The accompanying notes are an integral part of these condensed consolidated financial statements
The accompanying notes are an integral part of these condensed consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2020
Introductory Comment
Unless otherwise indicated, any reference
to “our company”, “we”, “us”, or “our” refers to Creative Medical Technology Holdings,
Inc., and as applicable to its wholly owned subsidiary, Creative Medical Technologies, Inc., a Nevada corporation (“CMT”).
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Organization - Creative
Medical Technology Holdings, Inc., is considered to be a commercial stage company, following the commencement of sales of disposable
kits used in our Caverstem® procedure to treat ED in the fourth quarter of 2017 and sales of our FemCelz procedure
for vaginal rejuvenation that commenced in the second quarter of 2019. Our fiscal year end is December 31st. We have acquired the
licensing rights for our Amniostem amniotic-based stem cell product, purchased the patent for our ED and lower back pain procedures,
and filed patent applications for our other urological and neurological treatments.
Use of Estimates –
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Basis of Presentation –
The accompanying unaudited condensed consolidated financial statements have been prepared without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of
operations and cash flows at March 31, 2020 and for the three-month period then ended have been made. Certain information and footnote
disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. The operations for the three-month period ended March 31, 2020, are not
necessarily indicative of the operating results for the full year.
Going Concern – The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However,
during the three-month period ended March 31, 2020, the Company had negative cash flows from operating activities of $195,321 and
had a working capital deficit of $3,602,038. These factors raise substantial doubt about the ability of the Company to continue
as a going concern. In this regard, management is proposing to raise any necessary additional funds not provided by operations
through loans or through additional sales of equity securities. There is no assurance that the Company will be successful in raising
this additional capital or in achieving profitable operations. The unaudited condensed consolidated financial statements do not
include any adjustments that might result from the outcome of these uncertainties.
Risks and Uncertainties -
On January 30, 2020, the World Health Organization declared the COVID-19 outbreak a "Public Health Emergency of International
Concern" and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of
the COVID-19 include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public
places and businesses. The COVID-19 and actions taken to mitigate it have had and are expected to continue to have an adverse impact
on the economies and financial markets of many countries, including the geographical area in which the Company operates. While
it is unknown how long these conditions will last and what the complete financial effect will be to the company, to-date, the Company
is experiencing a reduction in revenues due to the prioritization of medical resources to address the COVID-19 outbreak. In several
of our markets, all non-essential (including elective) procedures have been placed on hold. While this has a negative financial
impact to our revenues, there have been the same reductions to our costs. Additionally, since the Company maintains no inventory
and require nearly all of customers to pre-pay, there is no risk to receivables or inventory write-downs. The company expects existing
orders temporarily on hold and continued sales, training and patient treatments will resume once the physician’s offices
are back to being fully operational.
Revenue - We have adopted
the new revenue recognition standards that went into effect on January 1, 2019. All revenues reported in 2019 and beyond reflect
those standards. Adoption of the standards had no effect on the Company’s revenues.
Fair Value
of Financial Instruments - The Company’s financial instruments consist of cash and cash equivalents,
convertible notes, and payables. The carrying amount of cash and cash equivalents and payables approximates fair value because
of the short-term nature of these items.
When determining
fair value, whenever possible the Company uses observable market data, and relies on unobservable inputs only when observable market
data is not available. As of March 31, 2020, and December 31, 2019, the Company didn’t have any Level 1 or 2 financial instruments.
The table below reflects the results of our Level 3 fair value calculations:
|
|
Notes
|
|
|
Warrants
|
|
|
Total
|
|
Derivative liability at December 31, 2019
|
|
$
|
6,659,055
|
|
|
$
|
188,822
|
|
|
$
|
6,847,877
|
|
Addition of new conversion option derivatives
|
|
|
286,409
|
|
|
|
-
|
|
|
|
286,409
|
|
Extinguishment/modification
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Conversion of note derivatives
|
|
|
(751,217
|
)
|
|
|
-
|
|
|
|
(751,217
|
)
|
Change in fair value
|
|
|
(4,397,140
|
)
|
|
|
(145,008
|
)
|
|
|
(4,542,148
|
)
|
Derivative liability at March 31, 2020
|
|
$
|
1,797,107
|
|
|
$
|
43,814
|
|
|
$
|
1,840,921
|
|
Basic and Diluted Loss Per Share –
The Company follows Financial Accounting Standards Board (“FASB”) ASC 260 Earnings per Share to account for
earnings per share. Basic earnings per share (“EPS”) calculations are determined by dividing net loss by the weighted
average number of shares of common stock outstanding during the year. Diluted earnings per share calculations are determined by
dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. Dilutive
common share equivalents include the dilutive effect of in-the-money share equivalents, which are calculated, based on the average
share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of an award, if
any, the amount of compensation cost, if any, for future service that the Company has not yet recognized, and the estimated tax
benefits that would be recorded in paid-in capital, if any, when an award is settled are assumed to be used to repurchase shares
in the current period. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
The following is a summary of outstanding
securities which have been included in the calculation of diluted net income per share and reconciliation of net income to net
income available to common stockholders for the three months ended March 31, 2020.
|
|
For the Three
Months Ended
March 31, 2020
|
|
Weighted average common shares outstanding used in calculating basic earnings per share
|
|
|
40,746,192
|
|
Effect of warrants
|
|
|
4,834,433
|
|
Effect of convertible notes payable
|
|
|
562,263,144
|
|
Effect of convertible related party management fee and patent liabilities
|
|
|
168,761,150
|
|
Weighted average common shares outstanding used in calculating diluted earnings per share
|
|
|
776,604,919
|
|
|
|
|
|
|
Net income as reported
|
|
$
|
3,742,480
|
|
Add - Interest on convertible notes payable
|
|
|
49,714
|
|
Net income available to common stockholders
|
|
$
|
3,792,194
|
|
The Company excluded 3,333 options and
209,827 warrants from the computation of diluted net income per share for the three months ended March 31, 2020 as their exercise
prices were in excess of the average closing market price of the Company’s common stock during that period.
At March 31, 2019, the Company had various
convertible notes payable convertible into approximately 2,610,764 shares of common stock. During the three-month period ended
March 31, 2019, the Company had 3,333 options and 427,761 warrants to purchase common stock outstanding. The effects of the dilutive
securities were anti-dilutive due to net loss during the three-month period ended March 31, 2019.
Recent Accounting Pronouncements
– The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their
effects, if any, on its results of operation, financial position or cash flows. Based on that review, the Company believes
that none of these pronouncements will have a significant effect on its financial statements.
NOTE 2 – LICENSING AGREEMENTS
ED Patent – The Company acquired
a patent from CMH. Amortization expense of $2,493 was recorded for the three-month periods
ended March 31, 2020 and 2019. As of March 31, 2020 and December 31, 2019, the carrying value of the patent was $58,439
and $60,932, respectively. The Company expects to amortize approximately $9,972 annually through 2026 related to the patent costs.
Multipotent Amniotic Fetal Stem Cells License Agreement - In
August 2016, CMT entered into a License Agreement with a University. This license agreement grants to CMT the exclusive right to
all products derived from a patent for use of multipotent amniotic fetal stem cells composition of matter throughout the world
during the period ending on the expiration date of the longest-lived patent rights under the patent. CMT paid the University an
initial license fee within 30 days of entering into the agreement. CMT is also required to pay annual license maintenance fees
on each anniversary date of the agreement, which maintenance fees would be credited toward any earned royalties for any given period.
The License Agreement provides for payment of various milestone payments and earned royalties on the net sales of licensed products
by CMT or any sub licensee. CMT is also required to reimburse the University for any future costs associated with maintaining the
patent. CMT may terminate the license agreement for any reason upon 90 days’ written notice and the University may terminate
the agreement in the event CMT fails to meet its obligations set forth therein, unless the breach is cured within 30 days of the
notice from the University specifying the breach. CMT is also obligated to indemnify the University against claims arising due
to the exercise of the license by CMT or any sub licensee. As of March 31, 2020 and December 31, 2019, no amounts are currently
due to the University.
The Company estimates that the patent
expires in February 2026 and has elected to amortize the patent through the period of expiration on a straight-line basis. Amortization
expense of $294 was recorded for the three-month periods ended March 31, 2020 and 2019. As of March 31, 2020 and December 31,
2019, the carrying value of the patent was $6,135 and $6,429, respectively. The Company expects to amortize approximately $1,172
annually through 2026 related to the patent costs.
Lower Back Patent –
The Company, through its subsidiary StemSpine, LLC, acquired a patent from CMH, a related company, on May 17, 2017, covering the
use of various stem cells for the treatment of lower back pain from pursuant to a Patent Purchase Agreement, which was amended
in November 2017. As amended, the agreement provides the following:
|
·
|
The
Company is required to pay CMH $100,000 within 30 days of demand as an initial payment.
|
|
·
|
In
the event the Company determines to pursue the technology via use of autologous cells,
the Company will pay CMH:
|
|
o
|
$100,000
upon the signing agreement with a university for the initiation of an IRB clinical trial.
|
|
o
|
$200,000,
upon completion of the IRB clinical trial.
|
|
o
|
$300,00
in the event we commercialize the technology via use of autologous cells by a physician
without a clinical trial.
|
|
·
|
In
the event the Company determines to pursue the technology via use of allogenic cells,
the Company will pay CMH:
|
|
o
|
$100,000
upon filing an IND with the FDA.
|
|
o
|
$200,000
upon dosing of the first patient in a Phase 1-2 clinical trial.
|
|
o
|
$400,000
upon dosing the first patient in a Phase 3 clinical trial.
|
|
·
|
Payment
may be made in cash or shares of our common at a discount of 30% to the recent trading
price.
|
|
·
|
In the event
the Company’s shares of common stock trade below $0.01 per share for two or more
consecutive trading days, the number of any shares issuable as payment doubles.
|
|
·
|
For
a period of five years from the date of the first sale of any product derived from the
patent, the Company is required to make royalty payments of 5% from gross sales of products,
and 50% of sale price or ongoing payments from third parties for licenses granted under
the patent to third parties.
|
The patent expires on May 19, 2027 and
the Company has elected to amortize the patent over a ten-year period on a straight-line basis. Amortization expense of $2,500
was recorded for the three-month periods ended March 31, 2020 and 2019. As of March 31, 2020 and December 31, 2019, the carrying
value of the initial patent license was $72,500 and $75,000, respectively. The Company expects to amortize approximately $10,000
annually through 2027 related to the patent costs.
In November, 2019, following a successful
international pilot study, the Company elected to initiate commercialization of the StemSpine procedure using autologous stem
cells. As a result, the Company is obligated to pay CMH $300,000 pursuant to the Patent Purchase Agreement as described above.
The Company has elected to amortize the patent over a ten-year period on a straight-line basis. Amortization expense of $11,485
was recorded for the three-month period ended March 31, 2020. As of March 31, 2020 and December 31, 2019, the carrying value of
the patent was $282,709 and $294,194, respectively. The Company expect to amortize approximately $46,000 annually through 2027
related to the patent costs
NOTE 3 – RELATED PARTY TRANSACTIONS
The Company has incurred a monetary obligation to a related
corporation to reimburse the cost of services provided to the Company (management and consulting) through December 31, 2019. Each
of the Company’s executive officers is employed by CMH, and will continue to receive his or her salary or compensation from
CMH. The Company has an agreement with CMH which obligates the Company to reimburse CMH $35,000 per month for such services beginning
January 2016. On November 17, 2017, the Company entered into an amended Management Reimbursement Agreement dated November 17, 2017,
with Creative Medical Technologies, Inc. (“CMT”), the wholly owned subsidiary of the Company, and with Creative Medical
Health, Inc., the parent of the Company (“CMH”). The Agreement memorializes the arrangement between the parties whereby
the Company has, since January 1, 2016, reimbursed CMH $35,000 per month for the services of management and consultants employed
by CMH and performing services for the Company and CMT. At the option of CMH, the reimbursable amounts set forth in the Agreement
may be paid from time to time in shares of common stock of the Company at a price equal to a 30% discount to the lowest closing
price during the 20 trading days prior to time the notice is given. The Agreement may be terminated by either party upon 30 days’
prior written notice. The agreement was amended in December 2018 to increase the monthly reimbursement from $35,000 to $45,000
effective January 1, 2019 and thereafter. During the three months ended March 31, 2020 and 2019, the Company recorded $135,000
in expense in connection with this agreement.
As of March 31, 2020 and December 31,
2019, amounts due to CMH under the arrangement were $4,345 and $82, respectively..
See Note 2 for discussion of an additional
related party transaction with CMH.
NOTE 4 – DEBT
During the three
months ended March 31, 2020, we issued $168,300 in convertible notes to accredited investors with net proceeds of $145,000. The
notes mature during February of 2021 and bear interest at rate of 8%. The notes are convertible into shares of the Company’s
common stock at conversion prices ranging from 60% to 71% of the average of the two lowest traded prices or the lowest trade price
of the Company’s common stock during the previous 15 trading days preceding the conversion date. The Company is amortizing
the discount due to derivative liabilities and on-issuance discount totalling $168,300 to interest expense using the straight-line
method over the original terms of the loans.
During the three
months ended March 31, 2020 and 2019, the Company amortized $289,825 and $396,240, respectively, to interest expense. As of March
31, 2020, total discounts of $439,374 remained for which will be expensed through February 2021.
During the three
months ended March 31, 2020, the Company issued an aggregate of 61,016,388 shares upon the conversion of $350,547
of outstanding principal, interest and fees on existing, outstanding notes. During the three months ended March 31,
2019, the Company issued an aggregate of 224,029 shares upon the conversion of $168,975
of outstanding principal, interest and fees on existing, outstanding notes and 474,486 shares upon the cashless
exercise of 527,384 warrants.
During the three
months ended March 31, 2020, the Company incurred no pre-payment premiums as there was extinguishment of principal. During
the three months ended March 31, 2019, the Company incurred $19,154 in pre-payment premiums associated with the extinguishment
of $168,300 in principal that was recorded as interest expense.
As of March 31, 2020, future loan maturities
are as follows:
For the year ended December 31,
|
|
|
|
|
|
|
|
2020
|
|
|
1,302,434
|
|
2021
|
|
|
168,300
|
|
Total
|
|
$
|
1,470,734
|
|
NOTE 5 – DERIVATIVE
LIABILITIES
Derivative
Liabilities
In connection
with convertible notes payable, the Company records derivative liabilities for the conversion feature. In addition, the Company
has warrants for which the exercise prices reset upon future events. These warrants are also considered to be derivative liabilities.
The derivative liabilities are valued on the date the convertible note payable become convertible and revalued at each reporting
period. The warrants are valued on the date of issuance and revalued at each reporting period. During the three-months ended March
31, 2020, the Company recorded initial derivative liabilities of $286,409 based upon the following Black-Scholes option pricing
model average assumptions: an exercise price of $0.0071 to $0.0158 our stock price on the date of grant of $0.0115 to
$0.0365, expected dividend yield of 0%, expected volatility of 103.96%, risk free interest rate of 1.62% and expected terms
1.0 year. Upon initial valuation, the derivative liabilities exceeded the face values certain of the convertible notes payable
by approximately $141,409, which was recorded as a day one loss in derivative liability.
On March 31, 2020, the derivative liabilities
were revalued at $1,840,921 resulting in a gain of $4,542,148 related to the change in fair market value of the derivative liabilities.
The derivative liabilities were revalued using the Black-Scholes option pricing model with the following average assumptions:
an exercise price of $0.0025 to $3.0900 , our stock price on the date of valuation ($0.0045), expected dividend yield of
0%, expected volatility of 95% to 117%, risk-free interest rate of 1.62%, and an expected terms ranging from 0.5 to 4.3 years.
In connection with convertible notes converted, as disclosed
in Note 4, the Company reclassed derivative liabilities with a fair value of $751,217 to additional paid-in capital for the three-month
period ended March 31, 2020. The Company revalued the derivative liabilities at each conversion date recording the pro-rata portion
of the derivative liability as compared to the portion of the convertible note converted to the pre-conversion carrying value
to additional paid-in capital.
Future Potential
Dilution
Most of the Company’s
convertible notes payable contain adjustable conversion terms with significant discounts to market. As of March 31, 2020, the
Company’s convertible notes payable are potentially convertible into an aggregate of approximately 589 million shares of
common stock. In addition, due to the variable conversion prices on some of the Company’s convertible notes, the number
of common shares issuable is dependent upon the traded price of the Company’s common stock.
NOTE 6 – WARRANTS
From January 2020 through March 2020,
the Company issued 0 warrants.
The fair value of each warrant is estimated
using the Black-Scholes valuation model. Assumptions used in calculating the fair value at March 31, 2020 were as follows:
|
|
Weighted
Average
Inputs Used
|
|
|
|
|
|
Annual dividend yield
|
|
$
|
-
|
|
Expected life (years)
|
|
|
2.3 to 4.3
|
|
Risk-free interest rate
|
|
|
1.62
|
%
|
Expected volatility
|
|
|
95 to 99
|
%
|
Common stock price
|
|
$
|
0.0045
|
|
Since the expected life of the warrants
was greater than the Company’s historical stock information available, the Public Company determined the expected volatility
based on price fluctuations of comparable public companies.
The issuances, exercises and pricing re-sets during the three
months ended March 31, 2020, are as follows:
Outstanding at December 31, 2019
|
|
|
5,044,260
|
|
Issuances
|
|
|
-
|
|
Exercises
|
|
|
-
|
|
Anti-Dilution/Modification
|
|
|
9,668,867
|
|
Forfeitures/cancellations
|
|
|
-
|
|
Outstanding at March 31, 2020
|
|
|
14,713,127
|
|
Weighted Average Price at March 31, 2020
|
|
$
|
0.0217
|
|
NOTE 7 – SUBSEQUENT EVENTS
In accordance with ASC 855, management
reviewed all material events through May 15, 2020, for these financial statements and there are no material subsequent events to
report, except as follows:
Conversion Notice
During April and May of 2020, we issued
59,094,721 shares of common stock for the conversion of $98,512 in convertible notes.