Creative Medical Technology Holdings, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Financial statements are unaudited. The company is a commercial-stage biotechnology company; substantially all current commercial activity is through physician-distributed CaverStem and FemCelz procedure kits. Its other cell-therapy programs remain in development, and several subsidiaries have not begun commercial operations.
Financial performance and liquidity
- Revenue: Q2 revenue was $0, unchanged from Q2 2022. First-half revenue was $0 versus $15,000 in the prior-year period; management attributed the pause in sales to reassessing marketing and distribution options. Gross profit was $0 in Q2 and the first half, versus first-half 2022 gross profit of $8,209. A meaningful gross margin is not available because current-period revenue was zero.
- Expenses and loss: Q2 operating expenses were $1.192 million, down from $1.791 million; net loss was $1.102 million, compared with $1.791 million. First-half operating expenses were $2.305 million versus $2.954 million, and net loss was $2.154 million versus $2.946 million. First-half 2023 included $151,060 of interest income, compared with none in 2022. Basic and diluted loss per share was $0.78 for Q2 and $1.53 for the first half, versus $1.99 and $3.81, respectively, in 2022.
- Cash flow: First-half operating cash use was $4.828 million, up from $3.332 million in 2022. Investing activities provided $497,410, primarily from net certificate-of-deposit redemptions; financing activities provided no cash, versus $15.472 million in 2022. Cash declined by $4.331 million during the first half to $3.990 million.
- Liquidity and debt: Cash plus certificates of deposit totaled $13.571 million at June 30, down from $18.399 million at December 31, 2022. Working capital was approximately $13.336 million, versus $15.426 million. Certificates of deposit were $9.581 million. Total liabilities were $398,527, including $344,413 of accounts payable; the company reported no outstanding loans or debt issuances.
- Equity: Stockholders’ equity was $13.729 million, down from $15.865 million at year-end. The company reported 1,431,126 common shares outstanding at June 30 and 1,430,530 as of August 11, 2023. It authorized a share-repurchase program of up to $2 million; no shares had been repurchased by June 30.
Changes, outlook, and material matters
- Lower year-over-year expenses drove the reduced operating loss. Q2 R&D expense fell 53%, primarily because 2022 included approximately $410,000 of CELZ-201 diabetes-trial startup costs. First-half SG&A also declined, with management citing lower consulting, marketing, insurance, and other costs.
- Management said CaverStem and FemCelz were available through physicians at eight U.S. locations and that the company was seeking to expand their commercial use. No quantified financial guidance was provided. Management expected recruitment for the CELZ-201 Phase I/II Type 1 diabetes trial to begin in 2023. The filing also reports positive follow-up results for StemSpine and CELZ-001, and an application for Orphan Drug Designation for CELZ-100; it does not provide a later recruitment or designation outcome.
- First-half operating cash use included $3 million of cash payments associated with the $5 million research-tools purchase from Narkeshyo LLC, an entity affiliated with a former director and current consultant. The full $5 million purchase had been recorded as R&D expense in 2022. The filing cites a third-party analysis projecting development-time and long-term R&D benefits; these are management-reported expectations, not realized results.
- A 1-for-10 reverse stock split took effect June 12, 2023, and the company said it regained Nasdaq’s minimum-bid-price compliance on June 27. A $2 million repurchase authorization followed, but it does not obligate the company to buy shares.
- Risks and controls: The company cited limited operating history and revenues, limited marketing and distribution capabilities, and ongoing development and funding risks. Cash balances exceeded FDIC insurance limits at two of its four financial institutions. Management concluded disclosure controls were ineffective and reported continuing material weaknesses involving disclosure of the related-party research-tools purchase and insufficient segregation of officers’ duties; remediation was underway. An employee’s claims for breach of contract and wrongful termination were pending in arbitration.
Important facts for investors to verify
- Whether sales resume and whether the company can convert its physician network and pipeline into recurring revenue.
- Cash burn, certificate-of-deposit maturities, and how long available liquidity can fund operations and clinical development.
- Progress and costs for CELZ-201 trial recruitment, other clinical programs, and the Orphan Drug Designation application.
- Related-party terms and remaining obligations associated with research tools and licensing agreements.
- Remediation of the disclosed material weaknesses and developments in the employee arbitration.
- Expense figures differ slightly between the financial statements and MD&A for some first-half line items; investors should consult the filed statements and notes for the reported values.