Creative Medical Technology Holdings, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparisons are with FY2019. This is an annual filing, not a standalone fourth-quarter report.
Business context
The company is a commercial-stage biotechnology business focused on adult stem-cell treatments. It generates revenue mainly by selling disposable kits used by physicians for CaverStem (erectile dysfunction) and FemCelz (female sexual dysfunction). These products were offered through physicians in 14 markets. StemSpine for lower-back pain was entering commercialization; ImmCelz and AmnioStem programs remained in development. The company reported no employees and reimburses affiliate CMH for management and consulting services.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $164,500 | $165,500 |
| Cost of revenue | $50,596 | $45,499 |
| Gross profit / approximate gross margin | $113,904 / 69.2% | $120,001 / 72.5% |
| Operating expenses | $1,228,739 | $1,250,169 |
| Operating loss | $(1,114,835) | $(1,130,168) |
| Interest expense | $(1,229,590) | $(1,895,528) |
| Derivative fair-value loss | $(33,980,805) | $(5,091,935) |
| Net loss | $(36,325,230) | $(8,483,673) |
| Net cash used in operations | $(434,556) | $(1,213,093) |
Cash was $98,012 at year-end, versus $88,648 a year earlier. The company used $250,000 in investing activities for a patent license and received $693,920 net cash from financing. Total assets were $717,775. Current liabilities were $40.52 million, including $38.74 million of derivative liabilities; working capital was negative $40.42 million. Convertible notes payable, net of discount, were $788,701 on the balance sheet, while disclosed 2021 loan maturities totaled $1,305,005. Stockholders’ deficit was $39.80 million.
Changes, outlook, risks and unusual items
- Revenue declined 0.6% year over year. Management attributed disruption to COVID-19 suspensions of elective procedures and physician promotions that lowered average kit prices. Gross profit fell 5.1%; general and administrative expense declined 1.7%, partly due to lower marketing and travel costs.
- Net loss increased substantially, principally because of a $33.98 million noncash loss from remeasuring derivative liabilities tied to variable-price convertible instruments. The filing’s financial statements report this loss as a major component of total other expense.
- Common shares issued increased from 22.49 million at year-end 2019 to 768.54 million at year-end 2020, largely through conversions of debt and related amounts. By March 12, 2021, 1.136 billion shares were outstanding. The company estimated notes could convert into approximately 1.4 billion additional shares at December 31, 2020; variable conversion prices make dilution uncertain.
- Management planned to expand CaverStem, FemCelz and StemSpine, pursue FDA review and a stroke trial for ImmCelz, and seek financing. It reported approximately $98,000 of cash and an estimated monthly cash burn of about $100,000, with cash and committed funds expected to cover operations only through at least February 2021. Management stated it had no alternative funding sources identified.
- The auditor issued an unqualified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, negative operating cash flows and negative working capital. The statements include no adjustments for the outcome of this uncertainty.
- After year-end, the company reported a $350,000 Series B preferred-stock financing in February 2021, with a 10% annual dividend and conversion terms; it also issued substantial common shares upon note conversions through March 17, 2021. These events underscore financing and dilution risk.
- Other items to note: R&D expense was $0 in both years; the company disclosed a dispute over fees for unperformed banking services without recording a loss provision; and it believes certain marketed autologous procedures qualify for an HCT/P regulatory exception, a position that could be challenged or affected by regulatory changes.
Most important facts for investors to verify
- Current cash runway, financing availability, and progress toward resolving the going-concern uncertainty.
- Conversion terms and remaining balances of notes, derivative liabilities, warrants and other potential share issuances; confirm fully diluted share exposure.
- Whether CaverStem, FemCelz and StemSpine sales can grow after pandemic disruption, and whether reported clinical evidence and regulatory assumptions support commercialization.
- Timing and status of the ImmCelz FDA IND and any clinical-trial plans; the filing reports an IND submission in January 2021 but does not establish FDA authorization or trial commencement.
- Related-party obligations and transactions, including CMH management reimbursements and the $250,000 Jadi Cells license obligation involving a company controlled by a director.