Creative Medical Technology Holdings, Inc. — Q1 2023 10-Q
Reporting period: Three months ended March 31, 2023. Financial statements are unaudited. The company is a commercial-stage biotechnology company; substantially all current commercial activity is through physician-used CaverStem and FemCelz kits. It reported eight U.S. physician locations offering the products. Its other therapeutic programs remain in development.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $0 | $15,000 |
| Cost of revenue / gross profit | $0 / $0 | $6,791 / $8,209 |
| Research and development expense | $319,029 | $10,000 |
| Selling, general and administrative expense | $771,020 | $1,130,057 |
| Operating loss | $1,113,070 | $1,154,869 |
| Interest income / net loss | $61,197 / $1,051,923 | $0 / $1,154,869 |
| Basic and diluted loss per share | $0.07 | $0.18 |
| Net cash used in operating activities | $3,841,642 | $1,576,893 |
R&D increased mainly due to $259,029 of CELZ-201 Phase I/II diabetes trial expenses and $60,000 in research consulting. SG&A fell 32%, with decreases in D&O insurance, consulting, and marketing costs. Interest income reflected short-term certificates of deposit. Gross margin is not meaningful in Q1 2023 because there were no sales.
At March 31, 2023, cash was $9.52 million and certificates of deposit were $5.04 million, or $14.56 million combined. Working capital was approximately $14.41 million, down from $15.43 million at December 31, 2022. Total liabilities were $407,536, primarily accounts payable; the company reported no outstanding loans. Operating cash use included a substantial accounts-payable reduction and payments related to the research-tools purchase. Investing cash inflow of $5.04 million mainly reflected certificate-of-deposit redemptions; there was no financing cash flow.
Total assets were $15.23 million, compared with $19.19 million at year-end 2022. Stockholders’ equity was $14.82 million. The company had 22,849,266 warrants outstanding at a weighted-average exercise price of $2.66; potential dilution is a consideration. Common shares outstanding were 14,076,238 at March 31 and May 12, 2023.
Material developments, outlook, and risks
- Management said sales were paused while it reevaluated marketing and distribution options for CaverStem and FemCelz. No revenue guidance or quantified financial outlook was provided.
- The FDA had cleared the CELZ-201 IND for a Phase I/II Type 1 diabetes trial; patient recruitment was expected to begin in 2023. The company also reported positive three-year StemSpine pilot-study follow-up in February 2023 and filed for Orphan Drug Designation for CELZ-100 in March. It reported positive CELZ-001 Type 2 diabetes follow-up data in April, after quarter-end.
- In December 2022, the company recorded a $5 million R&D expense for research tools purchased from Narkeshyo LLC, an entity affiliated with a former director and current consultant. It paid the remaining purchase amounts through March 15, 2023; management says the acquisition is intended to support product development and regulatory work.
- The company stated its disclosure controls were ineffective and identified continuing material weaknesses, including inadequate disclosure of the research-tools transaction and insufficient segregation of officer duties. It had begun adding review procedures and dual authorization for certain disbursements; remediation was expected over the next few quarters.
- Nasdaq had granted an additional 180-day period, through July 3, 2023, to regain compliance with the $1.00 minimum bid-price rule. The filing warns that delisting could harm share liquidity and future capital-raising ability.
- Risks include limited operating history and minimal revenue, dependence on limited sales and marketing capabilities, product-development and regulatory uncertainty, and competition. Cash balances exceeded FDIC insurance limits at both financial institutions where funds were held.
- An employee’s breach-of-contract, wrongful-termination, and related claims were pending in JAMS arbitration. No material subsequent events were reported.
Important facts for investors to verify
- Whether product sales resume and whether the company can expand beyond its reported eight physician locations.
- CELZ-201 trial recruitment and other clinical, regulatory, and development milestones, including costs and funding needs.
- Progress on Nasdaq bid-price compliance before the July 3, 2023 deadline.
- Remediation and operating effectiveness of controls addressing the disclosed material weaknesses.
- Potential dilution from outstanding warrants and the terms of related-party licensing and patent arrangements.
- The filing’s figures contain an inconsistency: the statements report Q1 2023 net loss of $1,051,923, while MD&A states $1,051,943 in one passage. Confirm the correct amount. The filing also reports $40,000 of deferred revenue at March 31, 2023 despite reporting zero quarterly revenue; the timing and accounting should be reviewed.