Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this Annual Report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth in the section captioned “Risk Factors” in Annual Report. The following should be read in conjunction with our audited financial statements included elsewhere herein.
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:
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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-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 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 iPScelzTM. The efforts by Greenstone 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 iPScelzTM 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 AlloStemTM Clinical Cell Line (CELZ-201), 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, Type I Diabetes (CELZ-201 CREATE-1), AlloStemSpine® Chronic Lower Back Pain (CELZ-201 ADAPT), and IPScelzTM inducible pluripotent stem cell program in ongoing development with Greenstone Biosciences.
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In November 2022, we announced that the FDA had cleared the Company’s Type I Diabetes (CELZ-201 CREATE-1) Investigational New Drug (IND) application for the treatment of Type 1 Diabetes utilizing our AlloStemTM (CELZ-201) 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 AlloStemTM (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.
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, we reported the following results of independent studies:
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 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 AlloStemTM (CELZ-201) to treat patients with Type 2 Diabetes. There were no safety concerns related to AlloStemTM (CELZ-101) at one year follow-up utilizing the same infusion procedure as in the currently U.S. FDA cleared Type I Diabetes (CELZ-201 CREATE-1) clinical trial. There were 30 patients in the study, 15 who received AlloStemTM (CELZ-201) 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 AlloStemSpine® (CELZ-202 ADAPT) using AlloStemTM (CELZ-201-DDT) for the treatment of lower back pain. The study is designed to evaluate the safety, efficacy, and tolerability of AlloStemTM (CELZ-201-DDT). The study will enroll 30 individuals suffering from chronic lower back pain. Using an ultrasound guided, non-surgical procedure, AlloStemTM (CELZ-101-DDT) 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.
In October, 2023 the Company filed for and received approval from an institutional review board (IRB) to proceed with the Phase I/II clinical trial. The clinical trial is registered on www.clinicaltrials.gov. We are currently vetting Contract Research Organizations for a planned trial enrollment commencing in early 2024.
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.
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Results of Operations – For the Year Ended December 31, 2023, and for the Year Ended December 31, 2022
Gross Revenue. We generated $9,000 in gross revenue for the year ended December 31, 2023, in comparison with $88,600 for the comparable period a year ago. The decrease of $79,600 or 89.8% is due to a decrease in Caverstem sales. Management is currently re-evaluating the marketing strategy for the Caverstem® and FemCelz® products.We are exploring options to achieve market penetration and product profitability with a number of potential partners. However, there can be no assurance that the Company will be successful in that regard.
Cost of Goods Sold. We generated $3,600 in cost of goods sold for the year ended December 31, 2023, in comparison with $28,491 for the comparable period a year ago. The decrease of $24,891 or 87.4% is due to the reduction in revenue as described above.
Gross Profit/(Loss). We generated $5,400 in gross profit for the year ended December 31, 2023, in comparison with $60,109 in gross profit for the comparable period a year ago. The decrease of $54,709 or 91.0% is due to the reduction in revenue.
Selling, General and Administrative Expenses. General and administrative expenses for the year ended December 31, 2023, totaled $3,560,309, in comparison with $3,943,543 for the comparable period a year ago. The decrease of $383,234, or 9.7% is primarily due to reductions of $259,080 in marketing expenses as we re-evaluate the Caverstem® and FemCelz® marketing strategies, $341,079 in consulting services, $59,885 in Director and Officer insurance, and $53,457 in travel, offset by $308,589 in increased salaries and wages.
Research and Development Expenses. Research and development expenses for the year ended December 31, 2023, totaled $1,970,639 in comparison to $6,268,854 for the comparable period a year ago. The decrease of $4,298,215, or68.6% was due to a $5,000,000 one-time expense associated with the acquisition of research tools in 2022. This was offset by an increase of $661,785 associated with the development of a drug master file, laboratory research in preparation of our master cell bank submittal to the FDA, the approval of our FDA application for a Lower Back Pain (CELZ 202 – ADAPT) Phase I/II clinical trial, the manufacturing and testing of our ImmCelzTM cell line, and the development of our iPSC cell line in partnership with Greenstone Biosciences Inc.
Operating Loss. For the reasons stated above, our operating loss for the year ended December 31, 2023, was $5,620,132 in comparison with $10,244,372 for the comparable period a year ago.
Other Income. Other income for the year ended December 31, 2023, totaled $333,558 in comparison with $100,328 for the comparable period a year ago. The increased income of $233,230 or 234.5%, is due to increased interest rates on our short-term CD’s and treasuries.
Net Income/Loss. For the reasons stated above, our net loss for the year ended December 31, 2023, was $5,286,574 in comparison with a loss of $10,144,044 for the comparable period a year ago.
Amortization Expense. We acquired a patent (U.S. Patent No. 8,372,797) from CMH on February 2, 2016, in exchange for shares of our restricted common stock valued at $100,000. The patent expires in 2026 and we have elected to amortize the patent over a ten-year period on a straight-line basis. On August 25, 2016, CMT entered into a License Agreement which grants it the exclusive right to all products derived from US Patent No. 7,569,385 for multipotent amniotic fetal stem cells. Under the terms of the license agreement, CMT paid an initial license fee within 30 days of entering into the agreement. The patent expires in 2026 and we have elected to amortize the patent over a ten-year period on a straight-line basis. On May 17, 2017, CMT purchased U.S. Patent No. 9,598,673 covering use of various stem cells for treatment of lower back pain from CMH. Under the terms of the agreement, the Company was required to pay CMH $100,000. The agreement was modified in November 2017 to waive payment of the initial license fee, modify the fee structure, and add the ability to convert the outstanding payable balance into common shares. In November 2020, the Company announced the commercialization of the lower back procedure using a patient’s own cells (“autologous”). This milestone triggered a milestone payment due from the Company to CMH in the amount of $300,000, which was subsequently paid. The patent expires in 2027, and we have elected to amortize the patent over a ten-year period on a straight-line basis. In December 2020, we entered into a Patent License Agreement with Jadi Cells, Inc. Execution of the contract triggered a milestone payment due from the Company to Jadi Cells, Inc. in the amount of $250,000, which was paid with shares of our common stock in February 2022. In August 2023, the Company paid CMH $100,000 related to the filing of an IND with the FDA per the terms of the agreement.We have elected to amortize the patent over a ten-year period on a straight-line basis.
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Amortization expense of $94,584 was recorded for the year ended December 31, 2023, representing the amortization of the ED, multipotent amniotic fetal stem cell and lower back pain patents and the Jadi Cell patent license agreement based upon the remaining life of the patents and license agreement. There was $92,084 of amortization expense recorded for the period ended December 31, 2022.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our consolidated financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity capital expenditures or capital resources.
Liquidity and Capital Resources
As of December 31, 2023, we had $9,899,504 of available cash and certificates of deposit and positive working capital of approximately $9,899,504. In comparison, as of December 31, 2022, we had approximately $18,399,136 of available cash and positive working capital of approximately $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”), and, 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 $0.0001 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 common stock, Warrants and Pre-Funded Warrants. On May 10, 2022, we filed a Form S-3 registration statement to register the shares, Common Warrants and Pre-Funded Warrants for resale. The registration went effective on May 19, 2022, fulfilling our contractual obligation. In addition, the Company’s directors and officers entered into Lock-Up Agreements under which they agreed not to sell any of their securities of the Company until 90 days following after the earliest of (i) the effective date of the Registration Statement, and (ii) the date all of the securities issued in the offering have been sold under Rule 144, or may be sold under Rule 144 without the Company being in compliance with the current public information requirement under such rule, and without any volume limitation. From June through July 2022, all of the Pre-Funded Warrants were exercised for shares of common stock.
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 $8,027,885 for the year-ended ended December 30, 2023, in comparison to $7,796,966 for the comparable period a year ago, an increase of $230,919 or 3.0%. The increase in cash used in operations was primarily related to an increase of $661,785 in research-related cash outlays associated with personnel and laboratory research in preparation of our master cell bank submittal to the FDA, development, submittal and FDA clearance of our AlloStemSpine® Chronic Lower Back Pain (CELZ-201 ADAPT) phase I/II clinical trial, continued efforts on our Type I Diabetes (CELZ-201CREATE-1) phase I/II trial, the manufacturing and testing of our ImmCelzTM cell line, and the development of our iPSC cell line in partnership with Greenstone Biosciences Inc.
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Net Cash used in Investing Activities. Cash provided from investing activities was $3,445,185 for the year ended December 31, 2023, due to $3,558,426 in net certificate of deposit redemptions, offset a $100,000 payment on a patent purchase agreement. In comparison, we used $10,078,617 for the year ended December 31, 2022 related to the investment of $10,000,000 in certificates of deposit in 2022.
Net Cash from Financing Activities.
In the year ended December 31, 2023, we spent $270,953 on stock repurchases. In the year ended December 31, 2022, we received $15,471,775 from the sale of common stock and warrants in our May 2022 private offering.
We have continued to realize losses from operations. However, as a result of our December 2021 and May 2022 offerings, we believe we will have sufficient cash to meet our anticipated operating costs and capital expenditure requirements through at least March 2025. We anticipate that we will need to raise additional capital in the future to support our ongoing operations and continue our clinical trials. We expect to continue to raise additional capital through the sale of our securities from time to time for the foreseeable future to fund the development of our proposed products through clinical development, manufacturing, and commercialization. Our ability to obtain such additional capital will likely be subject to various factors, including our overall business performance and market conditions. There can be no guarantee that we will be successful in our ability to raise capital to fund future operational and development initiatives.
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a Smaller Reporting Company, we are not required to furnish information under this Item 7A.
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Item 8. Financial Statements and Supplementary Data.
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
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Report of Independent Registered Public Accounting Firm – Haynie & Company F-2
Consolidated Balance Sheets as of December 31, 2023 and 2022 F-3
Notes to Consolidated Financial Statements F-7
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Creative Medical Technology Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Creative Medical Technology Holdings, Inc. (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the results of its consolidated operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation and Disclosure of Stock-Based Compensation and Warrants
Description of the Matter:
As discussed in Note 7 of the consolidated financial statements, the Company has a significant number of Warrants outstanding. The disclosure can be complex in nature. Auditing the sufficiency of the Company’s disclosures can be complex, involves judgment, and requires a thorough understanding of award terms.
How We Addressed the Matter in Our Audit:
We confirmed the number of registered warrants with the Company’s transfer agent, we recalculated the converting power of the warrants after the effects of the reverse stock split, and we evaluated the adequacy of the disclosures in the Company’s financial statements.
/s/ Haynie & Company
Haynie & Company
Salt Lake City, Utah
March 22, 2024
We have served as the Company’s auditor since 2016.
PCAOB ID #457
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CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
CURRENT ASSETS
OTHER ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
STOCKHOLDERS' EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
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CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year EndedDecember 31,2023 For the Year EndedDecember 31,2022
OPERATING EXPENSES
OTHER INCOME/(EXPENSE)
Provision for income taxes - -
NET LOSS PER SHARE - BASIC AND DILUTED $ (3.76 ) $ (9.28 )
The accompanying notes are an integral part of these consolidated financial statements.
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CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock Additional Paid-in Accumulated Treasury Total Stockholders' Equity
Shares Amount Capital Deficit Stock (Deficit)
Round-up shares issued in reverse stock split 23,502 24 (24 ) - - -
The accompanying notes are an integral part of these consolidated financial statements.
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CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year EndedDecember 31,2023 For the Year EndedDecember 31,2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net loss to
net cash used in operating activities:
Unrealized gain on investments (34,087 )
Changes in assets and liabilities:
Accounts receivable - 2,485
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of patents (100,000 ) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants - 457
Purchase of common stock (270,952 ) -
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest $ - $ -
Cash payments for income taxes $ - $ -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
The accompanying notes are an integral part of these consolidated financial statements.
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CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Creative Medical Technologies Holdings, Inc. (the “Company”) is 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. 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 AlloCelz LLC subsidiaries. However, neither ImmCelz Inc., StemSpine Inc. nor AlloCelz 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 2020, through the Company’s ImmCelz Inc. subsidiary, the Company began developing 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 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.
Risks and Uncertainties - The Company has a limited operating history and has generated minimal revenues from its operations.
The outbreak of the COVID-19 coronavirus has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19 or other public health epidemic, poses the risk that we or our employees, CROs, suppliers, manufacturers and other partners may be prevented from conducting business activities for an indefinite period of time, including due to the spread of the disease or shutdowns that may be requested or mandated by governmental authorities. Another significant, outbreak of COVID-19, a communicable disease, could disrupt our clinical trials, supply chain and the manufacture or shipment of our products, and other related activities, which could have a material adverse effect on our business, financial condition and results of operations, and may also have an adverse impact on global economic conditions which could impair our ability to raise capital when needed.
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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 generated minimal sales and has 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 the 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.
We cannot predict how global supply chain activities, or the economy at large may be impacted by prolonged global conflicts or sanctions imposed in response to the wars, or whether future conflicts, if any, may adversely affect our results of operations.
Use of Estimates – The preparation of the 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.
Concentration Risks – The Federal Deposit Insurance Corporation insures cash deposits in most general bank accounts for up to $250,000 per institution. The Company maintains its cash balances at four financial institutions. As of December 31, 2023, the Company’s balance exceeded the limit at three institutions.
Cash Equivalents – The Company classifies its highly liquid investments with maturities of three months or less at the date of purchase as cash equivalents. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the designations of each investment as of the balance sheet date for each reporting period. The Company classifies its investments as either short-term or long-term based on each instrument’s underlying contractual maturity date. Investments with maturities of less than 12 months are classified as short-term and those with maturities greater than 12 months are classified as long-term. The cost of investments sold is based upon the specific identification method. Investments include certificates of deposits and United States treasuries. As of December 31, 2023, the Company had an unearned gain of approximately $34,000 recorded within interest income on the accompanying statement of operations.
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Inventories – Inventories are valued on a cost basis. The cost of inventories is determined on a first-in, first-out basis.
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 December 31, 2023, and 2022, the Company had no outstanding derivative liabilities.
Intangible Assets – Purchased intangible assets with finite lives are amortized over their respective estimated lives and reviewed for impairment whenever events or other changes in circumstances indicate that the carrying amount may not be recoverable. The impairment testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. Impairment charges, if any, are recorded in the period in which the impairment is determined. The costs for intangible assets that are developed internally are expensed as incurred.
Impairment – The Company records impairment losses when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. Furthermore, the Company will make periodic assessments of technology and clinical testing to determine if it plans to continue to pursue the technology and if the license, patent, or other rights have value. To date no impairment has been recorded.
Derivative Liabilities – A derivative is an instrument whose value is “derived” from an underlying instrument or index such as a future, forward, swap, option contract, or other financial instrument with similar characteristics, including certain derivative instruments embedded in other contracts and for hedging activities.
As a matter of policy, the Company does not invest in separable financial derivatives or engage in hedging transactions.
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.
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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 December 31, 2023, and 2022, the Company had $40,000 in deferred revenue.
Research and Development - Research and development will continue to be a significant function of the Company. Research and development costs are expensed as incurred. Expenses in the accompanying financial statements include certain costs which are directly associated with the Company’s two phase I/II clinical trials, research and development of the ImmCelzTM, AlloStemTM, and IPSCsTM technology platforms. ImmCelzTM is based upon re-programming T-regulatory cells with cell-free secreted factors. We are conducting laboratory research to validate the core technology and ability to achieve scalable production.These costs, which consist primarily of monies paid for research assets, outsourced research services, laboratory facility expenses, materials and supplies and compensation costs amounted to $1,970,639 for the year ended December 31, 2023. There was $6,268,854 in research costs for the year ended December 31, 2022.
Stock-Based Compensation – The Company accounts for its stock-based compensation in accordance with Accounting Standards Codification (“ASC”) 718, Compensation - Stock Compensation. The Company accounts for all stock-based compensation using a fair-value method on the grant date and recognizes the fair value of each award as an expense over the requisite vesting period. The Company recognizes stock option forfeitures as they occur as there is insufficient historical data to accurately determine future forfeitures rates.
Income Taxes – The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred income taxes are recognized for differences between financial reporting and tax bases of assets and liabilities at the enacted statutory tax rates in effect for the years in which the temporary differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The Company evaluates the realizability of deferred tax assets and valuation allowances are provided when necessary to reduce net deferred tax assets to the amounts expected to be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company will recognize interest and penalties related to unrecognized tax benefits in the income tax provision in the accompanying statement of operations.
The Company calculates the current and deferred income tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed income tax returns are recorded when identified. The amount of income taxes paid is subject to examination by U.S. federal and state tax authorities. The estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts and circumstances existing at that time. To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made.
Basic and Diluted Income (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. During loss periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. During the year ended December 31, 2023, the Company had 11,183 options and 2,284,932 warrants to purchase common stock outstanding; however, the effects were anti-dilutive due to the net loss. During the year ended December 31, 2022, the Company had 11,183 options and 2,284,932 warrants to purchase common stock outstanding; however, the effects were anti-dilutive due to the net loss.
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On June 12, 2023, we effected a 1-for-10 reverse split of our authorized and issued and outstanding shares of common stock. All share references have been restated for this reverse split to the earliest period presented. As a result of the split, the authorized shares of the Company’s common stock decreased to 5,000,000 shares.
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 43,112 shares of CMTH restricted common stock valued at $100,000. CMH holds a significant amount of the Company’s common stock. The patent expires in 2025 and the Company has elected to amortize the patent over a ten-year period on a straight-line basis. Amortization expense of $9,972 was recorded for the years ended December 31, 2023, and 2022. As of December 31, 2023, the carrying value of the patent was $21,042. The Company expects to amortize $9,972 annually through 2026 related to the patent costs.
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 December 31, 2023, no amounts are currently due to the University.
The Company estimates that the patent expires in February 2026 and has elected to amortize the patent through the period of expiration on a straight-line basis. Amortization expense of $1,172 was recorded for the years ended December 31, 2023, and 2022. As of December 31, 2023, the carrying value of the patent was $2,033. The Company expects to amortize approximately $1,172 annually through 2025 related to the patent costs.
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:
o $200,000, upon completion of the IRB clinical trial.
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o $100,000 upon filing an IND with the FDA.
o $200,000 upon dosing of the first patient in a Phase 1-2 clinical trial.
o $400,000 upon dosing the first patient in a Phase 3 clinical trial.
The Company paid CMH the $100,000 obligation of the initial payment due under this agreement, by a $50,000 cash payment and the issuance of 667 shares of common stock on December 12, 2020. On December 31, 2020, following the Company’s announcement with respect to the clinical commercialization of the StemSpine technology, the Company paid CMH $50,000 of the $300,000 obligation due under this agreement through the issuance of 14 shares of common stock. On September 30, 2021, the Company paid CMH an additional $40,000 of the $300,000 obligation due under this agreement through the issuance of 8,466 shares of common stock, and in January 2021 the Company paid CMH an additional $50,000 of the $300,000 obligation due under this agreement through the issuance of 8,929 shares of common stock. The remaining portion of the $300,000 obligation was paid in cash in 2020. In August 2023, the Company paid CMH $100,000 related to the filing of an IND with the FDA per the terms of the agreement.
The patent expires on May 19, 2027, and the Company has elected to amortize the patent over a ten-year period on a straight-line basis. Amortization expense of $10,000 was recorded for the years ended December 31, 2023, and 2022. As of December 31, 2023, the carrying value of the initial patent license was $35,000. The Company expects to amortize approximately $10,000 annually through 2027 related to the patent costs.
The Company has elected to amortize the additional $400,000 associated with the patent over a ten-year period on a straight-line basis. Amortization expense of $48,440 was recorded for the years ended December 31, 2023, and 2022. As of December 31, 2023, the carrying value of the patent was $207,936. The Company expects to amortize approximately $56,000 annually through 2026 related to the patent costs.
ImmCelzTM - 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 ImmCelzTM 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 ImmCelzTM 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 to augment autologous cells. The terms of the agreement are as follows:
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To date, the Company has not made any payments to Jadi Cell under this agreement, other than the $250,000 initial license fee, which was paid by the issuance of 18,018 shares of common stock to Jadi Cell in February 2022.
The Company has elected to amortize the patent over a ten-year period on a straight-line basis. Amortization expenses of $25,000 and $25,000 were recorded for the years ended December 31, 2023, and 2022. As of December 31, 2023, the carrying value of the patent was $175,000. The Company expects to amortize approximately $25,000 annually through 2030 related to the patent costs.
As of December 31, 2023, future expected amortization of these assets is as follows:
For the year ended December 31,
The following is a rollforward of the Company’s licensing agreements for the year end December 31, 2023.
Assets AccumulatedAmortization
Addition of new assets 100,000 -
NOTE 3 – RELATED PARTY TRANSACTIONS
Narkeshyo Research Tools Purchase
On December 15, 2022, the Company purchased a set of components referred to as “research tools” for $5,000,000 from Narkeshyo LLC, an entity a former director and current consultant of the Company is affiliated with, pursuant to the terms of an Asset Purchase Agreement between the Company and Narkeshyo. Some of the acquired research tools were originally developed by the former director and current consultant. Under the terms of the agreement, the Company made an initial payment to Narkeshyo in the amount of $2,000,000 upon execution of the agreement, with the remaining amounts to be paid at various times through March 15, 2023, which were made as scheduled. Upon execution of the agreement, the Company recorded $5,000,000 as research and development expenses.
The vision and pipeline of the Company is based on robust and thorough development of its biological platforms, therapies and products. This acquisition of the research tools aligned with the Company’s priority of advancing and augmenting its suite of cGMP (Current Good Manufacturing Practices) cellular therapy products. The Company believes that the acquired research tools will allow it to protect its intellectual property while complying with regulatory requirements, and accelerate product development. The information contained in the research tools will not only be used to support and fast-track the Company’s regulatory filings (such as IND, NDA, ANDA and export applications), but also, provide clinical and regulatory support to potential partners and collaborators without having to divulge trade secrets and know-how.
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A third-party analysis of this acquisition concluded it would accelerate development time by 3-5 years and result in a substantial reduction in the Company’s research and development expenses over the long term.
The purchased tools included (but were not limited to):
· Toxicology
· Screening
· Preclinical Testing
· Assays
· Authorization
· Tools of Biological Transaction
· Tools of Intellectual Property
Jadi Cell License Agreement
On December 28, 2020, the Company entered into a patent license agreement with Jadi Cell, LLC, a company owned and controlled by Dr. Amit Patel, a former director of the Company. The agreement provides Company with an exclusive, worldwide license to U.S. Patent No. 9,803,176 “Methods and compositions for the clinical derivation of an allogenic cell and therapeutic uses” and the proprietary process of expanding the master cell bank of Jadi Cell LLC, in the field of enhancing autologous cells. The agreement is described in detail in Note 2 above. To date, the Company has not made any payments to Jadi Cell under this agreement, other than the $250,000 initial license fee, which was paid by the issuance of 18,018 shares of common stock to Jadi Cell in February 2022.
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 $100,000 obligation of the initial payment due under this agreement, by a $50,000 cash payment and the issuance of 667 shares of common stock on December 12, 2020. On December 31, 2020, following the Company’s announcement with respect to the clinical commercialization of the StemSpine technology, the Company paid CMH $50,000 of the $300,000 obligation due under this agreement through the issuance of 14 shares of common stock. On September 30, 2021 the Company paid CMH an additional $40,000 of the $300,000 obligation due under this agreement through the issuance of 8,466 shares of common stock, and in January 2021 the Company paid CMH an additional $50,000 of the $300,000 obligation due under this agreement through the issuance of 8,929 shares of common stock. The remaining portion of the $300,000 obligation has been paid in cash.
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 60,000 shares of common stock for the issuance of awards thereunder. The 2021 Plan provides for the granting to our employees, officers, directors, consultants, and advisors of performance awards payable in shares of common stock, stock options (non-statutory and incentive), restricted stock awards, stock appreciation rights (“SARs”), restricted share units (“RSUs”) and other stock-based awards. The purpose of the 2021 Plan is to secure for the Company and its stockholders the benefits arising from capital stock ownership by eligible participants who are expected to contribute to the Company’s future growth and success. As of December 31, 2023, stock options to purchase 16,984common shares had been granted under the 2021 Plan.
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The Company has also reserved stock options to purchase 3 common shares under its 2016 Stock Incentive Plan (the “Prior Plan”). In July 2016, the Company granted 10-year options to one party under the Prior Plan for accepting appointment to the Company’s scientific advisory board. The award consisted of options to purchase 1 share of common stock at $75,000 per share. The options are accounted for as non-employee stock options and thus revalued for reporting purposes at the end of each quarter. The Company does not expect to make any future awards under the Prior Plan.
During 2023 and 2022, 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 year-ended December 31, 2023 and 11,182 options issued during the year-ended 2022.
Option activity for the years ended December 31, 2023, and 2022 consists of the following:
Stock Options Weighted Average Exercise Price Weighted Average Life Remaining
Exercised - - -
Expired - - -
Issued - - -
Exercised - - -
Expired - - -
See Note 2 for discussion related to the issuance of common stock in connection with licensing agreements. See Note 7 for warrants issued in connection with our May 2022 private offering.
In February 2022, we granted a total of 11,182 options to Timothy Warbington and Donald Dickerson at an exercise price of $16.90. The value of the options was determined to be $145,525 based upon the Black-Scholes method, see variables used below. As of December 31, 2023, future estimated stock-based compensation expected to be recorded was estimated to be $40,132.
Inputs Used
Annual dividend yield $ -
Expected life (years) 6.5
Risk-free interest rate 0.81 %
Expected volatility 92.95 %
Common stock price $ 16.90
See Note 2 for discussion related to the issuance of common stock in connection with licensing agreements.
See Note 7 for warrant rollforward
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NOTE 7 – STOCKHOLDERS’ EQUITY
May 2022 Private Offering
On May 3, 2022, the Company completed the sale of (i) 299,167 shares of 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 (the “Common Warrants”), at a combined offering price of $22.50 per share of common stock/Pre-Funded Warrant and related Common Warrant, to a group of institutional investors (the “Purchasers”), pursuant to a Securities Purchase Agreement between the Company and the Purchasers dated as of April 28, 2022 (the “Purchase Agreement”), resulting in gross proceeds to the Company of approximately $17,000,000. The transaction was effected pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506(b) promulgated thereunder.
The Common Warrants have a five-year term, and an exercise price of $20.00 per share. The Pre-Funded Warrants did not have an expiration date and had an exercise price of $0.0001 per share. As of December 31, 2023, all of the Pre-Funded Warrants had been exercised.
The Pre-Funded Warrants were 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, did not embody an obligation for the Company to repurchase its shares, and permitted the holders to receive a fixed number of shares of common stock upon exercise. In addition, the Pre-Funded Warrants did not provide any guarantee of value or return.
Roth Capital Partners (“Roth”) acted as sole placement agent for the offering. The Company 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.
Share Repurchase Program
On June 12, 2023 the Company announced that its Board of Directors has approved a share repurchase program. The program authorizes the Company to repurchase up to $2 million of its shares of common stock, in the open market or through privately negotiated transactions, in accordance with applicable securities laws and other restrictions. The manner, timing and amount of any purchase will be based on an evaluation of market conditions, the Company's stock price and other factors. The program has no termination date, may be suspended or discontinued at any time, and does not obligate the Company to acquire any particular number of shares of common stock. As-of December 31, 2023, 57,500 shares had been repurchased under this program for a total purchase price of $270,952.
Warrants
In connection with our May 2022 private offering, we issued pre-funded warrants to purchase 456,389 shares of common stock and accompanying warrants to purchase 1,624,446 shares of common stock at a price of $20.00 per share.
Assumptions used in calculating the fair value of the warrants issued in 2022 were as follows:
Range ofInputs Used
Annual dividend yield $ -
Expected life (years) 5.0
Risk-free interest rate 0.81 %
Expected volatility 92.95 %
Common stock price $ 18.30
As of December 31, 2023, and 2022, warrants to purchase 2,284,932 shares of common stock were outstanding.
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Warrant activity for the years ended December 31, 2023 and 2022 consists of the following:
Warrants Weighted Average Exercise Price Weighted Average Life Remaining
Anti-Dilution Modifications -
Forfeiture/Cancellations -
Issued -
Exercises -
Anti-Dilution Modifications -
Forfeiture/Cancellations -
See Note 2 for discussion related to the issuance of common stock in connection with licensing agreements.
NOTE 8 – SIGNIFICANT RESEARCH AND DEVELOPMENT PURCHASES
On December 15, 2022, the Company purchased a set of components referred to as “research tools” for $5,000,000 from Narkeshyo LLC, an entity a former director and current consultant of the Company is affiliated with, pursuant to the terms of an Asset Purchase Agreement between the Company and Narkeshyo. Some of the acquired research tools were originally developed by the former director and current consultant. Under the terms of the agreement, the Company made an initial payment to Narkeshyo in the amount of $2,000,000 upon execution of the agreement, with the remaining amounts to be paid at various times through March 15, 2023, which were made as scheduled. Upon execution of the agreement, the Company recorded $5,000,000 as research and development expenses.
The vision and pipeline of the Company is based on robust and thorough development of its biological platforms, therapies and products. This acquisition of the research tools aligned with the Company’s priority of advancing and augmenting its suite of cGMP (Current Good Manufacturing Practices) cellular therapy products. The Company believes that the acquired research tools will allow it to protect its intellectual property while complying with regulatory requirements, and accelerate product development. The information contained in the research tools will not only be used to support and fast-track the Company’s regulatory filings (such as IND, NDA, ANDA and export applications), but also, provide clinical and regulatory support to potential partners and collaborators without having to divulge trade secrets and know-how.
A third-party analysis of this acquisition concluded it would accelerate development time by 3-5 years and result in a substantial reduction in the Company’s research and development expenses over the long term.
The purchased tools included (but were not limited to):
· Toxicology
· Screening
· Preclinical Testing
· Assays
· Authorization
· Tools of Biological Transaction
· Tools of Intellectual Property
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NOTE 9 – INCOME TAXES
The provision for income tax expense consists for the years ended December 31, 2023, and 2022:
Income tax provision attributable to:
Net provision for income tax $ - $ -
Deferred tax assets consist of the following at December 31, 2023, and 2022:
Deferred tax asset attributable to:
Accrued management fees, related party - -
Net deferred tax asset $ - $ -
The primary difference between the statutory federal rate and the Company’s effective tax rate for the years ended December 31, 2023 and 2022 was due to the 100% valuation allowance. The following is a reconciliation of the statutory federal rate and the Company’s effective tax rate for the year ended December 31, 2023, and 2022:
Tax at federal statutory rate 21.0 % 21.0 %
State, net of federal benefit 5.7 % 5.7 %
Change in temporary differences (0.0 )% (0.0 )%
Permanent differences (0.4 )% (0.2 )%
Valuation allowance (26.2 )% (26.4 )%
Provision for taxes - -
As of December 31, 2023 the Company had federal and state gross net operating loss carryforwards of approximately $23.5 million. The federal and state net operating losses and tax credits expire in years beginning in 2036. Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. To date, the Company hasn’t experienced “ownership changes” under section 382 of the Code and comparable state tax laws. As of December 31, 2023, the Company estimates that none of the federal and state net operating losses will be limited under Section 382 of the Code.
As of December 31, 2023, and 2022, the Company maintained a full valuation allowance on its net deferred tax assets. The valuation allowance was determined in accordance with the provisions of ASC 740, Accounting for Income Taxes, which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. The Company’s history of cumulative losses, along with expected future U.S. losses required that a full valuation allowance be recorded against all net deferred tax assets. The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.
The applicable federal and state rates used in calculating the deferred tax provision were 21.0% and 8.9%, respectively.
The Company files income tax returns in the U.S. and Arizona. All years presented remain subject to examination for U.S. federal and state purposes. The Company is not currently under examination in federal or state jurisdictions.
NOTE 11 – SUBSEQUENT EVENTS
Management has reviewed subsequent events through the date of the filing noting none.
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None
Item 9A. 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 December 31, 2023.
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.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of our company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Management assessed our internal control over financial reporting as of December 31, 2023, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO 2013 Criteria). Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on our assessment, management has concluded that our internal control over financial reporting was effective, as of December 31, 2023, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarterly period ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
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PART III
Item 10. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance.
Information with respect to this item will be set forth in the Proxy Statement for the 2024 Annual Meeting of Stockholders (“Proxy Statement”) under the headings “Directors,” “Executive Officers,” “Delinquent Section 16 Reports” and “Corporate Governance” or an amendment to this Annual Report on Form 10-K (“Form 10-K/A”), and is incorporated herein by reference. The Proxy Statement or Form 10-K/A, as the case may be, will be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
Item 11. Executive Compensation.
Information with respect to this item will be set forth in the Proxy Statement under the headings “Executive Compensation” and “Director Compensation,” or the Form 10-K/A, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information with respect to this item will be set forth in the Proxy Statement under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Executive Compensation—Securities Authorized for Issuance Under Equity Compensation Plans” or the Form 10-K/A, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information with respect to this item will be set forth in the Proxy Statement under the headings “Related Party Transactions” and “Director Independence” and is incorporated herein by reference or the Form 10-K/A.
Item 14. Principal Accountant Fees and Services.
Information with respect to this item will be set forth in the Proxy Statement under the headings “Audit and Non-Audit Related Fees” and “Pre-Approval Policy” and is incorporated herein by reference or the Form 10-K/A.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
The following exhibits are included with this report:
Exhibits
4.4 Description of Registrant’s Securities*
Table of Contents
31.1 Rule 13a-14(a)/15d-14a(a) Certification of Principal Executive Officer*
31.2 Rule 13a-14(a)/15d-14a(a) Certification of Principal Financial Officer*
32.1 Section 1350 Certification of Principal Executive Officer *
32.2 Section 1350 Certification of Principal Financial Officer *
101.INS Inline XBRL Instance Document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
________
† Management contract or compensatory plan or arrangement.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 22, 2024 By: /s/ Timothy Warbington
Timothy Warbington, Chief Executive Officer
(Principal Executive Officer)
Date: March 22, 2024 By: /s/ Donald Dickerson
Donald Dickerson, Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
NAME TITLE DATE
/s/ Timothy Warbington Director & Chairman March 22, 2024
Timothy Warbington
/s/ Donald Dickerson Director March 22, 2024
Donald Dickerson
/s/ Michael H. Finger Director March 22, 2024
Michael H. Finger
/s/ Susan Snow Director March 22, 2024
Susan Snow
/s/ Bruce S. Urdang Director March 22, 2024
Bruce S. Urdang