Management's Discussion and Analysis of Financial Condition and Results of
Operations analyzes the major elements of our balance sheets and statements of
operations. This section should be read in conjunction with our Annual Report on
Form 10-K for the year ended December 31, 2021, and our interim financial
statements and accompanying notes to these financial statements included in this
report. All amounts are in U.S. dollars.
Forward-Looking Statement Notice
This quarterly report on Form 10-Q contains forward-looking statements about our
expectations, beliefs or intentions regarding, among other things, our product
development efforts, business, financial condition, results of operations,
strategies or prospects. In addition, from time to time, we or our
representatives have made or may make forward-looking statements, orally or in
writing. Forward-looking statements can be identified by the use of
forward-looking words such as "believe," "expect," "intend," "plan," "may,"
"should" or "anticipate" or their negatives or other variations of these words
or other comparable words or by the fact that these statements do not relate
strictly to historical or current matters. These forward-looking statements may
be included in, but are not limited to, various filings made by us with the SEC,
press releases or oral statements made by or with the approval of one of our
authorized executive officers. Forward-looking statements relate to anticipated
or expected events, activities, trends or results as of the date they are made.
Because forward-looking statements relate to matters that have not yet occurred,
these statements are inherently subject to risks and uncertainties that could
cause our actual results to differ materially from any future results expressed
or implied by the forward-looking statements. Many factors could cause our
actual activities or results to differ materially from the activities and
results anticipated in forward-looking statements, including, but not limited
to, those set forth in our most recent annual report referenced below.
This report identifies important factors which could cause our actual results to
differ materially from those indicated by the forward-looking statements.
All forward-looking statements attributable to us or persons acting on our
behalf speak only as of the date of this report and are expressly qualified in
their entirety by the cautionary statements included in this report. We
undertake no obligations to update or revise forward-looking statements to
reflect events or circumstances that arise after the date made or to reflect the
occurrence of unanticipated events. In evaluating forward-looking statements,
you should consider these risks and uncertainties.
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Overview
We are a commercial stage biotechnology company focused on immunology, urology,
neurology and orthopedics using adult stem cell treatments and interrelated
regenerative technologies for the treatment of multiple indications. Our
existing and pipeline of therapies and products include of the following:
[[Image Removed: celz_10qimg1.jpg]]
Our subsidiary, Creative Medical Technologies, Inc. ("CMT"), was originally
created to monetize U.S. Patent No. 8,372,797 and related intellectual property
related to the treatment of erectile dysfunction ("ED"), which it acquired in
February 2016. Subsequently, we have expanded our development and acquisition of
intellectual property beyond urology to include therapeutic treatments utilizing
"re-programmed" stem cells, and the treatment of neurologic disorders, lower
back pain, type I diabetes, and heart, liver, kidney and other diseases using
various types of stem cells through our ImmCelz, Inc., StemSpine, Inc. and
AmnioStem LLC subsidiaries. However, neither ImmCelz Inc., StemSpine Inc. nor
AmnioStem LLC have commenced commercial activities.
We currently conduct substantially all of our commercial operations through CMT,
which markets and sells our CaverStem® and FemCelz® disposable kits utilized by
physicians to perform autologous procedures that treat erectile dysfunction and
female sexual dysfunction, respectively. Our CaverStem® and FemCelz® kits are
currently available through physicians at eight locations in the United States.
The Company has produced an allogenic Cell Line called AlloStem™, which includes
a Master Cell Bank and a Drug Master File which shall be submitted for FDA
registration. This is an important component to many of our programs, including,
but not limited to, the ImmCelz® immunotherapy platform for multiple diseases,
OvaStem® for Premature Ovarian Failure, AlloStem™ for Type 1 diabetes,
StemSpine® for lower back pain, and IPSCelz ™ inducible pluripotent stem cell
program in ongoing development with Greenstone Biosciences.
The Company is working with Greenstone Biosciences Inc. in Palo Alto, CA to
develop a human induced pluripotent stem cell (iPSC) pipeline for the Company's
ImmCelz® platform. The project is identified as iPScelzTM. Human iPSc's are
genetically reprogrammed to differentiate into a wide array of human cell and
tissue types, possess the ability to proliferate almost indefinitely in culture,
and represent a single source of cells that could be used to replace those lost
to damage or disease. Beyond the therapeutic benefits offered by iPSC, the next
generation iPScelzTM pipeline for ImmCelz® will enable the ability for large
scale production and sustainability, while helping to reduce long term costs of
manufacturing.
On November 3, 2022 the Company announced he U.S. Food and Drug Administration
has cleared the Company's Investigational New Drug (IND) application, enabling
the Company to proceed with initiating a clinical trial for Type 1 Diabetes
using AlloStem™ AlloStem™ leverages a unique approach to harnessing the power of
Perinatal Tissue Derived Cells® (PRDC) to multi-potentialities, including
self-renewal ability, low antigenicity, reduced toxicity, and large-scale
clinical expansion. The primary objective of the study (CELZ-201) is to evaluate
AlloStem™ in patients with newly diagnosed Type 1 Diabetes. Patient recruitment
is expected to begin in Q1 2023 with trial commencement updates to follow.
Results of Operations - For the Three-month Periods Ended September 30, 2022 and
2021
Gross Revenue. We generated $55,000 in revenue for the three-month period ended
September 30, 2022, in comparison with $10,000 for the comparable quarter a year
ago. The increase of $45,000 or 450% was primarily due to new physician
recruitment.
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Cost of Goods Sold. We generated $16,000 of cost of goods sold for the
three-month period ended September 30, 2022, in comparison with $4,000 cost of
goods sold for the comparable period a year ago. The increase of $12,000 or
300% was due to the increased sales.
Gross Profit/(Loss). We generated a gross profit of $39,000 for the three-month
period ended September 30, 2022, in comparison with $6,000 gross profit for the
comparable period a year ago. The increase of $33,000 or 550% was due to the
increased sales.
General and Administrative Expenses. General and administrative expenses for the
three-month period ended September 30, 2022, totaled $805,461 in comparison with
$757,235, for the comparable quarter a year ago. The increase of $48,226 or 6%
is primarily due to approximately $87,000 in director and officer insurance
premiums that began in September 2021, an increase of approximately $164,000 in
increased net salary expenses from terminating the management service agreement
in September 2021 and entering into direct employment arrangements with our CEO,
CFO and the hiring of other key leaders of the management team, an increase of
approximately $58,000 in marketing expenses as we ramp-up our commercial
activity, and an increase of $139,000 in outside consulting expenses focused on
moving key elements of our programs forward along with investments in
intellectual property, offset by a reduction of $374,000 in stock-based
compensation.
Amortization Expenses. Amortization expenses for the three-month periods ended
September 30, 2022 and 2021, totaled $23,021.
Research and Development Expenses. Research and development expenses for the
three-month period ended September 30, 2022, totaled $230,940 in comparison with
$59,180, for the comparable quarter a year ago. The increase of $171,760 or 290%
reflects investments in in regulatory, research, laboratory and manufacturing
resources required to move our programs forward.
Other Income/Expense. Other income for the three-month period ended September
30, 2022 was $38,083, in comparison with a loss of $1,010,160, for the
comparable quarter a year ago. The increased income of $1,048,243, is driven by
the elimination of convertible debt that eliminated interest expense in 2022
compared to $1,305,273 in 2021, a loss of $184,044 on the change of fair value
of derivative liabilities in 2021, offset by a gain of $489, 157 from the
extinguishment of convertible notes in 2021 and $38,083 in interest income from
short-term certificate of deposit investments in 2022.
Net Income/Loss. For the reasons stated above, our net loss for the three-month
period ended September 30, 2022, totaled $982,339 in comparison to a loss of
$1,010,160, for the comparable quarter a year ago.
Results of Operations - For the Nine-month Periods Ended September 30, 2022 and
2021
Gross Revenue. We generated $70,000 in revenue for the nine-month period ended
September 30, 2022, in comparison with $20,000 in revenue for the comparable
period a year ago. The increase of $50,000 or 250% was primarily due to new
physician recruitment.
Cost of Goods Sold. We generated $22,791 of cost of goods sold for the
nine-month period ended September 30, 2022, in comparison with $8,500 cost of
goods sold for the comparable period a year ago. The increase of $14,291 or 168%
was primarily due to new physician recruitment.
Gross Profit/(Loss). We generated a gross profit of $47,209 for the nine-month
period ended September 30, 2022, in comparison with $11,500 gross profit for the
comparable period a year ago. The increase of $35,709 or 311% was due to the
increased sales.
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General and Administrative Expenses. General and administrative expenses for the
nine-month period ended September 30, 2022, totaled $3,043,946 in comparison
with $1,536,479, for the comparable period a year ago. The increase of
$1,507,467 or 98% is primarily due to approximately $392,000 in director and
officer insurance premiums that began in September 2021, an increase of
approximately $542,000 in increased net salary expenses offset by the
termination of the management service agreement in September 2021 and entering
into direct employment arrangements with our CEO, CFO and the hiring of other
key leaders of the management team, $226,000 in Board of Director expenses as a
result of bringing on independent board members, an increase of approximately
$337,000 in marketing expenses, and an increase of $381,000 in outside
consulting expenses focused on moving key elements of our programs forward along
with investments in intellectual property offset by a $536,000 reduction in
stock-based compensation.
Amortization Expenses. Amortization expenses for the nine-month periods ended
September 30, 2022 and 2021, totaled $69,063.
Research and Development Expenses. Research and development expenses for the
nine-month period ended September 30, 2022, totaled $900,635 in comparison with
$59,180, for the comparable period a year ago. The increase of $841,455 or
1,422% reflects investments in in regulatory, research, laboratory and
manufacturing resources required to move our programs forward.
Other Income/Expense. Other income for the nine-month period ended September 30,
2022 was $38,083, in comparison with 24,740,463, for the comparable period a
year ago. The decreased income of $24,702,380, is primarily driven by the 2021
gain of $26,030,549 in the change in the fair value of derivative liabilities
and a gain of $585,601 on the extinguishment of convertible notes, offset by
interest expense of $1,875,687 in 2021 that was tied to convertible debt.
Net Income/Loss. For the reasons stated above, our net loss for the nine-month
period ended September 30, 2022, totaled $3,928,352 in comparison to net income
of $23,087,241, for the comparable period a year ago.
Liquidity and Capital Resources
As of September 30, 2022, we had $21,990,370 of available cash and short-term
certificates of deposit and positive working capital of approximately
$21,609,307. In comparison, as of December 31, 2021, we had approximately
$10,723,807 of available cash and positive working capital of approximately
$9,686,780.
On December 7, 2021, we sold an aggregate of 3,875,000 shares of our common
stock, and accompanying warrants to purchase 3,875,000 shares of common stock at
an exercise price of $4.13 per share, at a combined public offering price to the
public of $4.13 per share of common stock and related Warrant, pursuant to an
Underwriting Agreement we entered into with Roth Capital Partners, LLC. We
received gross proceeds of $16,003,750, before deducting underwriting discounts
and commissions of seven percent (7%) of the gross proceeds and offering
expenses. We used a portion of the proceeds from the offering to (i) redeem our
Bridge Notes described below, in the aggregate outstanding amount of $5,146,176,
and (ii) repurchase the Company's Series A Preferred Stock from the Company's
Chief Executive Officer for an aggregate purchase price of approximately
$195,000.
In addition, on May 3, 2022 we completed the sale of (i) 2,991,669 shares of
common stock and pre-funded warrants to purchase 4,563,887 shares of common
stock, and (ii) accompanying warrants to purchase 15,111,112 shares of common
stock, at a combined offering price of $2.25 per share of common
stock/Pre-Funded Warrant and related Common Warrant, to a group of institutional
investors, resulting in gross proceeds to the Company of approximately
$17,000,000.
Cash Flows
Net Cash used in Operating Activities. We used cash in our operating activities
due to our losses from operations. Net cash used in operating activities was
$4,205,732 for the nine-month period ended September 30, 2022 in comparison to
$1,054,446 for the comparable period a year ago, an increase of $3,151,286 or
299%. The increase in cash used in operations was primarily related to the
increased expenses mentioned above.
Net Cash used in Investing Activities. There was $5,021,307 cash used to invest
in short-term certificates of deposit in the nine-month period ended September
30, 2022 compared to $200,000 used as an advance to a related party for
comparable period a year ago.
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Net Cash From Financing Activities. We raised $15,472,232 during the nine-month
period ended September 30, 2022 through the issuance of common stock and
pre-paid warrants, net of offering costs. We raised $3,534,364 through the
issuance of convertible debt, preferred stock and a related party advance in the
nine-month period ended September 30, 2021.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles accepted in the United States. In connection with
the preparation of our financial statements, we are required to make assumptions
and estimates about future events and apply judgments that affect the reported
amounts of assets, liabilities, revenue, expenses and the related disclosures.
We base our assumptions, estimates and judgments on historical experience,
current trends and other factors that management believes to be relevant at the
time our consolidated financial statements are prepared. On a regular basis, we
review the accounting policies, assumptions, estimates and judgments to ensure
that our financial statements are presented fairly and in accordance with GAAP.
However, because future events and their effects cannot be determined with
certainty, actual results could differ from our assumptions and estimates, and
such differences could be material.
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