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

16

Table of Contents

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.

In 2020, through our ImmCelz Inc. subsidiary, we began developing treatments under our ImmCelz® platform (CELZ-100), 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 (or “supercharges” them) providing them with the ability to treat multiple indications. We have validated this ability through the third-party studies described below that were independently conducted on selected human donor patient cells for accuracy and reproducibility. 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 March 2023, we reported the following results of independent studies:

• ImmCelz® (CELZ-100) platform required 75% fewer donor patient cells compared to industry standard.
• The purity of the final ImmCelz® (CELZ-100) product was greater than 95% compared to the industry standard of greater than 80%.
• ImmCelz® (CELZ-100) demonstrated a greater than 200% reduction in functional suppression of effector T cells, which are a critical concern for patients with autoimmune issues, while still possessing a high number of functional T regulatory cells.
• The ability to verify repeated potency of the final ImmCelz®(CELZ-100) product.

We believe these results show that we will be able to substantially reduce production costs, while allowing for the manufacture of the best clinical product for patients with immune disorders, which will enable us to accelerate our clinical applications and encourage potential collaborations with respect to our ImmCelz® platform.

In June 2022, we signed an agreement with Greenstone Biosciences Inc. (“Greenstone”) 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 May 2023, we announced that that we had received confirmation that Greenstone had successfully developed a human induced pluripotent stem cell (iPSC). We estimate that the development of this cell line will save the Company two to three years in research and development time along with associated expenses. The final iPScelz™ results in a viral-free cell line which has great potential for differentiation into therapeutic biologics both for the cellular and cell-free programs along with targeted drug discovery. Greenstone’s developments were confirmed by an independent, industry-leading research firm.

In October 2022, we announced the development of our AlloStem™ Clinical Cell Line (CELZ-200), 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 utilizing our AlloStem™ Clinical Cell Line, 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. The trial has also received Institutional Board Review (IRB) approval for the trial to proceed as well as approval of the patient recruitment material. Patient recruitment was initiated in September 2023.

17

Table of Contents

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 (“ODD”) for the treatment of Brittle Type 1 Diabetes using its ImmCelz® (CELZ-100) platform. The FDA has responded to the ODD filing with additional clarification requests, which we are in the process of responding.

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. There were no safety concerns related to CELZ-001 at one year follow-up utilizing the same infusion procedure as in the currently U.S. FDA cleared CELZ-201 clinical trial. There were 30 patients in the study, 15 who received CELZ-001 and the rest received optimized medical therapy. At one year, there was an overall efficacy of 93% in the treated patients demonstrating at least a 50% reduction in insulin requirement.

In September 2023, the Company received FDA clearance to initiate a Phase I/II clinical trial of StemSpine® using AlloStem™ (CELZ-201-DDT) for the treatment of lower back pain. The study is designed to evaluate the safety, efficacy, and tolerability of CELZ-201-DDT. The study will enroll 30 individuals suffering from chronic lower back pain. Using an ultrasound guided, non-surgical procedure, AlloStem™ is injected in areas surrounding the diseased disc(s), thereby potentially repairing, remodeling, and improving the blood supply around the disc and lower back area, without exposing the patient to radiation or any other cell-based procedures. In October, 2023 we filed for and received approval from an institutional review board (IRB) to proceed with this trial.

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

Gross Revenue. We generated $6,000 in revenue for the three-months ended September 30, 2023, in comparison with $55,000 for the comparable period a year ago. The reduction 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 $2,400 in cost of goods sold for the three-months ended September 30, 2023, in comparison with $16,000 for the comparable period a year ago. The decrease is due to the reduction in sales.

Gross Profit/(Loss). We generated $3,600 and $39,000 in gross profit for the three-months ended September 30, 2023 and 2022 respectively.

Selling, General and Administrative Expenses. General and administrative expenses for the three-months ended September 30, 2023, totaled $531,042, in comparison with $805,461 for the comparable period a year ago. The decrease of $274,419, or 34% is primarily due to a decrease of $75,033 in marketing, $95,831 in compensation, and $97,459 in consulting expenses.

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

Research and Development Expenses. Research and development expenses for the three-months ended September 30, 2023, totaled $992,722 in comparison to $230,940 for the comparable period a year ago. The increase of $761,782, or 330% was primarily due to $97,105 associated with the StemSpine IND filing, $228,716 in Type I Diabetes trial-related expenses and $409,310 in general research and development activities.

Operating Loss. For the reasons stated above, our operating loss for the three-months ended September 30, 2023, was $1,543,185 in comparison with $1,020,422 for the comparable period a year ago.

Other Income. Other income for the three-months ended September 30, 2023, totaled $89,233 in comparison with $38,083 for the comparable period a year ago. The increased income of $51,150 is due to increased interest income from higher short-term certificates of deposit balances and increased interest rates associated with $7,467,346 in short-term certificates of deposit.

18

Table of Contents

Net Income/Loss. For the reasons stated above, our net loss for the three-months ended September 30, 2023, was $1,453,952 in comparison with a net loss of $982,339 for the comparable period a year ago.

Results of Operations – For the Nine-month Periods Ended September 30, 2023, and 2022

Gross Revenue. We generated $6,000 in revenue for the nine-months ended September 30, 2023, in comparison with $70,000 for the comparable period a year ago. The reduction 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 $2,400 in cost of goods sold for the nine-months ended September 30, 2023, in comparison with $22,791 for the comparable period a year ago. The decrease is due to the reduction in sales.

Gross Profit/(Loss). We generated $3,600 in gross profit for the nine-months ended September 30, 2023, in comparison with $47,209 in gross profit for the comparable period a year ago.

Selling, General and Administrative Expenses. General and administrative expenses for the nine-months ended September 30, 2023, totaled $2,161,599, in comparison with $3,043,946 for the comparable period a year ago. The decrease of $882,347, or 29% is primarily due to decreases of $318,579 in consulting expenses, $206,168 in marketing expenses, $115,829 in D&O insurance expense, $76,000 in Board of Directors payment timing, $82,932 in accounting fees, and $108,438 in stock-based compensation.

Amortization Expenses. Amortization expenses for the nine-month periods ended September 30, 2023 and 2022, totaled $69,063.

Research and Development Expenses. Research and development expenses for the nine-months ended September 30, 2023, totaled $1,621,231 in comparison to $900,635 for the comparable period a year ago. The increase of $720,596, or 80% was primarily due to $97,105 associated with the StemSpine IND filing, $328,100 associated with the Type I diabetes trial, and $279,327 in general research and development activities.

Operating Loss. For the reasons stated above, our operating loss for the nine-months ended September 30, 2023, was $3,848,293 in comparison with $3,966,435 for the comparable period a year ago.

Other Income. Other income for the nine-months ended September 30, 2023, totaled $240,293 in comparison with $38,083 for the comparable period a year ago. The increased income of $202,210 is due to increased interest income from higher short-term certificates of deposit balances and increased interest rates associated with $7,467,346 in short-term certificates of deposit.

Net Income/Loss. For the reasons stated above, our net loss for the nine-months ended September 30, 2023, was $3,608,000 in comparison with a net loss of $3,928,352 for the comparable period a year ago.

Liquidity and Capital Resources

As of September 30, 2023, we had $11,974,454 of available cash and certificates of deposit and positive working capital of approximately $11,622,567. 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.

19

Table of Contents

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 $6,132,902 for the nine-months ended September 30, 2023, in comparison to $4,205,732 for the comparable period a year ago, an increase of $1,927,170 or 46%. 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 of the accompanying financial statements, offset by reductions in general and administrative expenses.

Net Cash Received From Investing Activities. Cash received in investing activities was $2,319,491 for the nine-months ended September 30, 2023, related to net redemptions of $2,611,271 in certificates of deposit offset by $191,780 associated with the repurchase of our common stock under our stock re-purchase program, and $100,000 in cash paid related to patents in comparison to $5,021,307 of investments in certificates of deposit for the nine-months ended September 30, 2022.

Net Cash from Financing Activities.

There were no cash proceeds or expenditures from financing activities during the nine-months ended September 30, 2023 compared to $15,472,232 for the nine-months ended September 30, 2022. The $15,472,232 is related to the May 2022 financing described above.

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 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.

Remediation of previously identified material weakness

As previously disclosed under “Item 9A – Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 31, 2022, and “Item 4 – Controls and Procedures” in our Quarterly Reports on Form 10-Q for the periods ending March 31, 2023 and June 30, 2023, management had identified the following deficiencies that alone or in combination, represent material weaknesses in internal control over financial reporting: (i) our failure to adequately disclose during 2022 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, and (ii) insufficient segregation of duties of our officers during the year ended December 31, 2022.

As previously reported in our public reports referred to above, we undertook to remediate these deficiencies and strengthen our internal control over financial reporting by establishing additional review and procedure controls which include the following:

As noted, the Company has utilized the services of a third-party for financial reporting for a significant period of time. The third-party is an expert in financial reporting. One additional control provided is that the third-party consultant is allowed editorial input to our quarterly and annual filings. Editorial input was established during the Q1 2023 quarterly filing. Management deems this a quarterly control. Thus, as of September 30, 2023, under the guidance established by The Committee of Sponsoring Organizations’ (COSO), the control has been working effectively for the period prescribed in COSO

In early Q2 2023, the Company implemented a policy whereby disbursements over a $50,000 threshold require dual authorization for processing and payment. This control is performed a few times a month and has been implemented for a period of approximately six months. Management deems this a daily control. Thus, as of September 30, 2023, under COSO the control has been working effectively for the period prescribed in COSO.

Given these remediation efforts, management has concluded that the material weaknesses set forth above were remediated as of September 30, 2023.

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, other than those noted above.

20

Table of Contents