Creative Medical Technology Holdings, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. The company sells disposable kits for its Caverstem procedure for erectile dysfunction and FemCelz procedure for vaginal rejuvenation; it also holds stem-cell and treatment-related licenses and patents. The financial statements are unaudited.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $57,500 | $52,400 | $169,900 | $66,800 |
| Gross profit | $49,500 | $16,005 | $128,461 | $25,477 |
| Gross margin | 86.1% | 30.5% | 75.6% | 38.1% |
| Operating loss | $(273,422) | $(274,835) | $(799,579) | $(793,881) |
| Net loss | $(2,406,124) | $(1,571,020) | $(3,291,723) | $(15,590,004) |
| Operating cash flow | Not presented by quarter | $(960,661) | $(756,639) |
- For Q3, revenue rose 10% year over year; gross profit increased mainly because of lower kit costs. General and administrative expense rose 12% to $317,636, including higher marketing expense. No R&D expense was recorded in the quarter.
- For the first nine months, revenue increased 154%, while general and administrative expense rose 15% to $912,182. No R&D expense was recorded, compared with $10,284 in the prior-year period.
- Nine-month net loss improved substantially from 2018, primarily because the prior-year period included a much larger derivative fair-value loss. Q3 net loss worsened, reflecting higher interest expense and derivative-related expense. Basic and diluted loss per share was reported as $(0.00) for Q3 and the 2019 nine-month period; the 2018 nine-month figure was $(0.03).
- Cash was $158,236 at September 30, down from $304,056 at December 31, 2018. Current assets were $182,736 versus current liabilities of $3,893,364; the reported working-capital deficit was $3,710,628. Stockholders’ deficit was $3,562,981.
- Convertible notes payable, net of discount, were $896,246; derivative liabilities were $2,544,160. The filing lists $1,532,614 in future note maturities, with $504,990 in 2019 and $1,027,624 in 2020. Nine-month financing provided net cash of $814,841, including $1,047,295 of convertible-note proceeds.
Material changes and financing
- Common shares outstanding increased from 902.7 million at December 31, 2018 to 2.108 billion at September 30, 2019; 2.458 billion were reported outstanding on November 14, 2019. Most of the nine-month share growth related to conversions of notes, accrued interest and derivative liabilities.
- At September 30, the company estimated that convertible notes could convert into approximately 4.8 billion additional common shares. Many notes use variable conversion prices at substantial discounts to market, and some include default-rate increases, premiums or other penalties.
- On October 11, 2019, after quarter-end, the company issued notes with $297,000 aggregate principal for $275,000 in proceeds. The purchase agreement required the company to pursue a reverse stock split between 1-for-25 and 1-for-75 by December 30, 2019. The filing also reports issuing 287,103,971 shares in October and November for conversion of $77,061 in notes.
Outlook, risks and unusual items
- Going concern: Management and the filing identify substantial doubt about the company’s ability to continue as a going concern. Management planned to seek loans or equity financing and stated there was no assurance it could raise capital or achieve profitability. Failure to secure financing could require substantial curtailment or termination of operations.
- Management described an approximate $100,000 monthly cash burn and estimated available cash and committed funds would cover operations through at least December 2019; elsewhere, it said cash on hand would meet requirements for only a few more months. The company had no identified alternative funding source.
- Plans for the next 12 months included marketing kits, publishing clinical-trial and post-marketing results, and partnering with researchers on neurological programs. No quantified revenue or earnings guidance was provided.
- Reported results are materially affected by non-cash derivative accounting and debt-discount amortization. The filing’s derivative disclosures do not reconcile clearly: the statements report a nine-month derivative fair-value loss of $657,765, while the derivative note reports a $1,432,412 revaluation loss and a September 30 liability of $2,554,160, versus $2,544,160 on the balance sheet.
- A New York dispute over fees for banking services is being litigated. The company contests owing payment and recorded no loss provision because a loss was not considered probable. Management reported disclosure controls as effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Near-term cash needs, committed financing availability and the company’s ability to continue as a going concern.
- Outstanding note balances, maturity and default terms, conversion-price mechanics, share-reserve obligations and potential dilution, including the estimated 4.8 billion convertible shares.
- The derivative-liability and fair-value figures, which are inconsistent across the filing’s financial statements and notes.
- Status and terms of the post-quarter October financing, required reverse split, and subsequent note conversions and share issuances.
- Whether kit-sales growth and improved gross margins can produce cash flow sufficient to offset operating expenses and interest costs.