Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

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

The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the financial statements and related notes appearing elsewhere in this Annual Report. The discussion in this section regarding the Company's business and operations includes "forward-looking statements". See "Special Note Regarding Forward-Looking Statements" at the beginning of this Annual Report.

Overview

Nuo is a commercial-stage medical device company focused on developing and marketing regenerative therapies for chronic wound care primarily within the U.S. We commercialize innovative cell-based technologies that harness the regenerative capacity of the human body to trigger natural healing. The use of autologous (i.e., from self or the patient's own) biological therapies for tissue repair and regeneration is part of a clinical strategy designed to improve long-term recovery in complex chronic conditions with significant unmet medical needs.

Our only significant current commercial offering consists of point of care technology for the separation of autologous blood to produce a platelet-based therapy for the chronic wound care market. This offering is known as "Aurix" or the "Aurix System". Although FDA cleared the Aurix System for marketing for wound care management in 2007 under Section 510(k) of the FDCA, CMS only established economically viable reimbursement for Aurix upon the issuance of a NCD for autologous blood-based products in April 2021. For 2026, the CMS national average reimbursement rate for the Aurix System is $2,108 in POS 22 and $1,064 in POS 11.

Our current commercial focus is to continue engaging and establishing relationships with providers treating chronic non-healing wounds to demonstrate the clinical benefits we believe result from the use of Aurix in the treatment of complex wounds. Increasing physician awareness of the differentiating attributes of Aurix will be key to establishing a base of product revenues upon which to grow. We anticipate developing these relationships with clinical providers and treatment facilities primarily by establishing a variety of distributor and sales agent arrangements primarily throughout the United States.

Distribution Agreement with Smith+Nephew

On March 31, 2025, we entered into the Distribution Agreement with Smith+Nephew, a global medical technology company. Although Smith+Nephew will be the sole and exclusive distributor in the United States of a private label Aurix product, we have the ability and will continue to market, distribute, and sell our own Aurix branded product.

Under the Distribution Agreement, Smith+Nephew will purchase Private Label product from us from time to time at agreed upon transfer pricing and we shall manufacture, package, and ship the Private Label product to Smith+Nephew's customers in accordance with purchase orders and the Distribution Agreement. During the initial term of the Distribution Agreement commencing in October 2025, minimum annual purchase commitments will apply to Smith+Nephew of an average of approximately $500,000 per year for Smith+Nephew to maintain exclusive distribution rights.

As consideration for entering into the Distribution Agreement, Smith+Nephew paid us an upfront distribution fee of $1,500,000 for distribution rights and we are also eligible to be paid by Smith+Nephew an additional $750,000 in fees based on our establishment and maintenance of reimbursement in certain categories for the Aurix and the Private Label products. These fees will be refundable to Smith+Nephew on a pro rata basis for the unexpired initial term of the Distribution Agreement if we do not comply with certain terms and conditions.

The $1,500,000 upfront distribution fee will be recognized ratably as revenue on a straight-line basis over the initial five-year term of the Distribution Agreement. For the year ended December 31, 2025, we recognized $225,000 of license revenue under the Distribution Agreement.

We believe that Smith+Nephew will need time to establish full commercial sales of its Private Label product via its direct and indirect sales efforts. As a result, our revenues under the Distribution Agreement may increase modestly during the next 12 months. While the Distribution Agreement will provide us with revenues, we also will incur expenses under the Distribution Agreement to enable us to comply with its provisions as well as packaging, shipping, and related costs associated with delivering the Private Label product for Smith+Nephew. The amount of these expenses and costs will vary depending on the amount of purchase orders that we receive from Smith+Nephew.

On May 14, 2025, we entered into Amendment No. 1 (the "First Amendment") to the Distribution Agreement. The First Amendment supplemented the Distribution Agreement by additionally providing for an interim sales agency arrangement whereby Smith+Nephew was entitled to act as sales agent on an interim basis for the sale of products under the Aurix brand to certain Smith+Nephew customers. As compensation, Smith+Nephew was entitled to a commission on net sales of the Nuo branded products sold to the Smith+Nephew customers. In accordance with its terms, the First Amendment's interim sales agency arrangement terminated on December 31, 2025. On December 30, 2025 and effective January 1, 2026, we entered into Amendment No. 2 to the Distribution Agreement to add certain expansion kits in connection with the Private Label product.

Loan and Security Agreement

On January 21, 2026, we entered into a Loan and Security Agreement (the "Loan Agreement") with four lenders (collectively, the "Lenders"), including a director of Nuo. The Loan Agreement provides for loans in an aggregate principal amount of up to $1.6 million with (a) $1.0 million funded on the initial closing date (the "Initial Funding") and (b) $600 thousand to be funded, if requested in advance by us and subject to closing conditions, on September 30, 2026 (the "Second Funding"). The closing of the Initial Funding occurred on January 23, 2026.

At the closing of the Initial Funding, we issued a Secured Promissory Note (each, an "Initial Note") to each of the Lenders and upon any Second Funding, we will issue an additional Secured Promissory Note (each, if any, a "Second Note"). The Initial Note bears interest at an annual rate of 10%. If Nuo requests a Second Funding, the Second Note will bear interest at an annual rate of 12% and the interest rate of the Initial Note will also increase to an annual rate of 12% upon the Second Funding.

The maturity date of the Initial Note and any Second Note is December 31, 2028 (the "Maturity Date").

Interest on the Initial Note and, if any, the Second Note (together, the "Notes") will be payable in warrants and not in cash. Interest on the Notes will be payable and issued at the Maturity Date or earlier upon certain prepayments. Interest on the Notes will accrue on a quarterly calendar basis without regard to partial quarters. The Notes are interest only through December 31, 2026. The principal on the Notes is repayable in cash in equal quarterly installments on the last business day of each calendar quarter commencing March 31, 2027 and continuing to the Maturity Date.

We may, at our option on the last business day of a calendar quarter commencing December 31, 2026, voluntarily prepay the Notes in their entirety by paying the then outstanding principal balance and all accrued interest on the Notes, subject to a prepayment fee equal to 1.5% of the then outstanding principal balance if the Notes are prepaid on or after December 31, 2026 but before December 31, 2027, with no prepayment fee applicable to such prepayments on or after December 31, 2027. The prepayment fee, if any, is payable in Prepayment Warrants as described below, and not in cash, that will vest in the event of a voluntary prepayment.

In addition, the Loan Agreement mandates the prepayment of the Notes in the event of (A) an equity financing of at least $5 million, (B) certain changes in control as defined in the Loan Agreement, or (C) a default by Nuo. In the event of such an equity financing or change in control, we have agreed to repay the Notes in their entirety by paying the then outstanding principal balance and all accrued interest on the Notes, subject to a prepayment fee equal to 2.75% of the then outstanding principal balance if such event occurs before December 31, 2026 and 1.5% of the then outstanding principal balance if such event occurs on or after December 31, 2026 but before December 31, 2027, with no prepayment fee applicable if such event occurs on or after December 31, 2027. In the event of a default, we have agreed to repay the Notes in their entirety by paying the then outstanding principal balance and all accrued interest on the Notes, subject to a prepayment fee equal to 2.75% of the then outstanding principal balance. The prepayment fee, if any, is payable in warrants, and not in cash, that will vest in the event of a mandatory prepayment.

The Notes are secured by a lien upon and security interest in all of the Company's assets, including intellectual property. The Loan Agreement contains customary representations, warranties, and covenants.

Comparison of the Years Ended December 31, 2025 and 2024

The revenue amounts presented in these comparison sections are rounded to the nearest thousand.

Revenue and Gross Profit

Total revenues for the year ended December 31, 2025 totaled approximately $3.3 million including $225,000 of distribution fee revenue related to the Smith+Nephew distribution agreement. Product revenues for the year ended December 31, 2025 totaled approximately $3.1 million in comparison to product and total revenues of approximately $1.4 million for the year ended December 31, 2024 representing an increase of approximately $1.7 million or approximately 126%. Product revenues associated with the Smith+Nephew private label distribution arrangement were recognized for the first time in the second half of 2025 consisting of (i) centrifuge devices sold to Smith+Nephew in anticipation of its Private Label product launch and (ii) initial fulfillment of purchase orders for stocking of Private Label kits. Associated gross profit was approximately $2.2 million for the year ended December 31, 2025 in comparison to approximately $1.1 million of gross profit in the year ended December 31, 2024.

The increase in revenues was due primarily to (i) increased Aurix product revenues resulting from an expanding customer base over the past year, (ii) the initial Smith+Nephew product revenues for centrifuge devices and kits solely in the second half of 2025 discussed above and (iii) distribution fee revenue recognized under the distribution agreement. Aggregate gross margin was approximately 67% for the year ended December 31, 2025 as compared to approximately 78% in the prior 2024 year. The gross margin decline was primarily due to centrifuge devices sold to Smith+Nephew at a near zero gross margin on the negotiated transfer price of the devices including the impact of tariff surcharges from the device manufacturer which was partially offset by distribution fee revenue having no associated cost.

Operating Expenses

Total operating expenses increased approximately $1,214,000 to approximately $4,735,000 comparing the year ended December 31, 2025 to the prior full year 2024 period. The increase from the prior year was due primarily to increases in (i) professional fees of approximately $399,000 due largely to the combination of increased legal fees associated with the negotiation and finalization of the Smith+Nephew distribution agreement and SEC registration statements filed during the year and consulting expenses for our quality management system and reimbursement support services, (ii) third party commission expense of approximately $314,000 for independent sales representatives and distributors resulting from increased Aurix product revenues, and (iii) compensation and benefit costs of approximately $272,000 attributable primarily to increased salary costs and added sales management personnel.

Interest Expense, net

Interest expense, net for the year ended December 31, 2025 of approximately $804 represents net interest expense attributable to the financing of insurance premiums income slightly in excess of interest income on excess cash balances. Conversely, interest income, net for the year ended December 31, 2024 of approximately $100 represents interest income on excess cash balances slightly in excess of interest expense attributable to the financing of insurance premiums.

Other Income (Expense)

Other income for the year ended December 31, 2025 was nominal in amount. Other income for the year ended December 31, 2024 primarily represents the gain of approximately $133,600 realized from the negotiated settlement of legacy accounts payable with third-party vendors including the full release of any ongoing payment liability.

Liquidity and Capital Resources

Overview

As of December 31, 2025, we had cash and cash equivalents of approximately $0.5 million, total current assets of approximately $1.4 million and total current liabilities of approximately $1.3 million. We have a history of losses and are not currently profitable. For the years ended December 31, 2025 and 2024, we incurred net losses of approximately $2.5 million and $2.3 million, respectively. As of December 31, 2025, our accumulated deficit was approximately $34.8 million and our stockholders' deficit was approximately $1.0 million.

On May 12, 2025, the SEC declared our shelf registration statement on Form S-3 effective. The shelf registration statement enables us to offer and sell, from time to time in one or more offerings, shares of our common stock with an aggregate offering amount not exceeding $15 million, subject to the provisions of Form S-3. The shelf registration statement could provide us with access to liquidity from the public markets if we are able and should we decide to utilize it for that purpose.

We maintain our cash deposits primarily in financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation ("FDIC"). We have not experienced any losses related to amounts in excess of FDIC limits.

Financing Activities

During the year ended December 31, 2025, we sold 527,612 shares of common stock to certain accredited investors pursuant to a Securities Purchase Agreement in a private placement which closed in July 2025 for total proceeds of $791,418. We issued 283,853 shares of common stock upon option exercises for gross proceeds of $113,541. As of December 31, 2025, $500,000 in secured notes were prefunded by two lenders which included $200,000 advanced from a related party.

During the year ended December 31, 2024, we sold 2,000,000 shares of common stock to certain accredited investors pursuant to Securities Purchase Agreements in two private placements which closed in May and September 2024 for total proceeds of $1,500,000. We issued 217,709 shares of common stock upon option exercises for gross proceeds of $90,417.

Effective January 1, 2024, pursuant to the provisions of the August 2022 Common Stock and Warrant Purchase Agreement, we issued Pacific Medical a warrant to purchase up to 500,000 shares of common stock at a price equal to $0.56, the 20-day volume weighted average closing price per share of our common stock ending December 31, 2023. The warrant was exercised on June 27, 2024 and we received proceeds of $151,200.

Going Concern

Our continuing losses and limited cash resources raise substantial doubt about our ability to continue as a going concern, and we need to raise substantial additional funds in order to continue to conduct our business. If we are unable to secure sufficient capital to fund our operating activities, we may be forced to delay further the completion of, or significantly reduce the scope of, our current business plan. It is uncertain whether we will be able to obtain such financing on satisfactory terms or at all.

We may not be able to obtain additional capital as required to finance our efforts, through equity or debt financing 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.

Cash Flows

Net cash provided by (used in) operating, investing, and financing activities for the periods presented were as follows:

		Year Ended December 31, 2025				Year Ended December 31, 2024
Cash flows used in operating activities		$	(864,971	)		$	(2,231,622	)
Cash flows used in investing activities		$	(274,756	)		$	(154,962	)
Cash flow provided by financing activities		$	1,404,959			$	1,741,617

Operating Activities

Cash used in operating activities for the year ended December 31, 2025 of approximately $0.9 million primarily reflects our net loss of approximately $2.5 million adjusted by (i) the $1,275,000 increase in deferred revenues, (ii) approximately $0.2 million in total amortization of right of use assets, property and equipment depreciation, and stock-based compensation and (iii) approximately $0.1 million in combined provisions for credit losses and inventory obsolescence. The deferred revenue is due to the receipt of the $1.5 million upfront distribution fee from Smith+Nephew in conjunction with the private label distribution agreement which was effective as of March 31, 2025.

Cash used in operating activities for the year ended December 31, 2024 of approximately $2.2 million primarily reflects our net loss of approximately $2.3 million adjusted by the net effect of (i) approximately $0.2 million in total for amortization of right of use assets, depreciation of property and equipment, and stock-based compensation, and (ii) approximately $0.1 million in combined provisions for credit losses and inventory obsolescence partially offset by the approximately $0.1 million gain on settlement of legacy accounts payable balances.

Investing Activities

Cash used in investing activities for year ended December 31, 2025 of approximately $275,000 primarily represents approximately $220,000 in expenditures for the purchase of Aurix centrifuge devices.

Cash used in investing activities for the year ended December 31, 2024 of approximately $155,000 primarily represents approximately $151,000 in expenditures for the purchase of Aurix centrifuge devices.

Financing Activities

Cash provided by financing activities for the year ended December 31, 2025 reflects proceeds of (i) $791,418 from the sale of 527,612 shares of common stock in a private placement which closed in July 2025, (ii) $113,541 from the exercise of common stock options, and (iii) $500,000 from the prefunding of two secured notes on December 31, 2025.

Cash provided by financing activities for the year ended December 31, 2024 of approximately $1.7 million represents proceeds of (i) $1.5 million from two equity private placements that closed in May and September 2024, (ii) $151,000 from the exercise of 270,000 warrants in June 2024, and (iii) approximately $90,000 from the exercise of options in December 2024.

Inflation

The Company does not believe that inflation has had a material effect on its operations.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Critical Accounting Policies

This Management's Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. A summary of our significant accounting policies is included in Note 2 to the accompanying consolidated financial statements.

A "critical accounting policy" is one that is both important to the portrayal of our financial condition and results of operations and that requires management's most difficult, subjective, or complex judgments. Such judgments are often the result of a need to make estimates about the effect of matters that are inherently uncertain. There are no accounting policies identified as critical.

Recent Accounting Pronouncements Not Yet Adopted

See the discussion of Recent Accounting Developments in Note 2 - Liquidity and Summary of Significant Accounting Policies.

The Company does not believe that any recently issued effective standards, or standards issued but not yet effective, if adopted, would have a material effect on the accompanying consolidated financial statements.