Creative Medical Technology Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2022

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.

The Company has produced an allogenic Cell Line called AlloStem™, which includes a Master Cell Bank and a Drug Master File which shall be submitted for FDA registration. This is an important component to many of our programs, including, but not limited to, the ImmCelz® immunotherapy platform for multiple diseases, OvaStem® for Premature Ovarian Failure, AlloStem™ for Type 1 diabetes, StemSpine® for lower back pain, and IPSCelz ™ inducible pluripotent stem cell program in ongoing development with Greenstone Biosciences.

The Company is working with Greenstone Biosciences Inc. in Palo Alto, CA to develop a human induced pluripotent stem cell (iPSC) pipeline for the Company's ImmCelz® platform. The project is identified as iPScelzTM. Human iPSc's are genetically reprogrammed to differentiate into a wide array of human cell and tissue types, possess the ability to proliferate almost indefinitely in culture, and represent a single source of cells that could be used to replace those lost to damage or disease. Beyond the therapeutic benefits offered by iPSC, the next generation iPScelzTM pipeline for ImmCelz® will enable the ability for large scale production and sustainability, while helping to reduce long term costs of manufacturing.

On November 3, 2022 the Company announced he U.S. Food and Drug Administration has cleared the Company's Investigational New Drug (IND) application, enabling the Company to proceed with initiating a clinical trial for Type 1 Diabetes using AlloStem™ AlloStem™ leverages a unique approach to harnessing the power of Perinatal Tissue Derived Cells® (PRDC) to multi-potentialities, including self-renewal ability, low antigenicity, reduced toxicity, and large-scale clinical expansion. The primary objective of the study (CELZ-201) is to evaluate AlloStem™ in patients with newly diagnosed Type 1 Diabetes. Patient recruitment is expected to begin in Q1 2023 with trial commencement updates to follow.

Results of Operations – For the Three-month Periods Ended September 30, 2022 and 2021

Gross Revenue. We generated $55,000 in revenue for the three-month period ended September 30, 2022, in comparison with $10,000 for the comparable quarter a year ago. The increase of $45,000 or 450% was primarily due to new physician recruitment.

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Cost of Goods Sold. We generated $16,000 of cost of goods sold for the three-month period ended September 30, 2022, in comparison with $4,000 cost of goods sold for the comparable period a year ago. The increase of $12,000 or 300% was due to the increased sales.

Gross Profit/(Loss). We generated a gross profit of $39,000 for the three-month period ended September 30, 2022, in comparison with $6,000 gross profit for the comparable period a year ago. The increase of $33,000 or 550% was due to the increased sales.

General and Administrative Expenses. General and administrative expenses for the three-month period ended September 30, 2022, totaled $805,461 in comparison with $757,235, for the comparable quarter a year ago. The increase of $48,226 or 6% is primarily due to approximately $87,000 in director and officer insurance premiums that began in September 2021, an increase of approximately $164,000 in increased net salary expenses from terminating the management service agreement in September 2021 and entering into direct employment arrangements with our CEO, CFO and the hiring of other key leaders of the management team, an increase of approximately $58,000 in marketing expenses as we ramp-up our commercial activity, and an increase of $139,000 in outside consulting expenses focused on moving key elements of our programs forward along with investments in intellectual property, offset by a reduction of $374,000 in stock-based compensation.

Amortization Expenses. Amortization expenses for the three-month periods ended September 30, 2022 and 2021, totaled $23,021.

Research and Development Expenses. Research and development expenses for the three-month period ended September 30, 2022, totaled $230,940 in comparison with $59,180, for the comparable quarter a year ago. The increase of $171,760 or 290% reflects investments in in regulatory, research, laboratory and manufacturing resources required to move our programs forward.

Other Income/Expense. Other income for the three-month period ended September 30, 2022 was $38,083, in comparison with a loss of $1,010,160, for the comparable quarter a year ago. The increased income of $1,048,243, is driven by the elimination of convertible debt that eliminated interest expense in 2022 compared to $1,305,273 in 2021, a loss of $184,044 on the change of fair value of derivative liabilities in 2021, offset by a gain of $489, 157 from the extinguishment of convertible notes in 2021 and $38,083 in interest income from short-term certificate of deposit investments in 2022.

Net Income/Loss. For the reasons stated above, our net loss for the three-month period ended September 30, 2022, totaled $982,339 in comparison to a loss of $1,010,160, for the comparable quarter a year ago.

Results of Operations – For the Nine-month Periods Ended September 30, 2022 and 2021

Gross Revenue. We generated $70,000 in revenue for the nine-month period ended September 30, 2022, in comparison with $20,000 in revenue for the comparable period a year ago. The increase of $50,000 or 250% was primarily due to new physician recruitment.

Cost of Goods Sold. We generated $22,791 of cost of goods sold for the nine-month period ended September 30, 2022, in comparison with $8,500 cost of goods sold for the comparable period a year ago. The increase of $14,291 or 168% was primarily due to new physician recruitment.

Gross Profit/(Loss). We generated a gross profit of $47,209 for the nine-month period ended September 30, 2022, in comparison with $11,500 gross profit for the comparable period a year ago. The increase of $35,709 or 311% was due to the increased sales.

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General and Administrative Expenses. General and administrative expenses for the nine-month period ended September 30, 2022, totaled $3,043,946 in comparison with $1,536,479, for the comparable period a year ago. The increase of $1,507,467 or 98% is primarily due to approximately $392,000 in director and officer insurance premiums that began in September 2021, an increase of approximately $542,000 in increased 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 the hiring of 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 $337,000 in marketing expenses, and an increase of $381,000 in outside consulting expenses focused on moving key elements of our programs forward along with investments in intellectual property offset by a $536,000 reduction in stock-based compensation.

Amortization Expenses. Amortization expenses for the nine-month periods ended September 30, 2022 and 2021, totaled $69,063.

Research and Development Expenses. Research and development expenses for the nine-month period ended September 30, 2022, totaled $900,635 in comparison with $59,180, for the comparable period a year ago. The increase of $841,455 or 1,422% reflects investments in in regulatory, research, laboratory and manufacturing resources required to move our programs forward.

Other Income/Expense. Other income for the nine-month period ended September 30, 2022 was $38,083, in comparison with 24,740,463, for the comparable period a year ago. The decreased income of $24,702,380, is primarily driven by the 2021 gain of $26,030,549 in the change in the fair value of derivative liabilities and a gain of $585,601 on the extinguishment of convertible notes, offset by interest expense of $1,875,687 in 2021 that was tied to convertible debt.

Net Income/Loss. For the reasons stated above, our net loss for the nine-month period ended September 30, 2022, totaled $3,928,352 in comparison to net income of $23,087,241, for the comparable period a year ago.

Liquidity and Capital Resources

As of September 30, 2022, we had $21,990,370 of available cash and short-term certificates of deposit and positive working capital of approximately $21,609,307. In comparison, as of December 31, 2021, we had approximately $10,723,807 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 $4,205,732 for the nine-month period ended September 30, 2022 in comparison to $1,054,446 for the comparable period a year ago, an increase of $3,151,286 or 299%. The increase in cash used in operations was primarily related to the increased expenses mentioned above.

Net Cash used in Investing Activities. There was $5,021,307 cash used to invest in short-term certificates of deposit in the nine-month period ended September 30, 2022 compared to $200,000 used as an advance to a related party for comparable period a year ago.

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Net Cash From Financing Activities. We raised $15,472,232 during the nine-month period ended September 30, 2022 through the issuance of common stock and pre-paid warrants, net of offering costs. We raised $3,534,364 through the issuance of convertible debt, preferred stock and a related party advance in the nine-month period ended September 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.

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 September 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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