon transfer of control of promised goods or services to customers) in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.

We provide for the sale of our products, including disposable processing sets and supplies to customers. Revenue from the sale of products is recognized upon shipment of products to the customers. We do

not

maintain a reserve for returned products, as in the past those returns have

not

been material and are

not

expected to be material in the future. Percentage-based fees on licensee sales of covered products are generally recorded as products are sold by licensees, and are reflected as royalties in the consolidated statements of operations. Direct costs associated with product sales and royalty revenues are recorded at the time that revenue is recognized.

License Agreement with Rohto

The Company’s license agreement with Rohto (See Note

– Distribution, Licensing and Collaboration Arrangements

) contains multiple promises that include the delivery of a “functional” license and other ancillary activities such as maintaining its intellectual property and providing regulatory support and training to Rohto. The Company has determined that the ancillary activities do

not

constitute distinct promises and, accordingly, the Company combined the ancillary activities with the delivered license as a single performance obligation. The Company recognized the total non-contingent transaction price of

$3.0

million as revenue when the functional license was delivered to Rohto. Other contingent elements of transaction price, such as contingent fees and sales-based royalties related to the supply and future sale of the product, will be recognized as revenue if and when the contingencies are satisfied.

Segments and Geographic Information

Approximately

42%

and

22%

of our total revenue was generated outside of the United States for the

three

months ended

June 30, 2018

and

2017,

respectively, and approximately

36%

and

28%

of our total revenue was generated outside the United States for the

six

months ended

June 30, 2018

and

2017,

respectively. All revenue generated outside the United States is attributable to royalty revenue.

Stock-Based Compensation

The fair value of employee stock options is measured at the date of grant. Expected volatilities for the

2016

Omnibus Plan options are based on the equally weighted average historical volatility from

five

comparable public companies with an expected term consistent with ours. Expected years until exercise represents the period of time that options are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The Company estimated that the dividend rate on its common stock will be zero.

Stock-based compensation for awards granted to non-employees is periodically re-measured as the underlying awards vest. The Company recognizes an expense for such awards throughout the performance period as the services are provided by the non-employees, based on the fair value of these options and warrants at each reporting period. The fair value of stock options and compensatory warrants issued to service providers utilizes the same methodology with the exception of the expected term. For awards to non-employees, the Company estimates that the options or warrants will be held for the full term.

The Company adopted new accounting guidance on

January 1, 2017

related to stock-based compensation arrangements. Under the new guidance, excess tax benefits and tax deficiencies related to stock-based compensation awards are recognized as income tax expenses or benefits in the income statement, and excess tax benefits are classified along with other income tax cash flows in the operating activities section of the condensed consolidated statement of cash flows. Additionally, the Company elected to account for forfeitures of stock-based awards as they occur, as opposed to estimating those prior to their occurrence. The adoption of this new guidance did

not

have a material impact on the Company's consolidated financial statements in any period.

Income Taxes

The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than

not

that some portion or all of the deferred tax assets will

not

be realized. Tax rate changes are reflected in income during the period such changes are enacted. All of our tax years remain subject to examination by the tax authorities.

The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income before taxes. There were

such items in

2018

and

2017.

Earnings (Loss) per Share

Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of shares of common stock outstanding (including contingently issuable shares when the contingencies have been resolved) during the period.

For periods of net loss, diluted loss per share is calculated similarly to basic loss per share because the impact of all dilutive potential common shares is anti-dilutive. For periods of net income, and when the effects are

not

anti-dilutive, diluted earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of shares outstanding (including contingently issuable shares when the contingencies have been resolved) plus the impact of all potential dilutive common shares, consisting primarily of common stock options and stock purchase warrants using the treasury stock method, and convertible debt using the if-converted method.

All of the Company’s outstanding stock options and warrants were considered anti-dilutive for the

three

and

six

months ended

June 30, 2018

and

2017.

The total number of anti-dilutive shares underlying common stock options and warrants exercisable for common stock, which have been excluded from the computation of diluted loss per share for the periods presented, was as follows:

	Six months ended June 30 , 2018		Six months ended June 30 , 2017

Shares underlying:

Common stock options		536,250		1,228,750
Stock purchase warrants		6,180,000		6,180,000

Reclassifications

Certain reclassification have been made to the prior year financial statements to conform to the current year presentation, including the addition of restricted cash to cash and cash equivalents on the consolidated statements of cash flows as a result of the adoption of new accounting guidance.

Recently Adopted Accounting Pronouncements

The Company adopted new accounting guidance for revenue recognition effective

January

2018

using the modified retrospective approach which did

not

have a material impact on the Company's financial statements.

November 2016,

the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) amending the presentation of restricted cash within the consolidated statements of cash flows. The new guidance requires that restricted cash be added to cash and cash equivalents on the consolidated statements of cash flows. The Company adopted this ASU on

January

2018

on a retrospective basis with the following impacts to our consolidated statements of cash flows for the

six

months ended

June 30, 2017:

		Previously Reported				Adjustment				As Revised
Net cash provided by investing activities		$	5,417			$	(3,503	)		$	1,914

January 2017,

the FASB issued guidance intended to simplify the subsequent measurement of goodwill by eliminating Step

from the goodwill impairment test. Under the existing guidance, in computing the implied fair value of goodwill under Step

an entity is required to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities), following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The guidance also eliminates the requirements for any reporting unit with a

zero

or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step

of the goodwill impairment test. An entity is required to adopt the new guidance on a prospective basis. The new guidance is effective for the Company for its annual or any interim goodwill impairment tests for fiscal years beginning after

December 15, 2021.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

We adopted this pronouncement effective

January 1, 2017;

the adoption did

not

have a material impact to our consolidated financial statements upon adoption since goodwill was

not

considered impaired with the adoption of Accounting Standards Update

2017

04.

However, when we performed our interim goodwill impairment test, comparing the fair value of our

one

reporting unit with its carrying amount as of

June 30, 2017,

the carrying amount exceeded our reporting unit's fair value by approximately

$2.8

million. As a result we recognized a non-cash goodwill impairment charge of approximately

$2.1

million to write-down goodwill to its estimated fair value of

zero

as of

June

30,

2017.

We have evaluated all other issued and unadopted Accounting Standards Updates and believe the adoption of these standards will

not

have a material impact on our results of operations, financial position, or cash flows.