Creative Medical Technology Holdings, Inc.: Form 10-Q for the period ended Jun 30, 2023

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, 2022, 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.

Overview

We are a commercial stage biotechnology company dedicated to the advancement of identifying and translating novel biological therapeutics in the fields of immunotherapy, endocrinology, urology, neurology and orthopedics. Our platforms, therapies and products include 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 May 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-1 diabetes, and heart, liver, kidney, and other diseases using various types of stem cells through our ImmCelz, Inc., StemSpine, Inc. and AlloCelz LLC subsidiaries. However, neither ImmCelz Inc. nor AlloCelz 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.

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In 2020, through our ImmCelz Inc. subsidiary, we began developing treatments that utilize a patient’s own extracted immune cells that are then “reprogrammed/supercharged” by culturing them outside the patient’s body with optimized cell-free factors. 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. 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.

In June 2022, we signed an agreement with Greenstone Biosciences Inc. for the development of a human induced pluripotent stem cell (iPSC) pipeline for our ImmCelz® platform. This project was identified as iPScelz™. The efforts by Greenstone Biosciences Inc. are expected to complement and expand our current work on novel therapeutic cell lines.

In October 2022, we announced the development of our AlloStem™ Clinical Cell Line, a proprietary allogenic cell line which includes a Master Cell Bank and a Drug Master File. We believe we will able to use this cell line for many of our programs, including our ImmCelz® immunotherapy platform for multiple diseases, OvaStem® for Premature Ovarian Failure, CELZ-201 for Type 1 diabetes, StemSpine® for lower back pain, and IPScelz ™ inducible pluripotent stem cell program in ongoing development with Greenstone Biosciences.

In November 2022, we announced that the FDA had cleared the Company’s CELZ-201 Investigational New Drug (IND) application for the treatment of Type 1 Diabetes, which will allow us to begin a Phase I/II clinical trial. The primary objective of the study will be to evaluate CELZ-201 in patients with newly diagnosed Type 1 Diabetes. Patient recruitment is expected to begin in 2023.

In February 2023, the Company reported positive three-year follow-up data for its StemSpine® pilot study. The three-year data demonstrates continued efficacy of the StemSpine® procedure for treating chronic lower back pain without any serious adverse effects reported.

In March 2023, the Company announced that it filed an application with the FDA to receive Orphan Drug Designation for the treatment of Brittle Type 1 Diabetes using its ImmCelz®(CELZ-100) platform, and in April 2023, the Company reported positive one-year follow-up data and significant efficacy using CELZ-001 to treat patients with Type 2 Diabetes without any serious adverse effects reported

In addition to our clinical research efforts, we are currently seeking to expand the commercial sale and use of our CaverStem® and FemCelz® products by physicians in the United States.

Results of Operations – For the Three-month Periods Ended June 30, 2023, and 2022

Gross Revenue. We generated no revenue for the three-months ended June 30, 2023 and 2022.

Cost of Goods Sold. We generated no cost of goods sold for the three-months ended June 30, 2023 and 2022.

Gross Profit/(Loss). We generated no gross profit for the three-months ended June 30, 2023 and 2022.

Selling, General and Administrative Expenses. General and administrative expenses for the three-months ended June 30, 2023, totaled $859,537, in comparison with $1,108,428 for the comparable period a year ago. The decrease of $248,891, or 23% is primarily due to a decrease of $90,194 in marketing, $38,152 in travel, $76,000 in timing-related Board of Director expenses and $37,887 in D&O.

Amortization Expenses. Amortization expenses for the three-month periods ended June 30, 2023 and 2022, totaled $23,021.

Research and Development Expenses. Research and development expenses for the three-months ended June 30, 2023, totaled $309,480 in comparison to $659,695 for the comparable period a year ago. The decrease of $350,215, or 53% was primarily due to trial-related start-up expenses of $410,000 incurred in 2022 associated with our CELZ-201 Phase I/II diabetes trial.

Operating Loss. For the reasons stated above, our operating loss for the three-months ended June 30, 2023, was $1,192,038 in comparison with $1,791,144 for the comparable period a year ago.

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Other Income. Other income for the three-months ended June 30, 2023, totaled $89,913 in comparison with $0 for the comparable period a year ago. The increased income of $89,913 is due to increased interest income associated with $9,581,207 in short-term certificates of deposit.

Net Income/Loss. For the reasons stated above, our net loss for the three-months ended June 30, 2023, was $1,102,125 in comparison with a net loss of $1,791,144 for the comparable period a year ago.

Results of Operations – For the Six-month Periods Ended June 30, 2023, and 2022

Gross Revenue. We generated no revenue for the six-months ended June 30, 2023, in comparison with $15,000 for the comparable period a year ago. The pause in sales reflects the Company’s re-evaluation of marketing and distribution options to generate improved sales of the Caverstem and FemCelz procedures.

Cost of Goods Sold. We generated no cost of goods sold for the six-months ended June 30, 2023, in comparison with $6,791 for the comparable period a year ago. The decrease is due to the reduction in sales.

Gross Profit/(Loss). We generated $0 in gross profit for the six-months ended June 30, 2023, in comparison with $8,209 in gross profit for the comparable period a year ago.

Selling, General and Administrative Expenses. General and administrative expenses for the six-months ended June 30, 2023, totaled $1,630,557, in comparison with $2,238,845 for the comparable period a year ago. The decrease of $607,928, or 27% is primarily due to decreases of $194,000 in consulting expenses, $131,136 in marketing expenses, $121,309 in D&O insurance, $76,000 in Board of Directors payment timing, $49,490 in accounting fees, $44,672 in travel, and $32,098 in stock-based compensation.

Amortization Expenses. Amortization expenses for the six-month periods ended June 30, 2023 and 2022, totaled $46,042.

Research and Development Expenses. Research and development expenses for the six-months ended June 30, 2023, totaled $628,500 in comparison to $669,695 for the comparable period a year ago. The decrease of $41,186, or 6% was primarily due to of trial-related start-up expenses in 2022 associated with our CELZ-201 Phase I/II diabetes trial.

Operating Loss. For the reasons stated above, our operating loss for the six-months ended June 30, 2023, was $2,305,108 in comparison with $2,946,013 for the comparable period a year ago.

Other Income. Other income for the six-months ended June 30, 2023, totaled $151,060 in comparison with $0 for the comparable period a year ago. The increased income of $151,060 is due to interest income associated with $9,581,207 in short-term certificates of deposit.

Net Income/Loss. For the reasons stated above, our net loss for the six-months ended June 30, 2023, was $2,154,048 in comparison with a net loss of $2,946,013 for the comparable period a year ago.

Liquidity and Capital Resources

As of June 30, 2023, we had $13,570,757 of available cash and certificates of deposit and positive working capital of approximately $13,336,116. In comparison, as of December 31, 2022, we had $18,399,136 of available cash and positive working capital of $15,425,798.

On May 3, 2022 we received gross proceeds of $17,000,000, before deducting placement agent fees and expenses, upon the closing of an unregistered sale of equity securities of (i) 299,167 shares of our common stock and pre-funded warrants to purchase 456,389 shares of common stock (the “Pre-Funded Warrants”), and (ii) accompanying warrants to purchase 1,511,112 shares of common stock at an exercise price of $20.00 per share (“Warrants”), at a combined offering price of $22.50 per share of common stock/Pre-Funded Warrant and related Warrant to a group of institutional investors (the “Purchasers”). The Warrants have a five-year term, and an exercise price of $20.00 per share. The Pre-Funded Warrants do not expire and had an exercise price of $0.001 per share. Roth Capital Partners acted as sole placement agent for the offering. We paid Roth a placement agent fee in the amount of $1,360,000 and issued Roth a warrant to purchase 113,334 shares of common stock with the same terms as the common warrants issued to the purchasers. Pursuant to the Purchase Agreement, the Company and the Purchasers entered into a Registration Rights Agreement, pursuant to which the Company agreed to file a registration statement with the Securities and Exchange Commission to register the resale of the shares of Common Stock issued in the offering and the shares of Common Stock underlying the Warrants and Pre-Funded Warrants. On May 10, 2022, we filed a Form S-3 registration statement to register the shares, Warrants and Pre-Funded Warrants for resale. The registration went effective on May 19, 2022, fulfilling our contractual obligation. From June through July 2022, all of the Pre-Funded Warrants were exercised for shares of common stock.

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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 $4,828,379 for the six months-ended June 30, 2023, in comparison to $3,332,429 for the comparable period a year ago, an increase of $1,495,950 or 45%. The increase in cash used in operations was primarily related to $3,000,000 in cash payments related to the purchase of research tools referenced in Note 8 offset by reductions in general and administrative expenses.

Net Cash Received in Investing Activities. Cash received in investing activities was $497,410 for the six-months ended June 30, 2023, related to net redemptions of $497,410 in certificates of deposit in comparison to $0 for the six-months ended June 30, 2022.

Net Cash from Financing Activities.

There were no cash proceeds or expenditures from financing activities during the six-months ended June 30, 2023 compared to $15,472,220 for the six-months ended June 30, 2022. The $15,472,220 is related to the May, 2022 financing referenced in Note 7.

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

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 not 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.

Description of Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of a company’s financial reporting. In connection with the preparation and audit of the Company’s financial statements for the year ended the December 31, 2022, management identified the following deficiencies that alone or in combination, represent material weaknesses in internal control over financial reporting, the material weaknesses are still present for the six months ended June 30, 2023 and are as follows:

• Previously, we failed to adequately disclose the transaction in which we purchased research tools for $5,000,000 from Narkeshyo LLC, an entity a former director and current consultant of the Company is affiliated with.
• During the year ended December 31, 2022, we did not sufficiently segregate the duties of our officers.

We intend to remediate the deficiencies described above, and take such other action as we deem appropriate to further strengthen our internal control over financial reporting. We are currently in the process of establishing additional review and procedure controls. For instance, subsequent to quarter end we have implemented a policy whereby disbursements over a certain dollar threshold require dual authorization for processing and payment. The Company expects to remediate the deficiencies and obtain operating effectiveness over the next few quarters. However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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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