This Management's Discussion and Analysis of Financial Condition and Results of
Operations, and other parts of this Annual Report on Form 10-K contain
forward-looking statements that involve risks and uncertainties. All
forward-looking statements included in this Annual Report are based on
information available to us on the date hereof, and we assume no obligation to
update any such forward-looking statements. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of a number of factors, including those set forth in the section
captioned "Risk Factors" in Annual Report. The following should be read in
conjunction with our audited financial statements included elsewhere herein.
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Overview
We are a commercial stage biotechnology company dedicated to the advancement of
identifying and translating novel biological therapeutics in the fields of
immunotherapy, endocrinology, urology, neurology and orthopedics. Our platforms,
therapies and products include the following:
[[Image Removed: celz_10kimg2.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
May 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-1 diabetes, and heart, liver, kidney, and other diseases using
various types of stem cells through our ImmCelz, Inc., StemSpine, Inc. and
AlloCelz LLC subsidiaries. However, neither ImmCelz Inc. nor AlloCelz 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.
In 2020, through our ImmCelz Inc. subsidiary, we began developing treatments
that utilize a patient's own extracted immune cells that are then
"reprogrammed/supercharged" by culturing them outside the patient's body with
optimized cell-free factors. The immune cells are then re-injected into the
patient from whom they were extracted. We believe this process endows the immune
cells with regenerative properties that may be suitable for the treatment of
multiple indications. In contrast to other stem cell-based approaches, the
immune cells are significantly smaller in size than stem cells and are believed
to more effectively penetrate areas of the damaged tissues and induce
regeneration.
In June 2022, we signed an agreement with Greenstone Biosciences Inc. for the
development of a human induced pluripotent stem cell (iPSC) pipeline for our
ImmCelz® platform. This project was identified as iPScelz™. The efforts by
Greenstone Biosciences Inc. are expected to complement and expand our current
work on novel therapeutic cell lines.
In October 2022, we announced the development of our AlloStem™ Clinical Cell
Line, a proprietary allogenic cell line which includes a Master Cell Bank and a
Drug Master File. We believe we will able to use this cell line for many of our
programs, including our ImmCelz® immunotherapy platform for multiple diseases,
OvaStem® for Premature Ovarian Failure, CELZ-201 for Type 1 diabetes, StemSpine®
for lower back pain, and IPScelz ™ inducible pluripotent stem cell program in
ongoing development with Greenstone Biosciences.
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In November 2022, we announced that the FDA had cleared the Company's CELZ-201
Investigational New Drug (IND) application for the treatment of Type 1 Diabetes,
which will allow us to begin a Phase I/II clinical trial. The primary objective
of the study will be to evaluate CELZ-201 in patients with newly diagnosed Type
1 Diabetes. Patient recruitment is expected to begin in 2023.
In addition to our clinical research efforts, we are currently seeking to expand
the commercial sale and use of our CaverStem® and FemCelz® products by
physicians in the United States.
Results of Operations - For the Year Ended December 31, 2022, and for the Year
Ended December 31, 2021
Gross Revenue. We generated $88,600 in gross revenue for the year ended December
31, 2022, in comparison with $87,754 for the comparable period a year ago. The
increase of $846 or 1.0% is the result of lower revenue per unit offset by an
increased number of unit sales. In the fourth quarter of 2021 we field tested an
alternative sales and marketing program for CaverStem® whereby we marketed
directly to the patient, collected the procedure fees from the patient and paid
the physicians for their services. While this effort resulted in an increase in
the number of procedures and gross revenues per procedure, gross margins were
greatly reduced. As a result, in the first quarter of 2022, we reverted to our
model of contracting with physicians, who resell our kits and bill their
patients directly.
Cost of Goods Sold. We generated $28,491 in cost of goods sold for the year
ended December 31, 2022, in comparison with $47,949 for the comparable period a
year ago. The decrease of $19,458 or 40.6% is due to the effects of the business
model change in the fourth quarter of 2021 as described above.
Gross Profit/(Loss). We generated $60,109 in gross profit for the year ended
December 31, 2022, in comparison with $39,805 in gross profit for the comparable
period a year ago. The increase of $20,304 or 51.0% is due to the increased
per-unit profit from moving off the temporary shift to a direct-to-patient model
in the fourth quarter of 2021.
Selling, General and Administrative Expenses. General and administrative
expenses for the year ended December 31, 2022, totaled $3,943,543, in comparison
with $2,964,490 for the comparable period a year ago. The increase of 979,053,
or 33% is primarily due to a net increase of $810,513 in salaries and wages from
both new hires and the transition of our CEO and CFO from being reimbursed via
management fees for most of 2021 to full-time employees throughout 2022, an
increase of $423,209 associated with director and officer insurance, an increase
of $355,984 in marketing expenses, an increase of $264,623 in consulting
services, offset by a decrease of $688,146 relating to an expense associated
with an accrual related to a vendor dispute in 2021, and a reduction of $526,634
in stock-based compensation.
Research and Development Expenses. Research and development expenses for the
years ended December 31, 2022, totaled $6,268,854 in comparison to $109,180 for
the comparable period a year ago. The increase of $6,159,674, or 5,641.8% was
due to expenses associated with the acquisition of research tools and
development of a drug master file, laboratory research in preparation of our
master cell bank submittal to the FDA, the approval of our FDA application for a
Type I Diabetes Phase I/II clinical trial, the manufacturing and testing of our
ImmCelz™ cell line, and the development of our iPSC cell line in partnership
with Greenstone Biosciences Inc.
Operating Loss. For the reasons stated above, our operating loss for the year
ended December 31, 2022, was $10,244,372 in comparison with $3,125,949 for the
comparable period a year ago.
Other Income. Other income for the year ended December 31, 2022, totaled
$100,328 in comparison with $22,337,717 for the comparable period a year ago.
The decreased income of $22,237,389 or 99.6%, is primarily due to a decrease of
$26,030,549 in the in the fair value of derivative liabilities, a $585,601
decrease in the gain upon the extinguishment of convertible notes, offset by a
$4,278,433 decrease in interest expense for the comparable period a year ago. In
2022, we had no outstanding promissory notes. In 2021 we incurred interest
expense calculated on our promissory notes and we recorded the amortization of
various debt discounts associated with our promissory notes. The discounts were
the result of a combination of on-issuance discounts and fees, warrants issued
with promissory notes, and derivative liabilities which are recorded due to the
variability of the notes conversion price. The derivative liabilities were
re-measured as of each reporting date.
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Net Income/Loss. For the reasons stated above, our net loss for the year ended
December 31, 2022, was $10,144,044 in comparison with income of $19,211,768 for
the comparable period a year ago.
Amortization Expense. We acquired a patent (U.S. Patent No. 8,372,797) from CMH
on February 2, 2016, in exchange for shares of our restricted common stock
valued at $100,000. The patent expires in 2026 and we have elected to amortize
the patent over a ten-year period on a straight-line basis. On August 25, 2016,
CMT entered into a License Agreement which grants it the exclusive right to all
products derived from US Patent No. 7,569,385 for multipotent amniotic fetal
stem cells. Under the terms of the license agreement, CMT paid an initial
license fee within 30 days of entering into the agreement. The patent expires in
2026 and we have elected to amortize the patent over a ten-year period on a
straight-line basis. On May 17, 2017, CMT purchased U.S. Patent No. 9,598,673
covering use of various stem cells for treatment of lower back pain from CMH.
Under the terms of the agreement, the Company was required to pay CMH $100,000.
The agreement was modified in November 2017 to waive payment of the initial
license fee, modify the fee structure, and add the ability to convert the
outstanding payable balance into common shares. In November 2020, the Company
announced the commercialization of the lower back procedure using a patient's
own cells ("autologous"). This milestone triggered a milestone payment due from
the Company to CMH in the amount of $300,000, which was subsequently paid. The
patent expires in 2027, and we have elected to amortize the patent over a
ten-year period on a straight-line basis. In December 2020, we entered into a
Patent License Agreement with Jadi Cells, Inc. Execution of the contract
triggered a milestone payment due from the Company to Jadi Cells, Inc. in the
amount of $250,000, which was paid with shares of our common stock in February
2022.
Amortization expense of $92,084 was recorded for the year ended December 31,
2022, representing the amortization of the ED, multipotent amniotic fetal stem
cell and lower back pain patents and the Jadi Cell patent license agreement
based upon the remaining life of the patents and license agreement. There was
$92,084 of amortization expense recorded for the period ended December 31, 2021.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably
likely to have a current or future material effect on our consolidated financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity capital expenditures or capital resources.
Liquidity and Capital Resources
As of December 31, 2022, we had $18,399,136 of available cash and certificates
of deposit and positive working capital of approximately $15,425,798. In
comparison, as of December 31, 2021, we had approximately $10,723,870 of
available cash and positive working capital of approximately $9,686,780.
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On May 3, 2022 we received gross proceeds of $17,000,000, before deducting
placement agent fees and expenses, upon the closing of an unregistered sale of
equity securities of (i) 2,991,669 shares of our common stock and pre-funded
warrants to purchase 4,563,887 shares of common stock (the "Pre-Funded
Warrants"), and (ii) accompanying warrants to purchase 15,111,112 shares of
common stock at an exercise price of $2.00 per share ("Warrants"), and, at a
combined offering price of $2.25 per share of common stock/Pre-Funded Warrant
and related Warrant to a group of institutional investors (the "Purchasers").
The Warrants have a five-year term, and an exercise price of $2.00 per share.
The Pre-Funded Warrants do not expire and had an exercise price of $0.0001 per
share. Roth Capital Partners acted as sole placement agent for the offering. We
paid Roth a placement agent fee in the amount of $1,360,000 and issued Roth a
warrant to purchase 1,133,333 shares of common stock with the same terms as the
common warrants issued to the purchasers. Pursuant to the Purchase Agreement,
the Company and the Purchasers entered into a Registration Rights Agreement,
pursuant to which the Company agreed to file a registration statement with the
Securities and Exchange Commission to register the resale of the shares of
Common Stock issued in the offering and the shares of Common Stock underlying
the common stock, Warrants and Pre-Funded Warrants. On May 10, 2022, we filed a
Form S-3 registration statement to register the shares, Common Warrants and
Pre-Funded Warrants for resale. The registration went effective on May 19, 2022,
fulfilling our contractual obligation. In addition, the Company's directors and
officers entered into Lock-Up Agreements under which they agreed not to sell any
of their securities of the Company until 90 days following after the earliest of
(i) the effective date of the Registration Statement, and (ii) the date all of
the securities issued in the offering have been sold under Rule 144, or may be
sold under Rule 144 without the Company being in compliance with the current
public information requirement under such rule, and without any volume
limitation. From June through July 2022, all of the Pre-Funded Warrants were
exercised for shares of common stock.
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 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 to our 2021 public offering and smaller private convertible note and
preferred stock financing transactions we completed in the last two years, in
August 2021, we completed the sale of 15% Original Issue Discount Senior Notes
("Bridge Notes") in the aggregate principal amount of $4,456,176. In connection
with the sale of the Bridge Notes, holders of shares of our preferred stock
issued earlier in 2021 exchanged such preferred stock for additional Bridge
Notes in the aggregate principal amount of $690,000. We also issued to the
purchasers of our Bridge Notes five-year warrants to purchase an aggregate of
363,046 shares of our common stock at an initial exercise price of $14.175 per
share, subject to anti-dilution adjustment in the event of future sales of
equity by us below the then exercise price, stock dividends, stock splits and
other specified events.
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
$7,796,966 for the year-ended ended December 30, 2022, in comparison to
$2,215,782 for the comparable period a year ago, an increase of $5,581,184 or
252%. The increase in cash used in operations was primarily related to an
increase of $3,159,674 in research-related cash outlays associated with the
acquisition of research assets, personnel and laboratory research in preparation
of our master cell bank submittal to the FDA, development, submittal and FDA
clearance of our CELZ-201 Type I Diabetes phase I/II clinical trial, the
manufacturing and testing of our ImmCelz™ cell line, and the development of our
iPSC cell line in partnership with Greenstone Biosciences Inc. In addition,
there was a net increase of $810,513 in salaries and wages from both new hires
and the transition of our CEO and CFO from being reimbursed via management fees
for most of 2021 to full-time employees throughout 2022, an increase of $761,327
associated with cash outlays for director and officer insurance, an increase of
$355,984 in marketing expenses, an increase of $283,642 in consulting services,
and payments associated with a vendor dispute in 2021.
Net Cash used in Investing Activities. Cash used in investing activities was
$10,078,617 for the year ended December 31, 2022, related to the investment of
$10,000,000 in certificates of deposit in comparison to $0 for the year ended
December 31, 2021.
Net Cash from Financing Activities.
In the year ended December 31, 2022, we received $15,471,775 in net proceeds
from the sale of common stock and warrants in our May 2022 private offering. In
the year ended December 31, 2021, we received $14,758,488 in net proceeds from
the sale of common stock and warrants in our December 2021 public offering,
along with $4,784,790 from the issuance of convertible debt, preferred stock,
and short-term, non-convertible notes, and we spent $6,925,032 on re-payment of
notes, redemption of preferred stock, and payment of debt issuance and offering
costs. The $2,630,592 or 20% increase in cash flows from financing activities
was primarily related to a $713,287 increase in net proceeds between our
December 2021 and May 2022 offerings and a net reduction of $1,916,848
associated with retirement of convertible debt and other financing related
expenses incurred in 2021.
We have continued to realize losses from operations. However, as a result of our
December 2021 and May 2022 offerings, we believe we will have sufficient cash to
meet our anticipated operating costs and capital expenditure requirements
through at least March 2024. We anticipate that we will need to raise additional
capital in the future to support our ongoing operations and continue our
clinical trials. We expect to continue to raise additional capital through the
sale of our securities from time to time for the foreseeable future to fund the
development of our proposed products through clinical development,
manufacturing, and commercialization. Our ability to obtain such additional
capital will likely be subject to various factors, including our overall
business performance and market conditions. There can be no guarantee that we
will be successful in our ability to raise capital to fund future operational
and development initiatives.
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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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