UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
x
|
QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended
March 31, 2019
Or
|
¨
|
TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from ___________ to ___________
Commission File Number:
000-53500
Creative
Medical Technology Holdings, Inc.
(Exact name of registrant as specified in its
charter)
Nevada
|
|
87-0622284
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
|
|
|
3008 W. Lupine, Phoenix, AZ
|
|
85029
|
(Address of principal executive offices)
|
|
(Zip Code)
|
(833) 336-7636
(Registrant’s telephone number, including
area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
Common Stock par value $0.001 per share
|
CELZ
|
OTCQB
|
Indicate by check mark whether the
registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports). Yes
x
No
¨
Indicate by check mark whether the
registrant has been subject to such filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
x
No
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
|
¨
|
Accelerated filer
|
¨
|
Non-accelerated filer
|
¨
|
Smaller reporting company
|
x
|
|
|
Emerging growth company
|
x
|
If an emerging growth company, indicate by
check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
¨
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
¨
No
x
The number of shares outstanding of the registrant’s common
stock on May 15, 2019, was 1,043,498,850.
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEET
|
|
March 31, 2019
|
|
|
December
31, 2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
419,477
|
|
|
$
|
304,056
|
|
Accounts receivable
|
|
|
163
|
|
|
|
9,600
|
|
Total Current Assets
|
|
|
419,640
|
|
|
|
313,656
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS
|
|
|
|
|
|
|
|
|
Licenses, net of amortization
|
|
|
158,219
|
|
|
|
163,505
|
|
TOTAL ASSETS
|
|
$
|
577,859
|
|
|
$
|
477,161
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
342,799
|
|
|
$
|
331,838
|
|
Accrued expenses
|
|
|
69,592
|
|
|
|
21,640
|
|
Management fee payable - related party
|
|
|
153,082
|
|
|
|
198,082
|
|
Convertible notes payable, net of discount of $1,037,811 and $792,994, respectively
|
|
|
1,079,414
|
|
|
|
682,056
|
|
Advances from related party
|
|
|
10,800
|
|
|
|
10,800
|
|
Derivative liabilities
|
|
|
2,526,952
|
|
|
|
3,227,382
|
|
Total Current Liabilities
|
|
|
4,182,639
|
|
|
|
4,471,798
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES
|
|
|
|
|
|
|
|
|
Convertible notes payable, net of discount of $0 and $0, respectively
|
|
|
-
|
|
|
|
-
|
|
Notes payable - related party, net of current portion
|
|
|
-
|
|
|
|
-
|
|
Accrued expenses, net of current portion
|
|
|
-
|
|
|
|
-
|
|
TOTAL LIABILITIES
|
|
|
4,182,639
|
|
|
|
4,471,798
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 7,000,000 shares authorized, no shares issued and
outstanding, respectively
|
|
|
-
|
|
|
|
-
|
|
Series A preferred stock, $0.001 par value, 3,000,000 shares authorized, 3,000,000 shares issued
and outstanding, respectively
|
|
|
3,000
|
|
|
|
3,000
|
|
Common stock, $0.001 par value, 3,000,000,000 shares authorized; 1,008,088,561 and 903,311,370 issued and 1,007,488,561 and 902,711,370 outstanding, respectively
|
|
|
1,007,489
|
|
|
|
902,711
|
|
Additional paid-in capital
|
|
|
13,263,430
|
|
|
|
12,180,985
|
|
Accumulated deficit
|
|
|
(17,878,699
|
)
|
|
|
(17,081,333
|
)
|
TOTAL STOCKHOLDERS' DEFICIT
|
|
|
(3,604,780
|
)
|
|
|
(3,994,637
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
577,859
|
|
|
$
|
477,161
|
|
The accompanying
notes are an integral part of these condensed consolidated financial statements.
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS
|
|
For the Three
Months Ended
March 31, 2019
|
|
|
For the Three
Months Ended
March 31, 2018
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
50,800
|
|
|
$
|
9,600
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
14,239
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
36,561
|
|
|
|
7,200
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
-
|
|
|
|
3,200
|
|
General and administrative, including stock-based compensation of $0 and $1,877, respectively
|
|
|
281,974
|
|
|
|
202,930
|
|
Amortization of patent costs
|
|
|
5,286
|
|
|
|
5,286
|
|
TOTAL EXPENSES
|
|
|
287,260
|
|
|
|
211,416
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(250,699
|
)
|
|
|
(204,216
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME/(EXPENSE)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(454,542
|
)
|
|
|
(191,308
|
)
|
Loss on extinguishment of convertible notes
|
|
|
(357,292
|
)
|
|
|
(154,284
|
)
|
Change in fair value of derivatives liabilities
|
|
|
265,167
|
|
|
|
(7,036,772
|
)
|
Total other expense
|
|
|
(546,667
|
)
|
|
|
(7,382,364
|
)
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE PROVISION FOR INCOME TAXES
|
|
|
(797,366
|
)
|
|
|
(7,586,580
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(797,366
|
)
|
|
$
|
(7,586,580
|
)
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER SHARE
|
|
$
|
(0.00
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC AND DILUTED
|
|
|
965,679,771
|
|
|
|
188,131,817
|
|
The accompanying notes are an integral
part of these condensed consolidated financial statements.
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
|
|
For the Three
Months Ended
March
31, 2019
|
|
|
For the Three
Months Ended
March
31, 2018
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(797,366
|
)
|
|
$
|
(7,586,580
|
)
|
Adjustments to reconcile net loss to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
-
|
|
|
|
1,877
|
|
Amortization
|
|
|
5,286
|
|
|
|
5,286
|
|
Amortization of debt discounts
|
|
|
396,240
|
|
|
|
157,340
|
|
Increase in principal balance due to penalty provision
|
|
|
-
|
|
|
|
12,500
|
|
Change in fair value of derivatives liabilities
|
|
|
(265,167
|
)
|
|
|
7,036,772
|
|
Loss on extinguishment of convertible notes payable
|
|
|
357,292
|
|
|
|
154,284
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
9,437
|
|
|
|
(4,799
|
)
|
Accounts payable
|
|
|
10,961
|
|
|
|
(4,135
|
)
|
Accrued expenses
|
|
|
55,302
|
|
|
|
18,268
|
|
Management fee payable
|
|
|
(45,000
|
)
|
|
|
44,250
|
|
Net cash used in operating activities
|
|
|
(273,015
|
)
|
|
|
(164,937
|
)
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payments on notes payable
|
|
|
-
|
|
|
|
(800
|
)
|
Payments on convertible notes payable
|
|
|
(168,300
|
)
|
|
|
-
|
|
Prepayment premiums paid on convertible notes payable
|
|
|
(19,154
|
)
|
|
|
-
|
|
Proceeds from convertible notes payable
|
|
|
575,890
|
|
|
|
254,350
|
|
Net cash provided from financing activities
|
|
|
388,436
|
|
|
|
253,550
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
115,421
|
|
|
|
88,613
|
|
BEGINNING CASH BALANCE
|
|
|
304,056
|
|
|
|
13,697
|
|
ENDING CASH BALANCE
|
|
$
|
419,477
|
|
|
$
|
102,310
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
$
|
2,357
|
|
|
$
|
200
|
|
Cash payments for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
NON-CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Conversion of notes payable,
accrued interest and derivative liabilities into common stock
|
|
$
|
1,187,223
|
|
|
$
|
1,887,052
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT
OF STOCKHOLDERS' (DEFICIT)
|
|
Series
A Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
(Deficit)
|
|
December
31, 2018
|
|
|
3,000,000
|
|
|
|
3,000
|
|
|
|
902,711,370
|
|
|
|
902,711
|
|
|
|
12,180,985
|
|
|
|
(17,081,333
|
)
|
|
|
(3,994,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cashless warrant exercise
|
|
|
-
|
|
|
|
-
|
|
|
|
71,172,880
|
|
|
|
71,173
|
|
|
|
(71,173
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for conversion of convertible notes, accrued interest and derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
33,604,311
|
|
|
|
33,605
|
|
|
|
135,370
|
|
|
|
-
|
|
|
|
168,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relief
of derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,018,248
|
|
|
|
-
|
|
|
|
1,018,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(797,366
|
)
|
|
|
(797,366
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
3,000,000
|
|
|
$
|
3,000
|
|
|
|
1,007,488,561
|
|
|
$
|
1,007,489
|
|
|
$
|
13,263,430
|
|
|
$
|
(17,878,699
|
)
|
|
$
|
(3,604,780
|
)
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT
OF STOCKHOLDERS' (DEFICIT)
|
|
Series
A Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
(Deficit)
|
|
December
31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
114,799,226
|
|
|
|
114,800
|
|
|
|
1,074,707
|
|
|
|
(3,425,680
|
)
|
|
|
(2,236,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cashless warrant exercise
|
|
|
-
|
|
|
|
-
|
|
|
|
108,536,277
|
|
|
|
108,535
|
|
|
|
(108,535
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for conversion of convertible notes, accrued interest and derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
177,004,729
|
|
|
|
177,005
|
|
|
|
40,841
|
|
|
|
-
|
|
|
|
217,846
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relief
of derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,669,207
|
|
|
|
-
|
|
|
|
1,669,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,877
|
|
|
|
-
|
|
|
|
1,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,586,580
|
)
|
|
|
(7,586,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
400,340,232
|
|
|
$
|
400,340
|
|
|
$
|
2,678,097
|
|
|
$
|
(11,012,260
|
)
|
|
$
|
(7,933,823
|
)
|
The accompanying
notes are an integral part of these condensed consolidated financial statements.
CREATIVE
MEDICAL TECHNOLOGY HOLDINGS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2019
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 stem cell separation equipment and disposable kits used in our Caverstem® procedure to treat ED in the fourth quarter
of 2017. Our fiscal year end is December 31st. We have acquired the licensing rights for our Amniostem amniotic-based stem cell,
purchased the patent for our ED and lower back pain treatments, and filed patent applications for our 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, 2019 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, 2019, 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, 2019, the Company incurred a net loss of
$797,366
had negative cash flows from operating activities and had a working capital deficit of
$3,762,999
.
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.
Revenue
-
The Company recognizes revenue as it is earned as defined by U.S. GAAP. We have adopted the new revenue recognition
standards that went into effect on January 1, 2018. All revenues reported in 2018 and beyond will reflect those standards.
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, 2019, and December 31, 2018, 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, 2018
|
|
$
|
1,983,828
|
|
|
$
|
1,243,554
|
|
|
$
|
3,227,382
|
|
Addition of new conversion option derivatives
|
|
|
934,062
|
|
|
|
(8,733
|
)
|
|
|
925,329
|
|
Conversion of note derivatives
|
|
|
(405,895
|
)
|
|
|
(841,539
|
)
|
|
|
(1,247,434
|
)
|
Change in fair value
|
|
|
(504,198
|
)
|
|
|
125,873
|
|
|
|
(378,325
|
)
|
Derivative liability at March 31, 2019
|
|
$
|
2,007,797
|
|
|
$
|
519,155
|
|
|
$
|
2,526,952
|
|
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. During periods when
common stock equivalents, if any, are anti-dilutive they are not considered in the computation. During the three-month periods
ended March 31, 2019, the Company had
500,000
options and
58,608,602
warrants to purchase common stock outstanding. In addition, the Company has various convertible notes payable which
at March 31, 2019 are convertible into approximately
391,614,578
shares of common stock.
During the three-month period ended March 31, 2018, the Company had 500,000 options and 105,416,666 warrants to purchase common
stock outstanding. In addition, the Company has various convertible notes payable which at March 31, 2018 are convertible into
approximately 478,564,572 shares of common stock. The effects of the dilutive securities were anti-dilutive due to net loss during
the three-month period ended March 31, 2019 and 2018.
Recent Accounting Pronouncements
–
In February 2016, the FASB issued ASU, Leases, which requires lessees to recognize most leases on their balance
sheets as a right-of-use asset with a corresponding lease liability. Lessor accounting under the standard is substantially unchanged.
Additional qualitative and quantitative disclosures are also required. The Company adopted the standard effective January 1, 2019
using the cumulative-effect adjustment transition method, which applies the provisions of the standard at the effective date without
adjusting the comparative periods presented. The Company adopted the following practical expedients and elected the following accounting
policies related to this standard update:
|
•
|
The option to not reassess prior conclusions related
to the identification, classification and accounting for initial direct costs for leases that commenced prior to January 1, 2019.
|
|
•
|
Short-term lease accounting policy election allowing
lessees to not recognize right-of-use assets and liabilities for leases with a term of 12 months or less; and
|
|
•
|
The option to not separate lease and non-lease components
for certain equipment lease asset categories such as freight car, vehicles and work equipment.
|
|
•
|
The package of practical expedients applied to all of
its leases, including (i) not reassessing whether any expired or existing contracts are or contain leases, (ii) not reassessing
the lease classification for any expired or existing leases, and (iii) not reassessing initial direct costs for any existing leases.
|
The Company has inventoried all leases
where the Company is a lessee as of the initial date of application and has examined other contracts with suppliers, vendors, customers
and other outside parties to identify whether such contracts contain an embedded lease as defined under the new guidance. The Company’s
lease population comprises an office, which is immaterial to the consolidated financial statements.
As a result of the above, the adoption
of ASC 842 did not have a material effect on the financial statements. The Company will review for the existence of embedded leases
in future agreements.
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 other than disclosed above.
NOTE 2 – LICENSING
AGREEMENTS
ED Patent
– The Company acquired a patent from CMH.
Amortization expense of
$2,493
was recorded for the three-month period ended March 31, 2019 in comparison with
$2,493
for the comparable quarter a year ago.
As of March 31, 2019, the carrying value of the patent was
$68,410
.
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, 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
$293
was recorded for the three-month
period ended March 31, 2019
2018 in comparison with
$293
for the comparable quarter a year ago
. As of March 31, 2019, the carrying
value of the patent was
$7,307
. The Company expects to amortize approximately
$1,172
annually through 2026 related to the patent costs.
Lower
Back Patent
– The Company, through a newly created subsidiary of CMT, StemSpine, LLC, acquired a patent from CMH,
a related company, on May 17, 2018, for $100,000, payable in cash or stock. 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 period ended March 31, 2019. As of March 31, 2019, the carrying value of the patent
was
$82,500
. The company expects to amortize approximately
$10,000
annually through 2027 related to the patent costs.
For a period
of five years from the date of the first sale of any product derived from the patent, StemSpine is required to make royalty payments
of 5% from gross sales of products. StemSpine has also agreed to pay royalties of 50% of sale price or ongoing payments from third
parties for licenses granted under the patent to third parties. In addition, StemSpine has agreed to make progress payments under
the patent purchase agreement determined by whether the technology represented by the patent is tested by use of autologous cells
or allogenic cells. In the case of pursuit of the technology using autologous cells, StemSpine has agreed to pay CMH $100,000
upon the signing of an agreement with a university for the initiation of an IRB clinical trial and $200,000 upon completion of
the clinical trial. In the event StemSpine determines to pursue the technology using allogenic cells, StemSpine has agreed to
pay CMH $100,000 upon the filing for IND with the FDA; $200,000 upon the dosing of the first patient in Phase 1-2 clinical trial;
and $400,000 upon the dosing of the first patient in Phase 3 clinical trial. In each case StemSpine has the option to make these
payments in cash or in shares of the Company’s common stock at a discount to the market price of the stock at the time of
the transaction. The parties to the patent purchase agreement have agreed that in no event will the aggregate royalty payments
under the agreement exceed $2,500,000.
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
March 31, 2020
. Each of the Company’s executive officers
is employed by the parent company, 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
$45,000
per month
for such services. The compensation paid by CMH will include an allocation of services performed for CMH and for the Company.
The amounts are presented as a “management fee payable - related party” on the accompanying unaudited condensed consolidated
balance sheets. The liability is non-interest bearing, unsecured, and will be due upon the Company successfully raising at least
$1,000,000 through the sale of equity. 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. As of March 31, 2019, amounts due to CMH under the arrangement were
$53,082
.
See Note 2 for
discussion of an additional related party transaction with CMH.
NOTE 4 – DEBT
$110,000 Convertible
Note – Morningview – Note 22
On April 3,
2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $110,000,
for which $95,000 in proceeds were received on April 3, 2018. Under the terms of the agreement, the convertible note incurs interest
at 10% per annum and has a maturity date of April 1, 2019. The convertible note is convertible upon issuance and convertible into
shares of the Company’s stock at a conversion price equal to 60% of the lowest traded price of the Company’s common
stock during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares
of the Company’s common stock equal to 5 times the number of common shares the convertible note is convertible into. The
Company is amortizing legal fees of $2,652 and the remaining discount of $107,348 due to the recording of a derivative liability
as discussed in Note 5. The Company is amortizing the total discount of $110,000 to interest expense using the straight-line method
over the term of the loan. During the three-month period ended March 31, 2019, the Company amortized
$27,123
to interest expense. As of March 31, 2019, a discount of
$904
remained.
At no additional cost, we issued to the note holder 11,000,000 five-year warrants to purchase common stock at $0.01, subject to
adjustment if we issue securities at less than the exercise price. The warrants are exercisable on a cashless basis.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company accounted for the conversion feature as a derivative liability, see Note 5. Derivative accounting applies as the conversion
price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if the convertible
note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock price and additional
dilution of current shareholders may take place. As of March 31, 2019, there were
88,657,994
shares reserved with our transfer agent with a potential of
118,538,813
being reserved
if and when the lender issues a request to our transfer agent.
In the event
of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding
entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase
to 18%.
The Company
has the option to redeem the convertible notes within 180 days from the date of issuance at 140% of the principal and interest.
After 180 days the right of prepayment expires.
$110,000 Convertible
Note – Fourth Man – Note 23
On April 11,
2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $110,000,
for which $100,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 10% per
annum and has a maturity 12 months from the effective date of payment. The convertible note is convertible upon issuance and convertible
into shares of the Company’s stock at a conversion price equal to 60% of the lowest trading price of the Company’s
common stock during the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve
shares of the Company’s common stock equal to three times the number of common shares the convertible note is convertible
into. The Company is amortizing an on-issuance discount of $10,000 and the remaining discount of $100,000 due to the recording
of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $110,000 to interest expense
using the straight-line method over the term of the loan. During the three-month period ended March 31, 2019, the Company amortized
$27,123
to interest expense. As of March 31, 2019, a discount of
$3,315
remained. At no additional cost, we issued to the note holder 11,000,000 five-year warrants to purchase common stock
at $0.01, subject to adjustment if we issue securities at less than the exercise price. The warrants are exercisable on a cashless
basis.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2019, there were
93,684,195
shares reserved with our transfer agent with a potential of
70,981,467
being
reserved if and when the lender issues a request to our transfer agent.
In the event
of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding
entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase
to 18%.
The Company
has the option to redeem the convertible notes within 180 days from the date of issuance at 140% of the principal and interest.
After 180 days the right of prepayment expires.
$108,000 Convertible
Note – Global – Note 25
On May 14, 2018,
the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $108,000, for which
$94,960 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 8% per annum and
has a maturity date of May 14, 2019. The convertible note is convertible upon issuance and convertible into shares of the Company’s
stock at a conversion price equal to 60% of the lowest trading price of the Company’s common stock during the previous 20
trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s common
stock equal to three times the number of common shares the convertible note is convertible into. The Company is amortizing an
on-issuance discount of $8,000, legal fees of $5,040 and the remaining discount of $94,960 due to the recording of a derivative
liability as discussed in Note 5. The Company is amortizing the total discount of $108,000 to interest expense using the straight-line
method over the term of the loan. During the three-month period ended March 31, 2019 the Company amortized
$26,630
to interest expense. As of March 31, 2019, a discount of
$13,109
remained.
At no additional cost, we issued to the note holder 3,600,000 five-year warrants to purchase common stock at $0.025, subject to
adjustment if we issue securities at less than the exercise price. The warrants are exercisable on a cashless basis.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2018, there were
0
shares reserved with our transfer agent with a potential of
14,112,877
being
reserved if and when the lender issues a request to our transfer agent.
In the event
of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding
entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase
to 24%.
There is no
option to pre-pay this note.
During the three-month
period ended March 31, 2019, the lender converted
$70,000
of principal, interest and
fees into
16,666,667
common shares.
$183,250 Convertible
Note – Global – Note 28
On September
20, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $183,250,
for which $100,000 in proceeds were received and the remaining balances of two convertible notes were rolled over. At the time
of combination, the total carrying amount outstanding under the prior notes was $211,570. In connection, with the agreement, the
lender was paid $139,352, principal of $69,676 rolled into the new note and a gain of $2,542 was recorded within interest expense.
Under the terms of the agreement, the convertible note incurs interest at 8% per annum and has a maturity date of September 20,
2019. The convertible note is convertible at any time after 31 days after the closing date and convertible into shares of the
Company’s stock at a conversion price equal to 65% of the lowest trading price of the Company’s common stock during
the previous 20 trading days preceding the conversion date. The Company is required at all times to reserve shares of the Company’s
common stock equal to three times the number of common shares the convertible note is convertible into. The Company is amortizing
an on-issuance discount of $13,574 and the remaining discount of $169,676 due to the recording of a derivative liability as discussed
in Note 5. The Company is amortizing the total discount of $183,250 to interest expense using the straight-line method over the
term of the loan. During the three-month period ended March 31, 2019 the Company amortized
$45,185
to interest expense. As of March 31, 2019, a discount of
$86,855
remained.
At no additional cost, we issued to the note holder 1,247,618 five-year warrants to purchase common stock at $0.088, subject to
adjustment if we issue securities at less than the exercise price. The warrants are exercisable on a cashless basis.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2019, there were
8,062,356
shares reserved with our transfer agent with a potential of
50,100,093
being
reserved if and when the lender issues a request to our transfer agent.
In the event
of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise due, or
(C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note.
The Company
has the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount, fees
or pre-payment penalties. After 30 days the right of prepayment expires.
During the three-month
period ended March 31, 2019, the lender converted
$98,975
of principal, interest and
fees into
16,937,644
common shares.
$183,250 Convertible
Note – Morningview – Note 29
On September
20, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $183,250,
for which $169,676 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 8% per
annum and has a maturity date of September 20, 2019. The convertible note is convertible at any time after 31 days after the closing
date and convertible into shares of the Company’s stock at a conversion price equal to 65% of the lowest trading price of
the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at
all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible
note is convertible into. The Company is amortizing an on-issuance discount of $13,574, legal fees of $8,363 and the remaining
discount of $161,313 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total
discount of $183,250 to interest expense using the straight-line method over the term of the loan. During the three-month period
ended March 31, 2019, the Company amortized
$45,185
to interest expense. As of March
31, 2019, a discount of
$86,855
remained. At no additional cost, we issued to the note
holder 1,247,618 five-year warrants to purchase common stock at $0.088, subject to adjustment if we issue securities at less than
the exercise price. The warrants are exercisable on a cashless basis.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2019, there were
25,000,000
shares reserved with our transfer agent with a potential of
103,842,242
being reserved if and when the lender issues a request to our transfer agent.
In the event
of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise due, or
(C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note.
The Company
has the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount, fees
or pre-payment penalties. From 31 through 170 days, the Company has the option to redeem the note at the default amount stated
above. After 170 days the right of prepayment expires.
$183,250 Convertible
Note – Fourth Man – Note 30
On September
20, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $183,250,
for which $169,676 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 8% per
annum and has a maturity date of September 20, 2019. The convertible note is convertible at any time after 31 days after the closing
date and convertible into shares of the Company’s stock at a conversion price equal to 65% of the lowest trading price of
the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at
all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible
note is convertible into. The Company is amortizing an on-issuance discount of $13,574, legal fees of $8,363 and the remaining
discount of $161,313 due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total
discount of $183,250 to interest expense using the straight-line method over the term of the loan. During the three-month period
ended March 31, 2019, the Company amortized
$45,185
to interest expense. As of March
31, 2019, a discount of
$86,855
remained. At no additional cost, we issued to the note
holder 1,247,618 five-year warrants to purchase common stock at $0.088, subject to adjustment if we issue securities at less than
the exercise price. The warrants are exercisable on a cashless basis.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2019, there were
25,000,000
shares reserved with our transfer agent with a potential of
103,842,242
being reserved if and when the lender issues a request to our transfer agent.
In the event
of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise due, or
(C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note.
The Company
has the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount, fees
or pre-payment penalties. From 31 through 170 days, the Company has the option to redeem the note at the default amount stated
above. After 170 days the right of prepayment expires.
$108,000 Convertible
Note – Global – Note 31
On November
15, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $108,000,
for which $100,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 8% per
annum and has a maturity date of November 15, 2019. The convertible note is convertible at any time after 31 days after the closing
date and convertible into shares of the Company’s stock at a conversion price equal to 70% of the lowest trading price of
the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at
all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible
note is convertible into. The Company is amortizing an on-issuance discount of $19,065 and the remaining discount of $74,579 due
to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $93,644 to
interest expense using the straight-line method over the term of the loan. During the three-month period ended March 31, 2019
the Company amortized
$11,289
to interest expense. As of March 31, 2019, a discount
of
$58,752
remained. At no additional cost, we issued to the note holder 1,985,294
five-year warrants to purchase common stock at $0.0272, subject to adjustment if we issue securities at less than the exercise
price. The warrants are exercisable on a cashless basis.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2019, there were
81,584,689
shares reserved with our transfer agent with a potential of
60,390,563
being
reserved if and when the lender issues a request to our transfer agent.
In the event
of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise due, or
(C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note.
The Company
has the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount, fees
or pre-payment penalties. From 31 through 170 days, the company has the option to redeem the note at the default amount stated
above. After 170 days the right of prepayment expires.
$108,000 Convertible
Note – Morningview – Note 32
On November
15, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $108,000,
for which $100,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 8% per
annum and has a maturity date of November 15, 2019. The convertible note is convertible at any time after 31 days after the closing
date and convertible into shares of the Company’s stock at a conversion price equal to 70% of the lowest trading price of
the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at
all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible
note is convertible into. The Company is amortizing an on-issuance discount of $14,040 and the remaining discount of $83,249 due
to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $97,289 to
interest expense using the straight-line method over the term of the loan. During the three-month period ended March 31, 2019
the Company amortized
$11,729
to interest expense. As of March 31, 2019, a discount
of
$61,039
remained. At no additional cost, we issued to the note holder 1,985,294
five-year warrants to purchase common stock at $0.0272, subject to adjustment if we issue securities at less than the exercise
price. The warrants are exercisable on a cashless basis.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2019, there were
15,000,000
shares reserved with our transfer agent with a potential of
60,390,563
being
reserved if and when the lender issues a request to our transfer agent.
In the event
of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise due, or
(C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note.
The Company
has the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount, fees
or pre-payment penalties. From 31 through 170 days, the company has the option to redeem the note at the default amount stated
above. After 170 days the right of prepayment expires.
$108,000 Convertible
Note – Fourth Man – Note 33
On November
15, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $108,000,
for which $100,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 7% per
annum and has a maturity date of November 15, 2019. The convertible note is convertible at any time after 31 days after the closing
date and convertible into shares of the Company’s stock at a conversion price equal to 70% of the lowest trading price of
the Company’s common stock during the previous 20 trading days preceding the conversion date. The Company is required at
all times to reserve shares of the Company’s common stock equal to three times the number of common shares the convertible
note is convertible into. The Company is amortizing an on-issuance discount of $14,040 and the remaining discount of $83,249 due
to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $97,289 to
interest expense using the straight-line method over the term of the loan. During the three-month period ended March 31, 2019
the Company amortized
$11,728
to interest expense. As of March 31, 2019, a discount
of
$61,039
remained. At no additional cost, we issued to the note holder 1,985,294
five-year warrants to purchase common stock at $0.0272, subject to adjustment if we issue securities at less than the exercise
price. The warrants are exercisable on a cashless basis.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2019, there were
35,000,000
shares reserved with our transfer agent with a potential of
60,390,563
being
reserved if and when the lender issues a request to our transfer agent.
In the event
of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise due, or
(C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note.
The Company
has the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount, fees
or pre-payment penalties. From 31 through 170 days, the company has the option to redeem the note at the default amount stated
above. After 170 days the right of prepayment expires.
$168,300 Convertible
Note – Power Up – Note 34
On November
15, 2018, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of $168,300,
for which $150,000 in proceeds were received. Under the terms of the agreement, the convertible note incurs interest at 10% per
annum and has a maturity date of April 1, 2019. The convertible note is convertible upon issuance and convertible into shares
of the Company’s stock at a conversion price equal to 71% of the average of the 2 lowest trading prices of the Company’s
common stock during the previous 15 trading days preceding the conversion date. The Company is required at all times to reserve
shares of the Company’s common stock equal to 6 times the number of common shares the convertible note is convertible into.
The Company is amortizing an on-issuance discount of $15,300, legal fees of $3,000 and the remaining discount of $92,917 due to
the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount of $111,217 to interest
expense using the straight-line method over the term of the loan. During the three-month period ended March 31, 2019 and 2018
the Company amortized
$83,184
to interest expense. As of March 31, 2019, a discount
of
$0
remained.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2019, there were 126,422,535 shares reserved
with our transfer agent with a potential of 0 being reserved if and when the lender issues a request to our transfer agent.
In the event
of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding
entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase
to 22%.
The Company
has the option to redeem the convertible notes within 30 days from the date of issuance at 100% of the principal and interest;
between 31 and to 60 days from the date of issuance at 105% of the principal and interest; between 61 and to 90 days from the
date of issuance at 110% of the principal and interest; between 91 and to 120 days from the date of issuance at 115% of the principal
and interest; between 121 and to 150 days from the date of issuance at 120% of the principal and interest; between 151 and to
180 days from the date of issuance at 125% of the principal and interest; and after 180 days the right of prepayment expires.
On January 18,
2019 the Company retired the note with a payment of
$187,484
to the note holder. A
derivative liability gain of
$59,519
and a premium loss of
$19,154
were recorded to reflect the retirement of the loan.
$140,800 Convertible
Note – Power Up – Note 43
On January 30,
2019, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of
$140,800
,
for which
$125,000
in proceeds were received. Under the terms of the agreement, the
convertible note incurs interest at 10% per annum and has a maturity date of January 1, 2020. The convertible note is convertible
upon issuance and convertible into shares of the Company’s stock at a conversion price equal to 71% of the 2 lowest trading
prices of the Company’s common stock during the previous 15 trading days preceding the conversion date. The Company is required
at all times to reserve shares of the Company’s common stock equal to 6 times the number of common shares the convertible
note is convertible into. The Company is amortizing an on-issuance discount of
$12,800
,
legal fees of
$3,000
and the remaining discount of
$113,495
due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount
of
$129,295
to interest expense using the straight-line method over the term of the
loan. During the quarter ended March 31, 2019 the Company amortized
$21,254
. As of
March 31, 2019, a discount of
$108,041
remained.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2019, there were
94,433,266
shares reserved with our transfer agent with a potential of
154,915,783
being reserved if and when the lender issues a request to our transfer agent.
In the event
of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding
entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase
to 22%.
The Company
has the option to redeem the convertible notes within 30 days from the date of issuance at 100% of the principal and interest;
between 31 and to 60 days from the date of issuance at 105% of the principal and interest; between 61 and to 90 days from the
date of issuance at 110% of the principal and interest; between 91 and to 120 days from the date of issuance at 115% of the principal
and interest; between 121 and to 150 days from the date of issuance at 120% of the principal and interest; between 151 and to
180 days from the date of issuance at 125% of the principal and interest; and after 180 days the right of prepayment expires.
Warrant Exchange
– Armada/Morningview/Fourth Man - Loans 35 – 37
On February
28, 2019, the Company” entered into three separate Exchange Agreements (each, an “Exchange Agreement”) with
the holders (the “Warrant Holders”) of Common Stock Purchase Warrants issued by the Company in September 2018 and
November 2018. Under each Exchange Agreement, the Company issued a convertible promissory note in the principal amount of $100,000
(an “Exchange Note”) to the Warrant Holder party to such Exchange Agreement in exchange for the cancellation of Common
Stock Purchase Warrants held by such Warrant Holder, initially exercisable for an aggregate of 3,232,912 shares of the Company’s
common stock. The exchanges were effected pursuant to Sections 3(a)(9) and 4(a)(2) of the Securities Act of 1933, as amended and
Rule 506(b) promulgated thereunder. The Company is required at all times to reserve shares of the Company’s common stock
equal to 3 times the number of common shares the convertible note is convertible into.
Each Exchange
Note matures on February 28, 2020, bears interest at a rate of 8% per annum, and beginning 31 days after the closing date, is
convertible into shares of the Company’s common stock at a conversion price equal to 65% of the Market Price of the common
stock. “Market Price” as defined in each Exchange Note means the average of the two lowest “VWAPs” (as
defined) of the Company’s common stock during the 15 trading days preceding the applicable conversion date.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2019, there were
37,500,000
shares reserved with our transfer agent with a potential of
164,002,727
being reserved if and when the lender issues a request to our transfer agent.
In the event
of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise due, or
(C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note.
The Company
has the option to redeem the note, in whole, up to 30 days from the date of issuance with no interest, on issuance discount, fees
or pre-payment penalties. From 31 through 170 days, the company has the option to redeem the note at the default amount stated
above. After 170 days the right of prepayment expires
Note and Warrant
Purchase – Armada/Morningview/Fourth Man/BHP – Notes 38 - 41
On March 1,
2019, the Company completed the sale of Convertible Notes (“Notes”) and Common Stock Purchase Warrants (“Warrants”)
to four institutional investors (the “Investors”) pursuant to a Securities Purchase Agreement between the Company
and the Investors (the “Purchase Agreement”) dated as of February 19, 2019. The transaction was effected pursuant
to Section 4(a)(2) of the Securities Act of 1933, as amended and Rule 506(b) promulgated thereunder.
Pursuant to
the Purchase Agreement, for a purchase price of $100,000, each Investor purchased a Note in the principal amount of $110,00 and
a Warrant to purchase 1,334,951 shares of common stock. Each Note matures on March 1, 2020, bears interest at a rate of 8% per
annum, and beginning 31 days after the closing date, is convertible into shares of the Company’s common stock at a conversion
price equal to 65% of the Market Price of the common stock. “Market Price” as defined in each Exchange Note means
the average of the two lowest “VWAPs” (as defined) of the Company’s common stock during the 15 trading days
preceding the applicable conversion date. In addition, the Notes are subject to covenants, events of defaults and other terms
and conditions customary in transactions of this nature.
The Company
is required at all times to reserve shares of the Company’s common stock equal to 3 times the number of common shares the
convertible note is convertible into. The Company is amortizing an on-issuance discount of
$40,000
,
legal fees of
$29,110
and the remaining discount of
$370,890
due to the recording of a derivative liability as discussed in Note 5. The Company is amortizing the total discount
of
$440,000
to interest expense using the straight-line method over the term of the
loan. During the quarter ended March 31, 2019 the Company amortized
$36,066
. As of
March 31, 2019, a discount of
$403,934
remained.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2019, there were
101,718,107
shares reserved with our transfer agent with a potential of
240,484,969
being reserved if and when the lender issues a request to our transfer agent.
In the event
of default that is either (A) demanded (if demand or notice is required to create an Event of Default), (B) otherwise due, or
(C) paid in full, whichever is lowest, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded,
(y) due, or (z) paid in full, whichever is highest, or (ii) 120% of the outstanding principal amount of this Note, plus, (b) all
other amounts, costs, expenses and liquidated damages due in respect of the Note
Each Warrant
is exercisable for a five-year period at an initial exercise price of $0.0206 per share, subject to anti-dilution adjustment in
the event of stock dividends, stock splits and other specified events.
$140,800 Convertible
Note – Power Up – Note 42
On March 8,
2019, the Company entered into a convertible note agreement with a third party for an aggregate principal amount of
$91,300
,
for which
$80,300
in proceeds were received. Under the terms of the agreement, the
convertible note incurs interest at
12%
per annum and has a maturity date of March
8, 2020. The convertible note is convertible upon issuance and convertible into shares of the Company’s stock at a conversion
price equal to
71%
of the 2 lowest trading prices of the Company’s common stock
during the previous 15 trading days preceding the conversion date. The Company is required at all times to reserve shares of the
Company’s common stock equal to 6 times the number of common shares the convertible note is convertible into. The Company
is amortizing an on-issuance discount of
$8,300
, legal fees of
$2,700
and the remaining discount of
$118,295
due to the recording of a derivative
liability as discussed in Note 5. The Company is amortizing the total discount of
$129,295
to interest expense using the straight-line method over the term of the loan. During the quarter ended March 31, 2019 the Company
amortized
$21,254
. As of March 31, 2019, a discount of
$108,041
remained.
The conversion
price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization
transactions and any issuances of securities below the conversion price of the convertible note. On the date of issuance, the
Company anticipates that it will account for conversion feature as a derivative liability. Derivative accounting applies as the
conversion price is variable and does not have a floor as to the number of common shares in which could be converted. Thus, if
the convertible note is not repaid prior to the note being converted significant pressure maybe put on the Company’s stock
price and additional dilution of current shareholders may take place. As of March 31, 2019, there were
94,433,266
shares reserved with our transfer agent with a potential of
154,915,783
being reserved if and when the lender issues a request to our transfer agent.
In the event
of default, the holder has the right to require the Company to pay an amount equal to 150% multiplied by the then outstanding
entire balance of the note, including principal and accrued unpaid interest. In addition, the default interest rate would increase
to 22%.
The Company
has the option to redeem the convertible notes within 30 days from the date of issuance at 100% of the principal and interest;
between 31 and to 60 days from the date of issuance at 105% of the principal and interest; between 61 and to 90 days from the
date of issuance at 110% of the principal and interest; between 91 and to 120 days from the date of issuance at 115% of the principal
and interest; between 121 and to 150 days from the date of issuance at 120% of the principal and interest; between 151 and to
180 days from the date of issuance at 125% of the principal and interest; and after 180 days the right of prepayment expires.
As of March
31, 2019, future loan maturities are as follows:
For the year ended December 31,
|
|
|
|
|
|
|
|
2019
|
|
|
1,020,125
|
|
2020
|
|
|
972,100
|
|
Total
|
|
$
|
1,992,225
|
|
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, 2019, the Company recorded initial derivative liabilities of
$658,005
based upon
the following Black-Scholes option pricing model average assumptions: an exercise price of
$0.0056
to
$0.0206
our stock price on the date of grant of
$0.0102
to
$0.0119
, expected dividend yield of 0%, expected volatility of
86%
to
91%
, risk free interest rate of
2.53%
to
2.57%
and expected terms ranging from
1.0
to
5.0
years. Upon initial valuation, the derivative liability exceeded the face value
certain of the convertible note payables by approximately
$113,158
, which was recorded
as a day one loss on derivative liability.
On March 31, 2019,
the derivative liabilities were revalued at
$2,526,952
resulting in a
gain
of
$378,325
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
$0.0051
to
$0.0068
, our
stock price on the date of valuation
($0.0101)
, expected dividend yield of 0%, expected
volatility of
88%,
risk-free interest rate of
2.40%
to
2.43%
, and an expected terms ranging
from
0.1
to
1.0
years.
In connection
with convertible notes converted, as disclosed in Note 5, the Company reclassed derivative liabilities with a fair of
$1,018,248
to additional paid-in capital. 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, 2019, the Company’s convertible notes payable are potentially convertible into an aggregate of approximately
392
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
The fair value of each warrant is estimated
using the Black-Scholes valuation model. Assumptions used in calculating the fair value at March 31, 2019 were as follows:
|
|
Weighted
Average
Inputs Used
|
|
|
|
|
|
Annual dividend yield
|
|
$
|
-
|
|
Exercise Price
|
|
$
|
0.00084 to 0.0206
|
|
Expected life (years)
|
|
|
3.3 to 5.0
|
|
Risk-free interest rate
|
|
|
2.21% to 2.23
|
%
|
Expected volatility
|
|
|
83% to 86
|
%
|
Common stock price
|
|
$
|
0.0101
|
|
Since the expected
life of the options 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, 2019 are as follows:
Outstanding at December 31, 2018
|
|
|
142,075,119
|
|
Issuances
|
|
|
5,339,804
|
|
Exercises
|
|
|
(79,107,585
|
)
|
Anti-Dilution/Modification
|
|
|
0
|
|
Forfeitures/cancellations
|
|
|
(9,698,736
|
)
|
Outstanding at March 31, 2019
|
|
|
58,608,602
|
|
Weighted Average Price at March 31, 2019
|
|
$
|
0.0037
|
|
NOTE 7 – SUBSEQUENT
EVENTS
In accordance
with ASC 855, management reviewed all material events through May 15, 2018, for these financial statements and there are no material
subsequent events to report, except as follows:
Conversion
Notice
During April
and May of 2019, we issued 27,496,186 shares of common stock for the conversion of $117,134 in convertible notes
During April
and May 2019, we issued 8,514,103 shares of common stock for the exercise of 10,000,000 warrants.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Management’s
Discussion and Analysis of Financial Condition and Results of Operations analyzes the major elements of our balance sheets and
statements of income. This section should be read in conjunction with our Annual Report on Form 10-K for the year ended December
31, 2018, 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.
Overview
We are considered
to be a commercial stage company, following the commencement of sales of disposable stem cell separation kits used in our Caverstem®
procedure to treat ED in the fourth quarter of 2017. In the fourth quarter of 2018 we initiated sales of disposable stem cell
separation kits in our FemCelz™ procedure to treat female sexual disfunction. Our fiscal year end is December 31st. We have
acquired the licensing rights for our Amniostem amniotic-based stem cell, purchased the patent for our ED and lower back pain
treatments, and filed patent applications for our neurological treatments.
During the first
three-months of 2019, we issued
$672,100
in convertible notes with net proceeds of
$605,300
to accredited investors. In addition, we issued
$300,000
in convertible notes for the extinguishment of
9,698,736
warrants.
During the three-month
period ending March 31, 2019, we incurred interest expense of
$454,542
arising from
the third-party notes of
$2,092,225
.
Plan of
Operations
We commenced
marketing disposable stem cell separation kits for the Caverstem® ED treatment in the fourth quarter of 2017. We commenced
marketing disposable stem cell separation kits for the FemCelz™ procedure to treat female sexual disfunction in the fourth
quarter of 2018. For the next 12 months our plan of operations is to market our disposable kits, publish the results of the UCLA/LABiomed
clinical trial and partner with leading researchers on investigator-initiated trials to advance our neurological programs. As
of March 31, 2019, we had approximately
$419,477
cash on hand. With an estimated monthly
cash burn rate of approximately
$100,000
based on historic trends and anticipated future
revenues and expenses, management anticipates sufficient cash on hand and committed funds to meet operating expenses and costs
of the current operations through at least June 2019. Historically, we have met our cash flow requirements through the sale of
equity securities or borrowed funds. We intend to fund our business through sales of disposable kits along with continuing to
seek investments to meet our cash flow requirements, including both operating expenses and the balance of funding required to
fund our sales efforts and compete our ED clinical trial. The securities offered by us to potential investors have not been registered
under the Securities Act of 1933, as amended (the “
Act
”), and may not be offered or sold in the U.S. absent
registration or an applicable exemption from registration requirements. If we are unable to obtain further financing, we may seek
alternative sources of funding or revise our business plan. We currently have no alternative sources for funding.
Results
of Operations – For the Three-month Period Ended March 31, 2019 and 2018
Gross
Revenue.
We generated
$50,800
gross revenue for the three-month period ended
March 31, 2019 in comparison with
$9,600
for the comparable quarter a year ago. The
increase
of
$41,200
, or
429%
is due to the continued commercialization of the Caverstem® procedure.
Cost of
Goods Sold
. We generated
$14,239
cost of goods sold for the three-month period
ended March 31, 2019 in comparison with
$2,400
for the comparable quarter a year ago.
The
increase
of
$11,839
, or
493%
is due to the increased sales associated with the continued commercialization of the Caverstem® procedure.
Gross
Profit/(Loss)
. We generated
$36,561
in gross profit for the three-month period
ended March 31, 2019 in comparison with
$7,200
for the comparable quarter a year ago.
The
increase
of
$29,361
, or
408%
is due to the increased sales associated with the continued commercialization of the Caverstem® procedure.
General
and Administrative Expenses.
General and administrative expenses for the three-month period ended March 31, 2019, totaled
$281,974
, in comparison with
$202,930
, for
the comparable quarter a year ago. The
increase
of
$79,044
,
or
39%
is primarily due increased marketing expenses associated with the Caverstem®
procedure commercialization, physician training, and legal and accounting fees associated with debt issuances and public company
reporting.
Research
and Development Expenses.
Research and development expenses for the three-month period ended March 31, 2019, totaled
$0
in comparison with
$3,200
, for the comparable quarter a year ago. The
decrease
of
$3,600
, or
100%
is due to
the completion of clinical activities associated with the erectile dysfunction trial and pre-clinical research on the Anmiostem
stem cell.
Other
Income / Expense.
Other expense for the three-month period ended March 31, 2019, totaled
$546,667
in comparison with other expense of
$7,382,364
, for the comparable quarter
a year ago. The
decrease
of
$6,835,697
,
or
92%
is primarily due to a
decrease
of
$7,301,939
in the change in the fair value of derivative liabilities, offset by an
increase of
$263,234
in interest expense.
Net Loss.
For the reasons stated above, our net loss for the three-month period ended March 31, 2019 totaled
$797,366
in comparison to
$7,586,580
, for the comparable quarter a year ago.
Liquidity
and Capital Resources
Our principal
source of liquidity has been funds received from the sale of our common stock and issuance of notes including convertible notes.
Our experience to-date indicates the lenders are most likely to convert the debt into equity prior to or in lieu of full payment
at maturity. Going forward, our short-term funding needs are expected to be satisfied by funds to be loaned to us by third parties
and revenues generated from our Caverstem® ED and FemCelz™ female sexual dysfunction procedures. Our long-term liquidity
needs are expected to be satisfied from future offerings of our equity securities. It is possible that CMH may provide future
financing for us. We do not have any arrangements, agreements, or sources for long-term funding.
Our only commitments
for expenditures relate to the completion of the clinical study for the ED stem cell treatment and general and administrative
costs, including reimbursements to our parent company for services performed by their executive officers on our behalf. During
the next 12 months we also anticipate incurring expenses related to marketing activities for our ED treatment.
For the next
12 months our plan of operations is to market disposable kits associated with the Caverstem® ED and FemCelz™ female
sexual dysfunction treatments and publish the UCLA/LABiomed clinical trial. We believe that our current cash on hand would meet
our cash flow requirements for only a few more months. If we are unable to obtain further financing, we may seek alternative sources
of funding or revise our business plan. We currently have no alternative sources for funding.
Our financial
statements included with this report have been prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. We have incurred substantial expenses and generated minimal
revenues from operations during the periods covered by these financial statements. These factors raise substantial doubt about
our ability to continue as a going concern. There is no assurance that we will be successful in meeting the continuing financial
obligations of the company. Our financial statements do not include any adjustments that might result from the outcome of these
uncertainties.
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
$273,015
for the three-month period ended March 31, 2019
in comparison to
$164,937
for the comparable period a year ago, an
increase
of
$108,078
or
66%
. The increase
in cash used in operations was primarily related to payments towards an outstanding balance of management fees payable to a related
party.
Net Cash
used in Investing Activities.
There was no cash used in investing activities in the three-month period ended March 31,
2019 and the comparable period a year ago.
Net Cash
From Financing Activities.
In the three-month period ended March 31, 2019 we raised
$575,890
through the issuance of convertible debt in comparison to
$254,350
for the
comparable period a year ago. In the three-month period ended March 31, 2019 we paid
$168,300
to extinguish an outstanding convertible note to a third party. The increase in cash flows from financing activities
was primarily related to our need to obtain additional capital due marketing expenses associated with the commercialization of
the Caverstem® ED and FemCelz™ female sexual dysfunction procedures, increases in capital markets marketing costs and
increased legal and accounting fees associated with public company reporting and audit requirements.
Basis
of Presentation / Going Concern
The accompanying
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As of March 31, 2019, the Company had
$419,477
of available cash and a working capital deficit of
$3,762,999
. For
the three-month period ended March 31, 2019, the Company had
$50,800
in revenue,
$36,561
in operating income and used net cash for operating activities of
$273,015
.
These factors, among others, indicate that the Company may be unable to continue as a going concern for the next twelve months.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts
or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company’s ability to continue as a going concern is dependent upon its ability to obtain additional financing as may
be required, and ultimately to attain sufficient cash flow from operations to meet its obligations on a timely basis. Management
is in the process of negotiating various financing plans including access to ongoing credit facilities and possible sale of capital
stock either in private or in public offerings and believes these steps may generate sufficient cash flow for the Company to continue
as a going concern. If the Company is unsuccessful in these efforts, it may be required to substantially curtail or terminate
its operations.
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.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
As a smaller
reporting company, we have elected not to provide the disclosure required by this item.
Item 4. Controls and Procedures
Evaluation
of disclosure controls and procedures
Our management,
with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13(a)-15(e) of the Securities Exchange Act of 1934, as amended (the “
Exchange
Act
”)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report
are
effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange
Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s
rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive and principal financial
officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes
in internal control over financial reporting
There were no
changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form
10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II –
OTHER INFORMATION
Item 1. Legal Proceedings
In April 2016, the Company entered into an agreement with a
third party to perform banking services. The banking services didn't materialize and thus the Company cancelled the agreement in
June 2016. The Company and the third party are currently in a dispute as to fees under the agreement. The Company believes no consideration
is due as the services were performed. Any proposed litigation or equivalent will be vigorously defended for which the Company
expects to prevail. As of the date of these financial statements the Company hasn't recorded a loss provision as the amount is
not probable."
Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds.
Convertible
Notes/Debentures
During the quarter
ended March 31, 2019, we issued convertible promissory notes in the face amount of
$972,100
to multiple lenders for which we received proceeds of
$605,300
and the extinguishment
of
9,698,736
warrants. The notes bear interest at 8% which would increase to 24% in
the event of default and have maturity dates ranging from
February 2020
through
March
2020
. The notes are convertible at rates ranging from
65%
to
71%
of either the average of the two lowest traded prices of our common stock during the prior
15
trading days preceding the conversion date or the average of the two lowest volume weighted average prices (VWAP) of
our common stock during the prior
15
trading days preceding the conversion date. We
have the option to redeem the notes, in whole or in part, on
$740,000
of the face amount
of the issued convertible promissory notes for
120%
of the outstanding principle and
interest up to 170 days from the date of issuance. After 170 days the right of repayment expires. Additionally, we have the option
to redeem the notes, in whole or in part, on
$232,100
of the face amount of the issued
convertible promissory notes up to 180 days from the date of issuance ranging from
100%
to
125%
of the principal and interest depending on the numbers of days following issuance
up to 180 days from issuance. After 180 days the right of prepayment expires.
Item 6. Exhibits
SIGNATURE PAGE
FOLLOWS
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
|
Creative Medical Technology Holdings, Inc.
|
|
|
|
Date: May 20, 2019
|
By
|
/s/ Timothy Warbington
|
|
|
Timothy Warbington, Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
|
|
|
Date: May 20, 2019
|
By
|
/s/ Donald Dickerson
|
|
|
Donald Dickerson, Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
|