Creative Medical Technology Holdings, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 31, 2023. This is an annual report, not a standalone fourth-quarter report. The company is a small biotechnology business whose limited commercial sales come principally from physician kits for CaverStem and FemCelz; much of its broader therapy pipeline remains in development.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $88,600 | $87,754 |
| Gross profit / gross margin | $60,109 / 67.8% | $39,805 / 45.4% |
| Research and development expense | $6,268,854 | $109,180 |
| Selling, general and administrative expense | $3,943,543 | $2,964,490 |
| Operating loss | $(10,244,372) | $(3,125,949) |
| Net income (loss) | $(10,144,044) | $19,211,768 |
| Net cash used in operating activities | $(7,796,966) | $(2,215,782) |
- At year-end, cash was $8.32 million and certificates of deposit were $10.08 million, or $18.40 million combined; working capital was approximately $15.43 million. The cash-flow statement reports cash separately from certificates of deposit.
- Total assets were $19.19 million, total liabilities $3.32 million, and stockholders’ equity $15.86 million. The company reported no outstanding loans or derivative liabilities.
- Investing cash outflow of $10.08 million primarily reflected purchases of certificates of deposit. Financing activities provided $15.47 million net, mainly from the May 2022 equity offering.
Changes versus 2021
- Revenue was nearly flat, increasing 1.0%, while gross profit rose 51.0%, primarily because the company returned to selling kits through physicians after a lower-margin direct-to-patient test in late 2021.
- R&D expense increased by $6.16 million, including a $5.0 million research-tools purchase recorded as expense. The spending supported cell-line and manufacturing development and the CELZ-201 diabetes program.
- Operating loss widened by $7.12 million, and operating cash use increased by $5.58 million.
- 2021 net income was driven largely by a $26.03 million gain from changes in the fair value of derivative liabilities, partly offset by interest expense. Those derivative liabilities and related financing effects were absent in 2022; 2022 results therefore show a net loss.
Outlook, developments and risks
- Management said available cash and certificates of deposit were expected to fund anticipated operating costs and capital expenditures through at least March 2024. It also expects to need additional capital; there is no assurance it can raise funds on acceptable terms. Further equity financing could dilute existing holders.
- The FDA cleared the IND for CELZ-201 for Type 1 diabetes, permitting a Phase I/II clinical trial; patient recruitment was expected to begin in 2023. IND clearance is not marketing approval. The company also described AlloStem and ImmCelz development work. ImmCelz requires FDA approval before commercialization, according to the filing.
- Commercial kit revenue remains minimal. CaverStem and FemCelz were offered through physicians at eight U.S. locations, and the company said these procedures were not eligible for public or private insurance reimbursement. Management’s view that certain autologous procedures are exempt from FDA premarket review remains subject to regulatory risk.
- Key risks include continuing losses, uncertain clinical and regulatory outcomes, reliance on third parties, limited sales capacity, competition, future financing needs, and potential adverse effects from later-discovered safety or manufacturing issues. The company reported that cash balances exceeded FDIC insurance limits at both of its banking institutions.
- Nasdaq had notified the company of a bid-price deficiency; the filing says it had until July 4, 2023 to regain compliance. Delisting could impair trading and liquidity.
- A former employee’s breach-of-contract and wrongful-termination claims were pending in JAMS arbitration. The filing does not provide a clear estimate of potential exposure.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective at year-end, citing inadequate disclosure of the $5.0 million related-party research-tools transaction and insufficient segregation of officer duties. The auditor gave an unqualified opinion on the financial statements but was not engaged to audit internal controls.
- The $5.0 million research-tools purchase was from Narkeshyo LLC, affiliated with a former director and current consultant. The auditor identified the transaction as a critical audit matter. The company recorded the full amount as 2022 R&D expense.
Important facts for investors to verify
- Cash runway assumptions behind management’s estimate through March 2024, subsequent spending, and the timing and terms of any additional financing.
- Progress and enrollment in the CELZ-201 trial, and the regulatory basis for the company’s claimed treatment exemptions for marketed or planned autologous procedures.
- Commercial adoption, procedure volumes, per-kit economics, and whether revenue can grow beyond its 2022 level of $88,600.
- Potential dilution from the 22.85 million warrants outstanding at December 31, 2022, compared with 14.08 million common shares outstanding.
- Documentation, related-party review, and accounting for the $5.0 million research-tools purchase, together with progress in remediating the disclosed material weaknesses.
- Outcome and potential financial impact of the employee arbitration, and status of Nasdaq minimum-bid-price compliance.