CELZ 10-Q
Creative Medical Technology Holdings, Inc. (CELZ)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
(
(Registrant’s telephone number, including area code)
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, par value $0.001 per share |
| CELZ |
| The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant 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).
Indicate by check mark whether the registrant 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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
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| 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
The number of shares outstanding of the registrant’s common stock on August 12, 2022, was
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PART I – FINANCIAL INFORMATION |
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Item 1. | Financial Statements |
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| Unaudited Condensed Consolidated Statements of Stockholder’ (Equity) |
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| Notes to Unaudited Condensed Consolidated Financial Statements |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| 2 |
| Table of Contents |
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
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| June 30, 2022 |
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| December 31, 2021 |
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ASSETS |
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CURRENT ASSETS |
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Cash |
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Accounts receivable |
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Inventory |
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Prepaids and other current assets |
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Total Current Assets |
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OTHER ASSETS |
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Other assets |
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Licenses, net of amortization |
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TOTAL ASSETS |
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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CURRENT LIABILITIES |
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Accounts payable |
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Accrued expenses |
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Management fee and patent liabilities - related parties |
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Advances from related party |
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Total Current Liabilities |
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Commitments and contingencies |
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STOCKHOLDERS’ EQUITY (DEFICIT) |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
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The accompanying notes are an integral part of these condensed consolidated financial statements
| 3 |
| Table of Contents |
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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| For the Three Months Ended June 30, 2022 |
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| For the Three Months Ended June 30, 2021 |
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| For the Six Months Ended June 30, 2022 |
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| For the Six Months Ended June 30, 2021 |
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Revenues |
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Cost of revenues |
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Gross profit |
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OPERATING EXPENSES |
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Research and development |
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Selling, general and administrative |
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Amortization of patent costs |
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TOTAL EXPENSES |
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Operating loss |
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OTHER INCOME/(EXPENSE) |
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Interest expense |
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Gain on extinguishment of convertible notes |
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Change in fair value of derivatives liabilities |
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Total other income (expense) |
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INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES |
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Provision for income taxes |
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NET INCOME (LOSS) |
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BASIC NET INCOME (LOSS) PER SHARE |
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DILUTED NET INCOME (LOSS) PER SHARE |
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC |
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED |
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The accompanying notes are an integral part of these condensed consolidated financial statements
| 4 |
| Table of Contents |
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED CASH FLOWS
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| For the Six Months Ended June 30, 2022 |
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| For the Six Months Ended June 30, 2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income (loss) |
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Adjustments to reconcile net income (loss) to |
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net cash from operating activities: |
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Stock-based compensation |
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Amortization |
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Amortization of debt discounts |
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Change in fair value of derivatives liabilities |
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Increase in principal and accrued interest balances due to penalty provision |
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Gain on extinguishment of convertible notes |
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Changes in assets and liabilities: |
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Accounts receivable |
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Inventory |
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Prepaids and other current assets |
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Accounts payable |
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Accrued expenses |
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Management fee payable |
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Net cash used in operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from sale of common stock and warrants, net of issuance costs |
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Proceeds from exercise of warrants |
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Proceeds from note payable |
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Proceeds from convertible notes payable |
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Proceeds from sale of preferred stock |
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Related party advances |
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Payments to settle convertible notes payable and warrants |
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Net cash provided by financing activities |
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NET INCREASE IN CASH |
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BEGINNING CASH BALANCE |
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ENDING CASH BALANCE |
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NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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Conversion of notes payable, accrued interest and derivative liabilities into common stock |
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Conversion of management fees and patent liability into common stock |
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Discounts on convertible notes payable due to derivative liabilities |
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The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
| Table of Contents |
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
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| Series A Preferred Stock |
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| Series B Preferred Stock |
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| Series C Preferred Stock |
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| Common Stock |
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December 31, 2021 |
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Issuance of common stock and accompanying warrants, net of issuance costs |
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Common stock issued for related party patent liabilities |
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Common stock issued for warrant exercise |
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Stock-based compensation |
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Net loss |
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June 30, 2022 |
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| Series A Preferred Stock |
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| Series B Preferred Stock |
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| Common Stock |
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| Amount |
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| Total Stockholders’ Equity |
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March 31, 2022 |
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Issuance of common stock and accompanying warrants, net of issuance costs |
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Common stock issued for warrant exercise |
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Stock-based compensation |
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Net loss |
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| - |
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| - |
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| - |
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| - |
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June 30, 2022 |
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| - |
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| - |
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| $ |
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| - |
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| $ |
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| $ |
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| $ |
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| 6 |
| Table of Contents |
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| Series A Preferred Stock |
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| Series B Preferred Stock |
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| Series C Preferred Stock |
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| Common Stock |
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| Shares |
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| Amount |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Additional Paid-in Capital |
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| Accumulated Deficit |
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| Total Stockholders’ Deficit |
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December 31, 2020 |
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| - |
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| - |
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Proceeds from sales of preferred stock |
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| - |
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Common stock issued for related party management liabilities |
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| - |
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| - |
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| - |
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Common stock issued for conversion of convertible notes, accrued interest and derivative liabilities |
|
| - |
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| - |
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| - |
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Relief of derivative liabilities |
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| - |
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| - |
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| - |
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| - |
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Dividends on preferred stock |
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| - |
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| - |
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| - |
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| - |
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| ( | ) |
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Cashless exercise of warrants |
|
| - |
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| - |
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| - |
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| ( | ) |
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Stock-based compensation |
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| - |
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| - |
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| - |
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| - |
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Net income |
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| - |
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| - |
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| - |
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| - |
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June 30, 2021 |
|
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| $ |
|
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|
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| $ |
|
|
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| $ |
|
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|
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| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |||||||||
|
| Series A Preferred Stock |
|
| Series B Preferred Stock |
|
| Series C Preferred Stock |
|
| Common Stock |
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| |||||||||||||||||||||||
|
| Shares |
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| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Additional Paid-in Capital |
|
| Accumulated Deficit |
|
| Total Stockholders’ Deficit |
| |||||||||||
March 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
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| $ |
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| $ |
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| $ | ( | ) |
| $ | ( | ) | |||||||||
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|
|
Common stock issued for related party management liabilities |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
| - |
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| - |
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| ||||||
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|
|
Common stock issued for conversion of convertible notes, accrued interest and derivative liabilities |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
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|
|
|
Relief of derivative liabilities |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
|
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| - |
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| |||||||
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|
|
Dividends on preferred stock |
|
| - |
|
|
|
|
|
| - |
|
|
| ( | ) |
|
| - |
|
|
| ( | ) |
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| - |
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| ( | ) |
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| ( | ) | |||
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|
|
|
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|
|
|
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|
|
Cashless exercise of warrants |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
|
|
|
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| ( | ) |
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| |||||||
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|
|
|
|
|
|
|
Stock-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| - |
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| - |
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Net loss |
|
| - |
|
|
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|
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| - |
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|
|
|
| - |
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| - |
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| ( | ) |
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| ( | ) | |||||
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|
June 30, 2021 |
|
|
|
| $ |
|
|
|
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| $ |
|
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| $ |
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| $ |
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| $ |
|
| $ | ( | ) |
| $ | ( | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
| Table of Contents |
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2022
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization – Creative Medical Technologies Holdings, Inc. (the “Company”) is a commercial stage biotechnology company focused on immunology, urology, orthopedics and neurology using adult stem cell treatments. The Company was incorporated on December 3, 1998, in the State of Nevada under the name Jolley Marketing, Inc. On May 18, 2016, the Company closed a transaction which was accounted for as a recapitalization, reverse merger, under which Creative Medical Technologies, Inc., a Nevada corporation (“CMT”) became the Company’s wholly-owned subsidiary, and Creative Medical Health, Inc. (“CMH”), which was CMT’s sole stockholder prior to the merger, became the Company’s principal stockholder. In connection with this merger, the Company changed its name to Creative Medical Technologies Holdings, Inc. to reflect its current business.
CMT was originally created on December 30, 2015 (“Inception”), as the urological arm of CMH to monetize a patent and related intellectual property related to the treatment of erectile dysfunction (“ED”), which it acquired from CMH in February 2016. Subsequently, the Company has expanded its development and acquisition of intellectual property beyond urology to include therapeutic treatments utilizing “re-programmed” stem cells, and the treatment of neurologic disorders, lower back pain, type I diabetes, and heart, liver, kidney and other diseases using various types of stem cells through our ImmCelz, Inc., StemSpine, Inc. and AmnioStem LLC subsidiaries. However, neither ImmCelz Inc., StemSpine Inc. nor AmnioStem LLC have commenced commercial activities.
The Company currently conducts substantially all of its commercial operations through CMT, which markets and sells the Company’s CaverStem® and FemCelz® disposable kits utilized by physicians to perform autologous procedures that treat erectile dysfunction and female sexual dysfunction, respectively. In addition to its CaverStem® and FemCelz® products, the Company is currently in the process of recruiting clinical sites for its StemSpine® Regenerative Stem Cell Procedure for the Treatment of Degenerative Disc Disease, an autologous procedure that utilizes a patient’s own stem cells to treat lower back pain.
In 2020, through the Company’s ImmCelz Inc. subsidiary, the Company began exploring the development of treatments that utilize a patient’s own extracted immune cells that are then “reprogrammed” by culturing them outside the patient’s body with optimized stem cells. The immune cells are then re-injected into the patient from whom they were extracted. The Company believes this process endows the immune cells with regenerative properties that may be suitable for the treatment of stroke victims, among other indications. In contrast to other stem cell-based approaches, the immune cells are significantly smaller in size than stem cells and are believed to more effectively penetrate areas of the damaged tissues and induce regeneration.
Use of Estimates – The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management 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 balance sheet and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Basis of Presentation - The consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position for the periods presented. The operations for the six-month period ended June 30, 2022, are not necessarily indicative of the operating results for the full year.
Risks and Uncertainties - The Company has a limited operating history and has only recently started to generate revenues from its planned principal operations.
| 8 |
| Table of Contents |
On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the COVID-19 include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The COVID-19 and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While it is unknown how long these conditions will last and what the complete financial effect will be to the company, to-date, the Company has experienced a reduction in revenues due to the COVID-19 outbreak.
The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the U.S. and world economy. A host of factors beyond the Company’s control could cause fluctuations in these conditions, including the political environment and acts or threats of war or terrorism. Adverse developments in these general business and economic conditions, including through recession, downturn or otherwise, could have a material adverse effect on the Company’s financial condition and the results of its operations.
The Company has only recently started to generate sales and we have limited marketing and/or distribution capabilities. The Company has limited experience in developing, training or managing a sales force and will incur substantial additional expenses if it decides to market any of its current and future products and services with an internal sales organization. Developing a marketing and sales force is also time consuming and could delay launch of its future products and services. In addition, the Company will compete with many companies that currently have extensive and well-funded marketing and sales operations. The Company’s marketing and sales efforts may be unable to compete successfully against these companies. In addition, the Company has limited capital to devote to sales and marketing.
The Company’s industry is characterized by rapid changes in technology and customer demands. As a result, the Company’s products and services may quickly become obsolete and unmarketable. The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer demands, develop new products and services and enhance the Company’s current products and services on a timely and cost-effective basis. Further, the Company’s products and services must remain competitive with those of other companies with substantially greater resources. The Company may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products and services or enhanced versions of existing products and services. Also, the Company may not be able to adapt new or enhanced products and services to emerging industry standards, and the Company’s new products and services may not be favorably received. In addition, the Company may not have the capital resources to further the development of existing and/or new ones.
On July 8, 2022, the Company received a letter from The Nasdaq Stock Market LLC advising us that we were not in compliance with Nasdaq Listing Rule 5550(a)(2) because the closing bid price of our common stock was below $1.00 per share for 30 consecutive business days. Pursuant to Nasdaq’s Listing Rules, the Company has a 180 day grace period, until January 4, 2023, during which the Company may regain compliance if the bid price of our common stock closes at $1.00 per share or more for a minimum of ten consecutive business days. In addition, the Company may be eligible for an additional 180-day grace period if we meet Nasdaq’s initial listing standards (other than with respect to minimum bid price) for The Nasdaq Capital Market. The Company intends to actively monitor the bid price for our common stock between now and January 4, 2023, and will consider available options to regain compliance with Nasdaq’s minimum bid price requirements. However, there can be no assurance that the Company will be able to regain compliance with Nasdaq’s Listing Rules and maintain our Nasdaq listing. The delisting of our shares of common stock from Nasdaq may have a material negative impact on the liquidity of our securities, as well as a material negative impact on our ability to raise capital in the future.
Revenue - The Company recognizes revenues in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from contracts with customers”. Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Deferred revenue represents amounts which still have yet to be earned.
| 9 |
| Table of Contents |
The Company generates revenue from the sale of disposable stem cell concentration kits. Revenues are recognized when control of the promised goods or services are transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services, which is generally on delivery to the customer.
Payments received for which the earnings process is not yet complete are deferred. As of June 30, 2022, the Company had no deferred revenue.
Concentration Risks - The Federal Deposit Insurance Corporation insures cash deposits in most general bank accounts for up to $
Fair Value of Financial Instrument - The Company’s financial instruments consist of cash and cash equivalents, and payables. The carrying amount of cash and cash equivalents and payables approximates fair value because of the short-term nature of these items.
Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Fair value measurements are required to be disclosed by level within the following fair value hierarchy:
Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 – Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3 – Inputs lack observable market data to corroborate management’s estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
When determining fair value, whenever possible the Company uses observable market data, and relies on unobservable inputs only when observable market data is not available. As of June 30, 2022, the Company has no derivative liabilities.
Basic and Diluted Loss Per Share – The Company follows Financial Accounting Standards Board (“FASB”) ASC 260 Earnings per Share to account for earnings per share. Basic earnings per share (“EPS”) calculations are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. Dilutive common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated, based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an award, if any, the amount of compensation cost, if any, for future service that the Company has not yet recognized, and the estimated tax benefits that would be recorded in paid-in capital, if any, when an award is settled are assumed to be used to repurchase shares in the current period. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
| 10 |
| Table of Contents |
The following is a summary of outstanding securities which have been included in the calculation of diluted net income per share and reconciliation of net income to net income available to common stockholders for the six-months ended June 30, 2021.
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| For the Six-months Ended June 30, 2021 |
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Weighted average common shares outstanding used in calculating basic earnings per share |
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Effect of Series B and C preferred stock |
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Effect of warrants |
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Effect of convertible notes payable |
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Net income as reported |
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Net income available to common stockholders |
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The Company excluded 7 options and 18 warrants from the computation of diluted net income per share for the six-months ended June 30, 2021 as their exercise prices were in excess of the average closing market price of the Company’s common stock during that period.
During the six-months ended June 30, 2022, the Company had
Recent Accounting Pronouncements – The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its financial statements.
NOTE 2 – LICENSING AGREEMENTS
ED Patent – The Company acquired a patent from CMH, a related company on February 2, 2016, in exchange for
Multipotent Amniotic Fetal Stem Cells License Agreement - On August 25, 2016, CMT entered into a License Agreement dated August 25, 2016, with a University. This license agreement grants to CMT the exclusive right to all products derived from a patent for use of multipotent amniotic fetal stem cells composition of matter throughout the world during the period ending on the expiration date of the longest-lived patent rights under the patent. The license agreement also permits CMT to grant sublicenses. Under the terms of the license agreement, CMT is required to diligently develop, manufacture, and sell any products licensed under the agreement. CMT paid the University an initial license fee within 30 days of entering into the agreement. CMT is also required to pay annual license maintenance fees on each anniversary date of the agreement, which maintenance fees would be credited toward any earned royalties for any given period. The License Agreement provides for payment of various milestone payments and earned royalties on the net sales of licensed products by CMT or any sub licensee. CMT is also required to reimburse the University for any future costs associated with maintaining the patent. CMT may terminate the license agreement for any reason upon 90 days’ written notice and the University may terminate the agreement in the event CMT fails to meet its obligations set forth therein, unless the breach is cured within 30 days of the notice from the University specifying the breach. CMT is also obligated to indemnify the University against claims arising due to the exercise of the license by CMT or any sub licensee. As of June 30, 2022, no amounts are currently due to the University.
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Lower Back Patent – The Company, through its subsidiary StemSpine, LLC, acquired a patent from CMH, a related company, on May 17, 2017, covering the use of various stem cells for the treatment of lower back pain from pursuant to a Patent Purchase Agreement, which was amended in November 2017. As amended, the agreement provides the following:
| · | The Company is required to pay CMH $ |
| · | In the event the Company determines to pursue the technology via use of autologous cells, the Company will pay CMH: |
| o | $ |
| o | $ |
| o | $ |
| · | In the event the Company determines to pursue the technology via use of allogenic cells, the Company will pay CMH: |
| o | $ |
| o | $ |
| o | $ |
| · | Payment may be made in cash or shares of our common at a discount of |
| · | In the event the Company’s shares of common stock trade below $ |
| · | For a period of five years from the date of the first sale of any product derived from the patent, the Company is required to make royalty payments of |
The Company paid CMH the $
The patent expires on
The Company has elected to amortize the increased obligation from the election to commercialize the StemSpine technology over a ten-year period on a straight-line basis. Amortization expense of $
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ImmCelz™ - On December 28, 2020, ImmCelz, Inc. (“ImmCelz”), a newly formed Nevada corporation and wholly owned subsidiary of the Company, entered into a Patent License Agreement dated December 28, 2020 (the “Agreement”), with Jadi Cell, LLC. (“Jadi”), a company controlled by Dr. Amit Patel, a former director of the Company. The Agreement grants to ImmCelz™ the patent rights under U.S. Patent# 9,803,176 B2, “Methods and compositions for the clinical derivation of an allogenic cell and therapeutic uses”. The contract grants ImmCelz™ access to proprietary process of expanding the master cell bank of Jadi Cell LLC, as currently practiced by Licensor and as documented in standard operating procedures (SOPs) and other written documentation. The terms of the agreement are as follows:
| · | Licensee shall pay Licensor a license fee of $ |
| · | |
| · | in one or a series of related transactions, of all or substantially all of the business or assets of Licensee ImmCelz, Inc. (“Sale of Assets”) will result in a one-time ten-percent allocation to the licensor, the Continuing Royalty will be calculated at five percent (5%) of the Net Income of Licensee in any calendar quarter in which the Net Income in such calendar quarter reflects the receipt of any consideration from such Sale of Assets. |
To date, the Company has not made any payments to Jadi Cell under this agreement, other than the $
The Company has elected to amortize the patent over a ten-year period on a straight-line basis. Amortization expense of $
The following is a roll-forward of the Company’s licensing agreements for the six-months ended June 30, 2022.
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NOTE 3 – RELATED PARTY TRANSACTIONS
Management Reimbursement Agreement
On November 17, 2017, the Company entered into a Management Reimbursement Agreement with CMH, a related party whose directors and executive officers include the Company’s officers and directors. Pursuant to this agreement, during 2019 and 2020, and until September 16, 2021, the Company reimbursed CMH an aggregate of $
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Debt Settlement Agreement
On January 12, 2018, the Company entered into a Debt Settlement Agreement with Timothy Warbington, the Company’s Chief Executive Officer, under which the Company issued
Jadi Cell License Agreement
On December 28, 2020, the
StemSpine Patent Purchase
The Company acquired U.S. Patent No. 9,598,673 covering the use of various stem cells for the treatment of lower back pain from its affiliate CMH pursuant to a Patent Purchase Agreement dated May 17, 2017, which was amended in November 2017. The inventors of the patent were Thomas Ichim, PhD and Amit Patel, MD, former directors of the Company, and Annette Marleau, PhD. The Patent Purchase Agreement is described in detail in Note 2 above. Pursuant to the Patent Purchase Agreement, the Company paid CMH the $
Insider Loans
On May 28, 2021, Timothy Warbington, who is our CEO and Chairman; and Dr. Amit Patel, who was formerly a director of ours, advanced the Company $
NOTE 4 – DEBT
As-of June 30, 2022, the Company had no outstanding loans and there was no loan activity during the six-months ended June 30, 2022.
During the six-months ended June 30, 2021, we issued $
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On May 28, 2021, our CEO, Mr. Timothy Warbington, and Board Member, Dr. Amit Patel, advanced the company $
During the six-months ended June 30, 2021, the Company amortized $
During the six-months ended June 30, 2021, the Company issued an aggregate of
During the six-months ended June 30, 2021, the Company extinguished $
NOTE 5 – DERIVATIVE LIABILITIES
Derivative Liabilities
As-of June 30, 2022, the Company had no outstanding derivative liabilities and there was no derivative activity during the six-months ended June 30, 2022.
During the six-months ended June 30, 2021, the Company recorded initial derivative liabilities of $
On June 30, 2021, the derivative liabilities were revalued at $
In connection with convertible notes converted, as disclosed in Note 4, the Company reclassed derivative liabilities with a fair value of $
NOTE 6 – STOCK-BASED COMPENSATION
On September 6, 2021, the Company’s Board of Directors and holders of a majority of the voting power of the Company’s stockholders approved the Company’s 2021 Equity Incentive Plan (the “2021 Plan”), and reserved
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During the six-months ended June 30, 2022, Messrs. Warbington and Dickerson received
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During the six-months ended June 30, 2021, the fair market value of the options was insignificant to the financial statements.
Since the expected life of the options was greater than the Company’s historical stock information available, the Company determined the expected volatility based on price fluctuations of comparable public companies.
There were no options issued during the six-months ended June 30, 2021.
Option activity for the six-months ended June 30, 2022 consists of the following:
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NOTE 7 – STOCKHOLDERS’ EQUITY
On May 3, 2022, the “Company” completed the sale of (i)
The Common Warrants have a
The Pre-Funded Warrants are classified as a component of permanent equity because they are freestanding financial instruments that are legally detachable and separately exercisable from the shares of common stock with which they were issued, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, and permit the holders to receive a fixed number of shares of common stock upon exercise. In addition, the Pre-Funded Warrants do not provide any guarantee of value or return.
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Roth Capital Partners (“Roth”), acted as sole placement agent for the offering. The Company paid Roth a placement agent fee in the amount $
The issuances and exercises during the six-months ended June 30, 2022, are as follows:
Outstanding at December 31, 2021 |
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Exercises |
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Outstanding at June 30, 2022 |
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Weighted Average Price at June 30, 2022 |
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NOTE 8 – SUBSEQUENT EVENTS
In accordance with ASC 855, management reviewed all material events through May 15, 2022, for these financial statements and there are no material subsequent events to report.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets and statements of operations. This section should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, and our interim financial statements and accompanying notes to these financial statements included in this report. All amounts are in U.S. dollars.
Forward-Looking Statement Notice
This quarterly report on Form 10-Q contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the SEC, press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, those set forth in our most recent annual report referenced below.
This report identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements.
All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.
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Overview
We are a commercial stage biotechnology company focused on immunology, urology, neurology and orthopedics using adult stem cell treatments and interrelated regenerative technologies for the treatment of multiple indications. Our existing and pipeline of therapies and products include of the following:
Our subsidiary, Creative Medical Technologies, Inc. (“CMT”), was originally created to monetize U.S. Patent No. 8,372,797 and related intellectual property related to the treatment of erectile dysfunction (“ED”), which it acquired in February 2016. Subsequently, we have expanded our development and acquisition of intellectual property beyond urology to include therapeutic treatments utilizing “re-programmed” stem cells, and the treatment of neurologic disorders, lower back pain, type I diabetes, and heart, liver, kidney and other diseases using various types of stem cells through our ImmCelz, Inc., StemSpine, Inc. and AmnioStem LLC subsidiaries. However, neither ImmCelz Inc., StemSpine Inc. nor AmnioStem LLC have commenced commercial activities.
We currently conduct substantially all of our commercial operations through CMT, which markets and sells our CaverStem® and FemCelz® disposable kits utilized by physicians to perform autologous procedures that treat erectile dysfunction and female sexual dysfunction, respectively. Our CaverStem® and FemCelz® kits are currently available through physicians at eight locations in the United States.
In addition to our CaverStem® and FemCelz® products, we are currently in the process of recruiting clinical sites for our StemSpine® Regenerative Stem Cell Procedure for the Treatment of Degenerative Disc Disease. Our StemSpine® treatment is an autologous procedure that utilizes a patient’s own stem cells to treat lower back pain.
In 2020, through our ImmCelz Inc. subsidiary, we began exploring the development of treatments that utilize a patient’s own extracted immune cells that are then “reprogrammed” by culturing them outside the patient’s body with optimized stem cells. The immune cells are then re-injected into the patient from whom they were extracted. We believe this process endows the immune cells with regenerative properties that may be suitable for the treatment of multiple indications, among other indications. In contrast to other stem cell-based approaches, the immune cells are significantly smaller in size than stem cells and are believed to more effectively penetrate areas of the damaged tissues and induce regeneration.
We are currently primarily focused on expanding the commercial sale and use of our CaverStem® and FemCelz® products by physicians in the United States and further developing our StemSpine® treatment for lower back pain and OvaStem® treatment for Premature Ovarian Failure programs, including but not limited to disclosed Pilot Studies.. We also recently filed an Investigational New Drug (IND) application with the FDA to treat stroke utilizing our ImmCelzTM technology. We continue to further develop additional therapeutic products that utilize our proprietary intellectual property, including the collaboration with GreenStone Biosciences for the development of an Inducible Pluripotent Stem Cell (IPSC) line.
Results of Operations – For the Three-month Periods Ended June 30, 2022 and 2021
Gross Revenue. We generated no revenue for the three-month period ended June 30, 2022, in comparison with $10,000 for the comparable quarter a year ago.
Cost of Goods Sold. We generated no cost of goods sold for the three-month period ended June 30, 2022, in comparison with $4,500 cost of goods sold for the comparable quarter a year ago.
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Gross Profit/(Loss). We generated no gross profit for the three-month period ended June 30, 2022, in comparison with $5,500 for the comparable quarter a year ago.
General and Administrative Expenses. General and administrative expenses for the three-month period ended June 30, 2022, totaled $1,108,428 in comparison with $498,321, for the comparable quarter a year ago. The increase of $610,107 or 122% is primarily due to approximately $130,000 in director and officer insurance premiums that began in September 2021, an increase of approximately $180,000 in salary expenses from terminating the management service agreement in September 2021 and entering into direct employment arrangements with our CEO, CFO and other key leaders of the management team, an increase of approximately $164,000 in marketing expenses as we ramp-up our commercial activity, and an increase of $98,000 in outside consulting expenses focused on moving key elements of our programs forward.
Amortization Expenses. Amortization expenses for the three-month periods ended June 30, 2022 and 2021, totaled $23,021.
Research and Development Expenses. Research and development expenses for the three-month period ended June 30, 2022, totaled $659,695 in comparison with no expenses, for the comparable quarter a year ago. The increased research and development expenses reflects investments in in regulatory, research, laboratory and manufacturing resources required to move our programs forward.
Other Income/Expense. There was no other income or expense for the three-month period ended June 30, 2022, in comparison with $2,389,340 expense, for the comparable quarter a year ago. The decreased expense of $2,389,340, is primarily due to loss in the fair value of derivative liabilities of $2,251,446, zero interest expense versus $234,338, offset by a $96,444 gain on extinguishment of convertible notes for the comparable quarter a year ago.
Net Income/Loss. For the reasons stated above, our net loss for the three-month period ended June 30, 2022, totaled $1,791,144 in comparison to a loss of $2,905,182, for the comparable quarter a year ago.
Results of Operations – For the Six-month Periods Ended June 30, 2022 and 2021
Gross Revenue. We generated $15,000 in revenue for the six-month period ended June 30, 2022, in comparison with $10,000 in revenue for the comparable period a year ago.
Cost of Goods Sold. We generated $6,791 of goods sold for the six-month period ended June 30, 2022, in comparison with $4,500 cost of goods sold for the comparable period a year ago.
Gross Profit/(Loss). We generated a gross profit of $8,209 for the six-month period ended June 30, 2022, in comparison with $5,500 gross profit for the comparable period a year ago.
General and Administrative Expenses. General and administrative expenses for the six-month period ended June 30, 2022, totaled $2,238,485 in comparison with $779,244, for the comparable period a year ago. The increase of $1,459,241 or 187% is primarily due to approximately $305,000 in director and officer insurance premiums that began in September 2021, an increase of approximately $378,000 in net salary expenses offset by the termination of the management service agreement in September 2021 and entering into direct employment arrangements with our CEO, CFO and other key leaders of the management team, $226,000 in Board of Director expenses as a result of bringing on independent board members, an increase of approximately $279,000 in marketing expenses, and an increase of $235,000 in outside consulting expenses focused on moving key elements of our programs forward.
Amortization Expenses. Amortization expenses for the six-month periods ended June 30, 2022 and 2021, totaled $46,042.
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Research and Development Expenses. Research and development expenses for the six-month period ended June 30, 2022, totaled $669,694 in comparison with no expenses, for the comparable period a year ago. The increased research and development expenses reflects investments in regulatory, research, laboratory and manufacturing resources required to move our programs forward.
Other Income/Expense. There was no other income or expense for the six-month period ended June 30, 2022, in comparison with $25,750,623 income, for the comparable period a year ago. The decreased income of $25,750,623, is primarily due to a gain in the fair value of derivative liabilities of $26,224,593, offset by interest expense of $570,414 for the comparable period a year ago.
Net Income/Loss. For the reasons stated above, our net loss for the six-month period ended June 30, 2022, totaled $2,946,013 in comparison to net income of $24,930,837, for the comparable period a year ago.
Liquidity and Capital Resources
As of June 30, 2022, we had $22,863,661 of available cash and positive working capital of approximately $22,559,451. In comparison, as of December 31, 2021, we had approximately $10,723,870 of available cash and positive working capital of approximately $9,686,780.
On December 7, 2021, we sold an aggregate of 3,875,000 shares of our common stock, and accompanying warrants to purchase 3,875,000 shares of common stock at an exercise price of $4.13 per share, at a combined public offering price to the public of $4.13 per share of common stock and related Warrant, pursuant to an Underwriting Agreement we entered into with Roth Capital Partners, LLC. We received gross proceeds of $16,003,750, before deducting underwriting discounts and commissions of seven percent (7%) of the gross proceeds and offering expenses. We used a portion of the proceeds from the offering to (i) redeem our Bridge Notes described below, in the aggregate outstanding amount of $5,146,176, and (ii) repurchase the Company’s Series A Preferred Stock from the Company’s Chief Executive Officer for an aggregate purchase price of approximately $195,000.
In addition, on May 3, 2022 we completed the sale of (i) 2,991,669 shares of common stock and pre-funded warrants to purchase 4,563,887 shares of common stock, and (ii) accompanying warrants to purchase 15,111,112 shares of common stock, at a combined offering price of $2.25 per share of common stock/Pre-Funded Warrant and related Common Warrant, to a group of institutional investors, resulting in gross proceeds to the Company of approximately $17,000,000.
Cash Flows
Net Cash used in Operating Activities. We used cash in our operating activities due to our losses from operations. Net cash used in operating activities was $3,332,429 for the six-month period ended June 30, 2022 in comparison to $663,657 for the comparable period a year ago, an increase of $2,668,772 or 402%. The increase in cash used in operations was primarily related to the increased expenses mentioned above.
Net Cash used in Investing Activities. There was no cash used in investing activities in the six-month period ended June 30, 2022 and June 30, 2021, respectively.
Net Cash From Financing Activities. We raised $15,472,220 during the six-month period ended June 30, 2022 through the issuance of common stock and pre-paid warrants, net of offering costs. We raised $724,233 through the issuance of convertible debt, preferred stock and a related party advance in the six-month period ended June 30, 2021.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles accepted in the United States. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we have elected not to provide the disclosure required by this item.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
As required by Rule 13a-15 under the Exchange Act, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2022.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 15(d)-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. As of June 30, 2022 we were not involved in any legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In February 2022, we paid the initial Jadi Cell obligation of $250,000 through the issuance of 181,818 shares of common stock.
Item 6. Exhibits
SEC Ref. No. |
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101.INS |
| XBRL Instance Document |
101.SCH |
| XBRL Taxonomy Extension Schema Document |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Creative Medical Technology Holdings, Inc. |
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Date: August 12, 2022 | By | /s/ Timothy Warbington |
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| Timothy Warbington, Chief Executive Officer |
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Date: August 12, 2022 | By | /s/ Donald Dickerson |
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| Donald Dickerson, Chief Financial Officer |
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| (Principal Financial Officer) |
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