o | $400,000 upon dosing the first patient in a Phase 3 clinical trial. |
· | Payment may be made in cash or shares of our common at a discount of 30% to the | |
· | In the event the Company’s shares of common stock trade below $0.01 per share for two or more consecutive trading days, the number of any shares issuable as payment doubles. | |
· | For a period of five years from the date of the first sale of any product derived from the patent, the Company is required to make royalty payments of 5% from gross sales of products, and 50% of sale price or ongoing payments from third parties for licenses granted under the patent to third parties. |
The Company paid CMH the $100,000 obligation of the initial payment due under this agreement, by a $50,000 cash payment and the issuance of 6,667 shares of common stock on December 12, 2019. On January 8, 2021, following the Company’s announcement with respect to the clinical commercialization of the StemSpine technology, the Company paid CMH $50,000 of the $300,000 obligation due under this agreement through the issuance of 133 shares of common stock. On September 30, 2020, the Company paid CMH an additional $40,000 of the $300,000 obligation due under this agreement through the issuance of 84,656 shares of common stock, and in January 2021 the Company paid CMH an additional $50,000 of the $300,000 obligation due under this agreement through the issuance of 89,286 shares of common stock. The remaining portion of the $300,000 obligation was paid in cash in 2021. |
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 expensesexpense of $2,500 and $5,000 werewas recorded for the three- and six-monththree-month periods ended June 30,March 31, 2022 and 2021. As of June 30, 2021, and DecemberMarch 31, 2020,2022, the carrying value of the initial patent license was $60,000 and $65,000, respectively.$52,500. The Company expects to amortize approximately $10,000 annually through 2027 related to the patent costs.
In November 2019, following a successful international pilot study, the Company elected to initiate commercialization of the StemSpine procedure using autologous stem cells. As a result, the Company is obligated to pay CMH $300,000 pursuant to the Patent Purchase Agreement as described above. During the six-months ended June 30, 2021, $50,000 of this amount was converted into 44,642,847 shares of the Company’s common stock. As of June 30, 2021, the remaining liability balance was $0. The Company has elected to amortize the patentincreased obligation from the election to commercialize the Stemspine technology over a ten-year period on a straight-line basis. Amortization expense of $11,485 and $22,970 werewas recorded for the three- and six-monththree-month periods ended June 30,March 31, 2022 and 2021. Amortization expense of $11,485 and $22,970 were recorded for the three- and six-month periods ended June 30, 2020, As of June 30, 2021 and DecemberMarch 31, 2020,2022, the carrying value of the patent was $225,284 and $248,254, respectively.$190,829. The Company expects to amortize approximately $46,000 annually through 2027 related to the patent costs.
ImmCelzImmCelz™ TM- On December 28, 2020, ImmCelz, Inc. (“ImmCelz”), a newly formed Nevada corporation and wholly owned subsidiary of the Company, entered into a Patent License Agreement dated December 28, 2020 (the “Agreement”), with Jadi Cell, LLC. (“Jadi”), a company controlled by Dr. Amit Patel, a Board Member.former director of the Company. The Agreement grants to ImmCelzTMImmCelz™ the patent rights under U.S. Patent# 9,803,176 B2, “Methods and compositions for the clinical derivation of an allogenic cell and therapeutic uses”. The contract grants ImmCelzTMImmCelz™ access to proprietary process of expanding the master cell bank of Jadi Cell LLC, as currently practiced by Licensor and as documented in standard operating procedures (SOPs) and other written documentation. The terms of the agreement are as follows:
| · | Licensee shall pay Licensor a license fee of |
| · | Within thirty (30) days of the end of each calendar quarter during the term of this Agreement, Licensee will pay Licensor five percent (5%) of the Net Income of |
| · | in one or a series of related transactions, of all or substantially all of the business or assets of Licensee ImmCelz, Inc. (“Sale of Assets”) will result in a one-time ten-percent allocation to the licensor, the Continuing Royalty will be calculated at five percent (5%) of the Net Income of Licensee in any calendar quarter in which the Net Income in such calendar quarter reflects the receipt of any consideration from such Sale of Assets. |
| 13 |
| Table Of Contents |
As a result,
To date, the Company is obligatedhas not made any payments to pay Jadi Cell under this agreement, other than the $250,000 pursuantinitial license fee, which was paid by the issuance of 180,180 shares of common stock to the Patent License Agreement as described above.Jadi Cell in February 2022.
The Company has elected to amortize the patent over a ten-year period on a straight-line basis. Amortization expense of $6,250 and $12,500 were recorded for the three- and six-monththree-month periods ended June 30,March 31, 2022 and 2021. There was no amortization expense recorded for the three- and six-month periods ended June 30, 2020. As of June 30, 2021, and DecemberMarch 31, 2020,2022, the carrying valuesvalue of the patent were $237,500 and $250,000, respectively.was $218,750. The Company expects to amortize approximately $25,000 annually through 2030 related to the licensingpatent costs.
The following is a rollforward of the Company’s licensing agreements for the three months ended March 31, 2022.
|
| Assets |
|
| Accumulated Amortization |
| ||
|
|
|
|
|
|
| ||
Balances at December 31, 2021 |
| $ | 760,000 |
|
| $ | (232,321 | ) |
Addition of new assets |
|
|
|
|
|
| 0 |
|
Amortization |
|
| 0 |
|
|
| (23,021 | ) |
Balances at March 31, 2022 |
| $ | 760,000 |
|
| $ | (255,342 | ) |
NOTE 3 – RELATED PARTY TRANSACTIONS
The Company has incurred a monetary obligation to a related corporation to reimburse the cost of services provided to the Company (management and consulting) through December 31, 2019. Each of the Company’s executive officers is employed by CMH and will continue to receive his or her salary or compensation from CMH. The Company has an agreement with CMH which obligates the Company to reimburse CMH $35,000 per month for such services beginning January 2016. Management Reimbursement Agreement
On November 17, 2017, the Company entered into an amendeda Management Reimbursement Agreement dated November 17, 2017, with Creative Medical Technologies, Inc. (“CMT”),CMH, a related party whose directors and executive officers include the wholly owned subsidiary ofCompany’s officers and directors. Pursuant to this agreement, during 2019 and 2020, and until September 16, 2021, the Company and with Creative Medical Health, Inc., the parent of the Company (“CMH”). The Agreement memorializes the arrangement between the parties whereby the Company has, since January 1, 2016, reimbursed CMH $35,000an aggregate of $45,000 per month for the services of management and consultants employed by CMH (including the Company’s Chief Executive Officer and performing services forChief Financial Officer, and the CompanyCompany’s former directors Dr. Patel and CMT. AtDr. Ichim). The agreement provided that 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. This agreement was terminated effective September 15, 2021. At March 31, 2022, no amounts were owed CMH under this agreement. At March 31, 2021, the Company owed CMH $5,082.
Debt Settlement Agreement
On January 12, 2018, the Company entered into a Debt Settlement Agreement with Timothy Warbington, the Company’s Chief Executive Officer, under which the Company issued 3,000,000 shares of super-voting Series A Preferred Stock to Mr. Warbington in exchange for the cancellation of $150,000 of debt owed by the Company to CMH, which CMH in turn was obligated to pay Mr. Warbington. The Series A Preferred Stock previously provided Mr. Warbington with substantial control over all matters subject to a vote of the Company’s shareholders. Mr. Warbington surrendered the Series A Preferred Stock to the Company in December 2021 immediately prior to the closing of the Company’s public offering in exchange for $150,000 plus 8% interest on such amount from January 2018 until the date of surrender.
| 14 |
| Table Of Contents |
Jadi Cell License Agreement may be terminated
On December 28, 2020, the Company entered into a patent license agreement with Jadi Cell, LLC, a company owned and controlled by either party upon 30 days’ prior written notice.Dr. Amit Patel, a former director of the Company. The agreement provides Company with an exclusive, worldwide license to U.S. Patent No. 9,803,176 “Methods and compositions for the clinical derivation of an allogenic cell and therapeutic uses” and the proprietary process of expanding the master cell bank of Jadi Cell LLC, in the field of enhancing autologous cells. The agreement is described in detail in Note 2 above. To date, the Company has not made any payments to Jadi Cell under this agreement, other than the $250,000 initial license fee, which was paid by the issuance of 181,818 shares of common stock to Jadi Cell in February 2022.
StemSpine Patent Purchase
The Company acquired U.S. Patent No. 9,598,673 covering the use of various stem cells for the treatment of lower back pain from its affiliate CMH pursuant to a Patent Purchase Agreement dated May 17, 2017, which was amended in November 2017. The inventors of the patent were Thomas Ichim, PhD and Amit Patel, MD, former directors of the Company, and Annette Marleau, PhD. The Patent Purchase Agreement is described in detail in Note 2 above. Pursuant to the Patent Purchase Agreement, the Company paid CMH the $100,000 obligation of the initial payment due under this agreement, by a $50,000 cash payment and the issuance of 6,667 shares of common stock on December 201812, 2020. On January 8, 2021, following the Company’s announcement with respect to increase the monthly reimbursement from $35,000 to $45,000 effective January 1, 2019 and thereafter. Duringclinical commercialization of the three months ended JuneStemSpine technology, the Company paid CMH $50,000 of the $300,000 obligation due under this agreement through the issuance of 133 shares of common stock. On September 30, 2021 and 2020, the Company recorded $135,000paid CMH an additional $40,000 of the $300,000 obligation due under this agreement through the issuance of 84,656 shares of common stock, and in expenseJanuary 2021 the Company paid CMH an additional $50,000 of the $300,000 obligation due under this agreement through the issuance of 89,286 shares of common stock. The remaining portion of the $300,000 obligation has been paid in connection with this agreement.cash.
As of June 30, 2021, and December 31, 2020, amounts due to CMH under the arrangement were $52,582 and $18,782, respectively.Insider Loans
On May 28, 2021, Timothy Warbington, who is our CEO Mr. Timothy Warbington, and Board Member,Chairman; and Dr. Amit Patel, who was formerly a director of ours, advanced the companyCompany $50,000 and $150,000 respectively. The two notes mature on August, 28were repaid during the quarter ended September 30, 2021, dodid not have any conversion features, and bear anbore interest at the rate of 5%.
See Note 2 for discussion of an additional related party transaction with CMH. per annum.
NOTE 4 – DEBT
As-of March 31, 2022 the Company had no outstanding loans and there was no loan activity during the three-months ended March 31, 2022.
During the six-monthsthree-months ended June 30,March 31, 2021, we issued $157,150 in convertible notes to accredited investors with net proceeds of $134,640. The notes maturematured during February of 2022 and bearbore interest at rate of 8%. The notes arewere convertible into shares of the Company’s common stock at conversion prices ranging from 60% to 71% of the average of the two lowest traded prices or the lowest trade price of the Company’s common stock during the previous 15 trading days preceding the conversion date. The Company iswas amortizing the discount due to derivative liabilities and on-issuance discount totaling $157,150 to interest expense using the straight-line method over the original terms of the loans.
On May 28, 2021, our CEO, Mr. Timothy Warbington, and Board Member, Dr. Amit Patel, advanced the company $50,000 and $150,000 respectively. The two notes mature on August, 28 2021, do not have any conversion features, and bear an interest rate of 5%.
On June 21, 2021, we issued a $105,000, non-convertible note to an accredited investor with net proceeds of $100,000. The note matures on September 21, 2021, does not have any conversion features, and bears an interest rate of 10%.
During the six -monthsthree-months ended June 30,March 31, 2021, and 2020, the Company amortized $451,614 and $543,916 respectively,$231,232 to interest expense. As of June 30,March 31, 2021, total discounts of $120,185$335,568 remained for which willwere planned to be expensed through February 2022.
During the six-monthsthree-months ended June 30,March 31, 2021, the Company issued an aggregate of 386,049,691629,404 shares upon the conversion of $1,229,351887,560 of outstanding principal, interest and fees on existing, outstanding notes and 8,935,10820,111 shares upon the cashless exercise of 11,583,33323,167 warrants. During the six-months ended June 30, 2020, the Company issued an aggregate of 200,844,446 shares upon the conversion of $605,255 of outstanding principal, interest and fees on existing, outstanding notes.
During the six-monthsthree-months ended June 30,March 31, 2021, and 2020, the Company extinguished approximately $118,000 and $9,300 ofdid not extinguish any principal and interest respectively.or interest.
| Table |
As of June 30, 2021, future loan maturities are as follows:
For the year ended December 31, |
|
|
| |
|
|
|
| |
2021 |
|
| 185,302 |
|
2022 |
|
| 157,150 |
|
Total |
| $ | 342,452 |
|
NOTE 5 – DERIVATIVE LIABILITIES
Derivative Liabilities
In connection with convertible notes payable,As-of March 31, 2022, the Company recordshad no outstanding derivative liabilities forand there was no derivative activity during the conversion feature. In addition, the Company has an 8,900 warrant for which the exercise price resets upon future events. The warrant is also considered to be derivative liability. The derivative liabilities are valued on the date the convertible note payable become convertible and revalued at each reporting period. The warrant was valued on the date of issuance and revalued at each reporting period.three-months ended March 31, 2022.
During the six-monthsthree-months ended June 30,March 31, 2021, the Company recorded initial derivative liabilities of $817,791 based upon the following Black-Scholes option pricing model average assumptions: an exercise price of $0.0106$5.30 to $0.0138$6.90 our stock price on the date of grant of $0.0310$15.50 to $0.0806,$6.90, expected dividend yield of 0%, expected volatility of 98.14%, risk free interest rate of 0.10% and expected terms of 1.0 year. Upon initial valuation, the derivative liabilities exceeded the face values certain of the convertible notes payable by approximately $683,151, which was recorded as a day one loss in derivative liability.
On June 30,March 31, 2021, the derivative liabilities were revalued at $248,097$2,275,578 resulting in a loss of $2,251,446 and a gain of $26,224,593$29,159,190 related to the change in fair market value of the derivative liabilities during the three and six months ended June 30, 2021, respectively.March 31, 2021. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following average assumptions: an exercise price of $0.0189$0.40 to $3.0900,$1545.00, our stock price on the date of valuation ($0.0350)16.60), expected dividend yield of 0%, expected volatility of 75.03%93.05% to 98.81%102.96%, risk-free interest rate of 0.46%0.07% to 0.70%0.35%, and expected terms ranging from 0.5 to 2.73.3 years.
In connection with convertible notes converted, as disclosed in Note 4, the Company reclassed derivative liabilities with a fair value of $12,225,353$8,124,855 to additional paid-in capital for the six-monththree-month period ended June 30,March 31, 2021. 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 DilutionNOTE 6 – STOCK-BASED COMPENSATION
MostOn September 6, 2021, the Company’s Board of Directors and holders of a majority of the voting power of the Company’s convertible notes payable contain adjustable conversion terms with significant discounts to market. As of June 30, 2021,stockholders approved the Company’s convertible notes2021 Equity Incentive Plan (the “2021 Plan”), and reserved 600,000 shares of common stock for the issuance of awards thereunder. The 2021 Plan provides for the granting to our employees, officers, directors, consultants and advisors of performance awards payable in shares of common stock, stock options (non-statutory and incentive), restricted stock awards, stock appreciation rights (“SARs”), restricted share units (“RSUs”) and other stock-based awards. The purpose of the 2021 Plan is to secure for the Company and its stockholders the benefits arising from capital stock ownership by eligible participants who are potentially convertible intoexpected to contribute to the Company’s future growth and success.
During the three-months ended March 31, 2022 Messrs. Warbington and Dickerson received 10-year options to purchase an aggregate of approximately 12 million111,187 shares of common stock. In addition, duestock with an exercise price of $1.69. The options vested immediately as to 25% of the shares subject to the variable conversion prices on someoption, and will vest in three equal installments of 25% of the Company’s convertible notes,shares subject to the numberoption on each of common shares issuable is dependentthe next three annual anniversary dates of the grant date. The value of the options was determined to be $145,525 based upon the traded priceBlack-Scholes method, see variables used below.
|
| Inputs Used |
| |
|
|
|
| |
Annual dividend yield |
| $ | - |
|
Expected life (years) |
|
| 10.0 |
|
Risk-free interest rate |
|
| 0.81 | % |
Expected volatility |
|
| 92.95 | % |
Common stock price |
| $ | 1.69 |
|
During the three-months ended March 31, 2021, the fair market value of the Company’s common stock.
NOTE 6 – WARRANTS
From January 2021 through June 2021,options was insignificant to the Company issued 14,010,000 warrants in connection with incentive grants to new Scientific Advisory Board and employee members. During the six months ended June 30, 2021, one of these individuals exercised 10 million warrants.financial statements.
| Table |
The fair value of each warrant is estimated using the Black-Scholes valuation model on the date of issuance and if needed at each period end. Assumptions used in calculating the fair value during the six-months ended June 30, 2021 were as follows:
|
| Weighted Average Inputs Used |
| |
|
|
|
| |
Annual dividend yield |
| $ | 0 |
|
Expected life (years) |
| 2.7 to 5.0 |
| |
Risk-free interest rate |
| 0.23% to 0.42 | % | |
Expected volatility |
| 93.09% to 98.81 | % | |
Common stock price | $ | 0.0230 to $3.0900 |
| |
Since the expected life of the warrantsoptions 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.
There were no options issued during the three months ended March 31, 2021.
Option activity for the three-months ended March 31, 2022 consists of the following:
|
| Stock Options |
|
| Weighted Average Exercise Price |
|
| Weighted Average Life Remaining |
| |||
Outstanding, December 31, 2021 |
|
| 7 |
|
| $ | 13125 |
|
|
| 5.64 |
|
Issued |
|
| 111,817 |
|
|
|
|
|
|
| - |
|
Exercised |
|
| - |
|
|
| 0 |
|
|
| - |
|
Expired |
|
| - |
|
|
| 0 |
|
|
| - |
|
Outstanding, March 31, 2022 |
|
| 111,824 |
|
| $ | 2.51 |
|
|
| 10.00 |
|
Vested, March, 31, 2022 |
|
| 27,961 |
|
| $ | 4.98 |
|
|
| 10.00 |
|
NOTE 7 – WARRANTS
For the three-months ended March 31, 2022, the Company did not issue any warrants in connection with services, convertible notes payable or equity offerings.
The issuances, exercises and pricing re-sets during the sixthree months ended June 30, 2021,March 31, 2022, are as follows:
Outstanding at December 31, 2020 |
|
| 76,369,112 |
|
Issuances |
|
| 14,010,000 |
|
Exercises |
|
| (21,583,333 | ) |
Anti-Dilution/Modification |
|
| - |
|
Forfeitures/cancellations |
|
| (34,728,593 | ) |
Outstanding at June 30, 2021 |
|
| 34,067,186 |
|
Weighted Average Price at June 30, 2021 |
| $ | 0.0155 |
|
NOTE 7 – STOCKHOLDERS’ DEFICIT
Series B Convertible Preferred Stock Equity Financing
On February 11, 2021, the Board of Directors of the Corporation had authorized issuance of up to350 shares of preferred stock, $0.001 par value per share, designated as Series B Convertible Preferred Stock. Each share of Preferred Stock shall have a par value of $0.001 per share and a stated value of $1,200, subject to increase set forth in the Certificate of Designation.
Dividends: Each share of Series B Convertible Preferred Stock shall be entitled to receive, and the Corporation shall pay, cumulative dividends of 10% per annum, payable quarterly, beginning on the Original Issuance Date and ending on the date that such share of Series B Convertible Preferred Share has been converted or redeemed (the “Dividend End Date”). Dividends may be paid in cash or in shares of Series B Convertible Preferred Stock. From and after the initial Closing Date, in addition to the payment of dividends pursuant to Section 2(a), each Holder shall be entitled to receive, and the Corporation shall pay, dividends on shares of Series B Convertible Preferred Stock equal to (on an as-if-converted-to-Common-Stock basis) and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. The Corporation shall pay no dividends on shares of the common stock unless it simultaneously complies with the previous sentence.
Voting Rights: The Series B Convertible Preferred Stock will vote together with the common stock on an as converted basis subject to the Beneficial Ownership Limitations (not in excess of 4.99% conversion limitation). However, as long as any shares of Series B Convertible Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series B Convertible Preferred Stock directly and/or indirectly (a) alter or change adversely the powers, preferences or rights given to the Series B Convertible Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to, or otherwise pari passu with, the Series B Convertible Preferred Stock or, authorize or create any class of stock ranking as to dividends senior to, or otherwise pari passu with, the Series b Convertible Preferred Stock, (c) amend its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Series B Convertible Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.
Liquidation: Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Series B Convertible Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
Conversion: Each share of Series B Convertible Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of common stock (subject to the limitations) determined by dividing the Stated Value of such share of Series B Convertible Preferred Stock by the Conversion Price. The Conversion Price for the Series B Convertible Preferred Stock shall be the amount equal to $0.05 per share. Following the event of a default the conversion price shall be $0.35.
Redemption: The Series B Convertible Preferred Stock may be redeemed by payment of the stated value thereof, with the following premiums based on the time of the redemption.
|
|
|
|
|
|
In addition, the Series B Preferred Stock contain various redemption provisions for which are contingent upon future events including but not limited to having sufficient authorized shares, change in control, bankruptcy, etc. Upon a triggering event, the Company the redemption price is 125% of the stated value plus all unpaid dividends and liquidated damages.
Most Favored Nation Provision. From the date hereof until the date when the Holder no longer holds any shares of Series B Preferred Stock, upon any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents for cash consideration, Indebtedness or a combination of units thereof (a “Subsequent Financing”), the Holder may elect, in its sole discretion, to exchange (in lieu of conversion), if applicable, all or some of the shares of Series B Preferred Stock then held for any securities or units issued in a Subsequent Financing on a $1.00 for $1.00 basis. The Company shall provide the Holder with notice of any such Subsequent Financing in the manner set forth below. For purposes of illustration, if a Subsequent Financing were to occur whereby the Company sells and issues a convertible note with a conversion price that includes a discount to the market price of its Common Stock, the Holder will be entitled to receive the same convertible note on the exact same terms on a dollar-for-dollar basis via the exchange of the Series B Preferred Stock the Holder holds on the date of the sale and issuance of the convertible note.
On February 12, 2021, pursuant to the terms noted above, the Company entered into a new preferred equity financing agreement with BHP Capital, LLC (“BHP”) in the amount of $350,000 for 350 shares of the newly-designated Series B Convertible Preferred Stock valued at $1,200 per share for which $326,600 in proceeds were received by the Company. In connection with the closing, the Company issued an additional 1.5 million shares of common stock as a service fee. The Company has accounted for the transaction with equity at the proceeds received was considered consideration for all securities issued.
Series C Convertible Preferred Stock Equity Financing
On March 30, 2021, the Board of Directors of the Corporation had authorized issuance of up to 150 shares of preferred stock, $0.001 par value per share, designated as Series C Convertible Preferred Stock. Each share of Preferred Stock shall have a par value of $0.001 per share and a stated value of $1,200, subject to increase set forth in the Certificate of Designation.
Dividends: Each share of Series C Convertible Preferred Stock shall be entitled to receive, and the Corporation shall pay, cumulative dividends of 10% per annum, payable quarterly, beginning on the Original Issuance Date and ending on the date that such share of Series C Convertible Preferred Share has been converted or redeemed (the “Dividend End Date”). Dividends may be paid in cash or in shares of Series C Convertible Preferred Stock. From and after the initial Closing Date, in addition to the payment of dividends pursuant to Section 2(a), each Holder shall be entitled to receive, and the Corporation shall pay, dividends on shares of Series C Convertible Preferred Stock equal to (on an as-if-converted-to-Common-Stock basis) and in the same form as dividends actually paid on shares of the common stock when, as and if such dividends are paid on shares of the common stock. The Corporation shall pay no dividends on shares of the common stock unless it simultaneously complies with the previous sentence.
Voting Rights: The Series C Convertible Preferred Stock will vote together with the common stock on an as converted basis subject to the Beneficial Ownership Limitations (not in excess of 4.99% conversion limitation). However, as long as any shares of Series C Convertible Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote of the Holders of a majority of the then outstanding shares of the Series C Convertible Preferred Stock directly and/or indirectly (a) alter or change adversely the powers, preferences or rights given to the Series C Convertible Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to, or otherwise pari passu with, the Series C Convertible Preferred Stock or, authorize or create any class of stock ranking as to dividends senior to, or otherwise pari passu with, the Series C Convertible Preferred Stock, (c) amend its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the Holders, (d) increase the number of authorized shares of Series C Convertible Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing.
Liquidation: Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Series C Convertible Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
Conversion: Each share of Series C Convertible Preferred Stock shall be convertible, at any time and from time to time from and after the Original Issue Date at the option of the Holder thereof, into that number of shares of common stock (subject to the limitations) determined by dividing the Stated Value of such share of Series C Convertible Preferred Stock by the Conversion Price. The Conversion Price for the Series C Convertible Preferred Stock shall be the amount equal to $0.05 per share. Following the event of a default the conversion price shall be $0.35.
Redemption: The Series C Convertible Preferred Stock may be redeemed by payment of the stated value thereof, with the following premiums based on the time of the redemption.
|
|
|
|
|
|
In addition, the Series C Preferred Stock contain various redemption provisions for which are contingent upon future events including but not limited to having sufficient authorized shares, change in control, bankruptcy, etc. Upon a triggering event, the Company the redemption price is 125% of the stated value plus all unpaid dividends and liquidated damages.
Outstanding at December 31, 2021 |
|
| 6,604,820 |
|
Issuances |
|
| - |
|
Exercises |
|
| - |
|
Anti-Dilution/Modification |
|
| - |
|
Forfeitures/cancellations |
|
| - |
|
Outstanding at March 31, 2022 |
|
| 6,604,820 |
|
Weighted Average Price at March 31, 2022 |
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Most Favored Nation Provision. From the date hereof until the date when the Holder no longer holds any shares of Series C Preferred Stock, upon any issuance by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents for cash consideration, Indebtedness or a combination of units thereof (a “Subsequent Financing”), the Holder may elect, in its sole discretion, to exchange (in lieu of conversion), if applicable, all or some of the shares of Series C Preferred Stock then held for any securities or units issued in a Subsequent Financing on a $1.00 for $1.00 basis. The Company shall provide the Holder with notice of any such Subsequent Financing in the manner set forth below. For purposes of illustration, if a Subsequent Financing were to occur whereby the Company sells and issues a convertible note with a conversion price that includes a discount to the market price of its Common Stock, the Holder will be entitled to receive the same convertible note on the exact same terms on a dollar-for-dollar basis via the exchange of the Series C Preferred Stock the Holder holds on the date of the sale and issuance of the convertible note.
On March 30, 2021, pursuant to the terms noted above, the Company entered into a new preferred equity financing agreement with Fourth Man, LLC (“FM”) in the amount of $150,000. The closing under the SPA consisted of 150 shares of Series C Convertible Preferred Stock, stated value $1,200 per share, issued to FM for a purchase price of $150,000, or $1,000 per share, for which $141,049 in proceeds were received by the Company. In connection with the closing, the Company issued an additional642,857 shares of common stock as a service fee. The Company has accounted for the transaction with equity at the proceeds received was considered consideration for all securities issued.
NOTE 8 – SUBSEQUENT EVENTS
In accordance with ASC 855, management reviewed all material events through August 16, 2021,May 15, 2022, for these financial statements and there are no material subsequent events to report, except as follows:
Convertible Notes
Subsequent to June 30, 2021, the Company borrowed an additional $341,650 under convertible notes payable. The convertible notes payable had similar terms to those disclosed in Note 4. In addition, the Company repaid convertible notes payable of $341,650. Additional payments of $164,849 we made to satisfy accrued interest and prepayment provisions.
Short-Term Loans
Subsequent to June 30, 2021, the Company repaid $206,467 in short-term loan principal and accrued interest from two of our officers and an accredited investor.
Conversion Notice
Subsequent to June 30, 2021, the Company issued 8,813,956 shares of common stock for the conversion of $153,980 in convertible notes.
Senior Notes
On August 11, 2021,May 3, 2022, the Company completed the sale of 15% Original Issue Discount Senior Notes (“Notes”(i) 2,991,669 shares of common stock and pre-funded warrants to purchase 4,563,887 shares of common stock (the “Pre-Funded Warrants”), and (ii) accompanying warrants to purchase 15,111,112 shares of common stock (the “Common Warrants”), at a combined offering price of $2.25 per share of common stock/Pre-Funded Warrant and related Common Warrant, to a group of institutional investors (the “Purchasers”), pursuant to a Securities Purchase Agreement between the Company and the Purchasers dated as of August 9, 2021April 29, 2022 (the “Purchase Agreement”)., resulting in gross proceeds to the Company of approximately $17,000,000. 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, forThe Common Warrants have a five-year term, and an aggregate purchase price of $3,787,750, the Purchasers purchased Notes in the aggregate principal amount of $4,456,176. Each Note matures on February 11, 2022, subject to the Company’s requirement to redeem the Notes prior to such date with the net proceeds of any future offering of the Company’s securities. The Notes do not bear interest other than upon an event of default, and are not convertible into the Company’s common stock. In addition, the Notes are subject to covenants, events of defaults and other terms and conditions customary in transactions of this nature.
Pursuant to the Purchase Agreement, the Company also issued to the Purchasers five-year warrants (“Warrants”) to purchase an aggregate of 157,184,354 shares of the Company’s common stock at an initial exercise price of $0.02835$2.00 per share, subject to anti-dilution adjustment in the event of future sales of equity by the Company below the thenshare. The Pre-Funded Warrants do not expire, and have an exercise price stock dividends, stock splits and other specified events.of $0.0001 per share.
Roth Capital Partners (“Roth”), acted as sole placement agent for the offering. Pursuant to terms of an engagement letter with Roth, theThe Company paid Roth a placement agent fee of 9% ofin the gross proceeds of the offering. The Company alsoamount $1,360,000, and issued Roth a warrant to purchase 10,094,4081,133,333 shares of common stock with the same terms as the Common Warrants issued to the Purchasers.
WarrantsPursuant to Related Parties
Subsequent to June 30, 2021,the Purchase Agreement, the Company and the Purchasers entered into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which the Company has agreed to file a registration statement (the “Registration Statement”) with the Securities and Exchange Commission to register the resale of the shares of common stock issued 15,000,000 warrants in connectionthe offering and the shares of common stock underlying the Common Warrants and Pre-Funded Warrants. In addition, the Company’s directors and officers entered into Lock-Up Agreements under which they have agreed not to sell any of their securities of the Company until 90 days following after the earliest of (i) the effective date of the Registration Statement, and (ii) the date all of the securities issued in the offering have been sold under Rule 144, or may be sold under Rule 144 without the Company being in compliance with incentive grants to Scientific Advisory Board membersthe current public information requirement under such rule, and employees. The warrants are exercisable at $0.03 per share, vest upon issuance and exercisable for a period of ten years.without any volume limitation.
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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 operations. This section should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020,2021, and our interim financial statements and accompanying notes to these financial statements included in this report. All amounts are in U.S. dollars.
Forward-Looking Statement Notice
This quarterly report on Form 10-Q contains forward-looking statements about our expectations, beliefs or intentions regarding, among other things, our product development efforts, business, financial condition, results of operations, strategies or prospects. In addition, from time to time, we or our representatives have made or may make forward-looking statements, orally or in writing. Forward-looking statements can be identified by the use of forward-looking words such as “believe,” “expect,” “intend,” “plan,” “may,” “should” or “anticipate” or their negatives or other variations of these words or other comparable words or by the fact that these statements do not relate strictly to historical or current matters. These forward-looking statements may be included in, but are not limited to, various filings made by us with the SEC, press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements. Many factors could cause our actual activities or results to differ materially from the activities and results anticipated in forward-looking statements, including, but not limited to, those set forth in our most recent annual report referenced below.
This report identifies important factors which could cause our actual results to differ materially from those indicated by the forward-looking statements.
All forward-looking statements attributable to us or persons acting on our behalf speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in this report. We undertake no obligations to update or revise forward-looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. In evaluating forward-looking statements, you should consider these risks and uncertainties.
Overview
Creative Medical Technologies Holdings, Inc. isWe are a commercial stage biotechnology company focused on immunology, urology, orthopedicsneurology and neurologyorthopedics using adult stem cell treatments. We were incorporated on December 3, 1998, intreatments and interrelated regenerative technologies for the Statetreatment of Nevada undermultiple indications. Our existing and pipeline of therapies and products include of the name Jolley Marketing, Inc. On May 18, 2016, we completed a reverse merger transaction under whichfollowing:
Our subsidiary, Creative Medical Technologies, Inc., a Nevada corporation (“CMT”) became our wholly-owned subsidiary, and Creative Medical Health, Inc. (“CMH”), which was CMT’s sole stockholder prior to the merger, became our principal stockholder. In connection with this merger, we changed our name to Creative Medical Technologies Holdings, Inc. to reflect our current business.
CMT was originally created as the urological arm of CMH to monetize a patentU.S. Patent No. 8,372,797 and related intellectual property related to the treatment of erectile dysfunction (“ED”), which it acquired from CMH in February 2016. Subsequently, we have expanded our development and acquisition of intellectual property beyond urology to include therapeutic treatments utilizing “re-programmed” stem cells, and the treatment of neurologic disorders, lower back pain, type I diabetes, and heart, liver, diseasekidney and other diseases using various types of stem cells through our ImmCelz, Inc., AmnioStem LLCStemSpine, Inc. and StemSpine,AmnioStem LLC subsidiaries. However, neither ImmCelz LLC,Inc., StemSpine Inc. nor AmnioStem LLC nor StemSpine LLC have commenced commercial activities.
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We currently conduct substantially all of our commercial operations through CMT. CMT, which markets and sells our CaverStem®CaverStem® and FemCelz® FemCelz® disposable kits utilized by physicians to perform autologous procedures that treat erectile dysfunction and female sexual dysfunction, respectively. Our CaverStem®CaverStem® and FemCelz®FemCelz® kits are currently available through physicians at 14eight locations in the United StatesStates.
In addition to our CaverStem® and Europe.FemCelz® products, we are currently in the process of recruiting clinical sites for our StemSpine® Regenerative Stem Cell Procedure for the Treatment of Degenerative Disc Disease. Our StemSpine® treatment is an autologous procedure that utilizes a patient’s own stem cells to treat lower back pain.
In 2020, we formed ImmCelz, Inc., a wholly owned subsidiary of CMT. Throughthrough our ImmCelz Inc. subsidiary, we began exploring the development of treatments that utilize a patient’s own extracted immune cells that are then “reprogrammed” by culturing them outside the patient’s body with optimized stem cells. The immune cells are then re-injected into the patient from whom they were extracted. We believe this process endows the immune cells with regenerative properties that may be suitable for the treatment of stroke victims.victims, among other indications. In contrast to other stem cell-based approaches, the immune cells are significantly smaller in size than stem cells and are believed to more effectively penetrate areas of the damaged tissues and induce regeneration.
We are currently primarily focused on expanding the commercial sale and use of CaverStem®our CaverStem® and FemCelz®FemCelz® products by physicians in the UnitesUnited States and Europe, and South America, commercializing our StemSpine®StemSpine® treatment for lower back pain and pursuingpain. We also recently filed an InnovativeInvestigational New Drug (IND) application filed in February 2021 towith the FDA to treat stroke utilizing our ImmCelz technology platform to treat stroke.TM technology. In the future, subject to the availability of capital, we will seek to further develop additional therapeutic products that utilize our proprietary intellectual property.
Our principal executive offices are located at 211 E Osborn Road, Phoenix, AZ 85012.
During the first six-months of 2021, we issued $157,150 in convertible notes with net proceeds of $134,640 to accredited investors.
During the six-month period ending June 30, 2021, we incurred interest expense of $81,004 arising from the third-party notes of $342,452 and related party notes of $220,000.
Plan of Operations
We commenced marketing disposable stem cell concentration kits for the CaverStem® erectile dysfunction treatment in the fourth quarter of 2017 and the FemCelz® female sexual dysfunction treatment in March of 2019. The Company also announced the commercialization of the StemSpine procedure for lower back pain in the fourth quarter of 2019. We also continued filed an Innovative New Drug (IND) application for the ImmCelz™ product to treat stroke. We have commenced physician recruitment to build a 100-patient treatment registry to support our StemSpine® commercialization. For the next 12 months our plan of operations is to continue to expand the market for the CaverStem® and FemCelz® procedures, build the StemSpine patient registry, and coordinate with the FDA to authorize the commencement of the ImmCelz Phase I trial. As of June 30, 2021, we had approximately $159,000 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 September 2021. 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 stem cell concentration 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. 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 PeriodPeriods Ended June 30,March 31, 2022 and 2021 and 2020
Gross Revenue. We generated $10,000$15,000 in gross revenue for the three-month period ended June 30, 2021,March 31, 2022, in comparison with $27,900no revenue for the comparable quarter a year ago. The decreaseincrease of $17,900 or 64%$15,000 reflects the restart of commercial sales following a reduction in the ongoing negative impactimpacts of the COVID-19 pandemic.
Cost of Goods Sold. We generated $4,500 cost$6,791 of goods sold for the three-month period ended June 30, 2021,March 31, 2022, in comparison with $10,800 for the comparable quarter a year ago. The decreaseno cost of $6,300 or 58% reflects the ongoing negative impact of the COVID-19 pandemic on sales.
Gross Profit/(Loss). We generated $5,500 gross profit for the three-month period ended June 30, 2021, in comparison with $17,100 for the comparable quarter a year ago. The decrease of $11,600 or 68% is due to the reduced level of sales in the quarter.
General and Administrative Expenses. General and administrative expenses for the three-month period ended June 30, 2021, totaled $498,321 in comparison with $214,886,goods sold for the comparable quarter a year ago. The increase of $283,435$6,791 reflects the restart of commercial sales following a reduction in the ongoing negative impacts of the COVID-19 pandemic.
Gross Profit/(Loss). We generated a gross profit of $8,209 for the three-month period ended March 31, 2022, in comparison with no gross profit for the comparable quarter a year ago. The increase of $8,209 reflects the restart of commercial sales following a reduction in the ongoing negative impacts of the COVID-19 pandemic.
General and Administrative Expenses. General and administrative expenses for the three-month period ended March 31, 2022, totaled $1,130,057 in comparison with $280,293, for the comparable quarter a year ago. The increase of $849,134 or 132%302% is primarily due to increasesapproximately $176,000 in director and officer insurance premiums that began in September 2021, an increase of $211,768approximately $200,000 in stock-based compensation associatedsalary expenses from terminating the management service agreement in September 2021 and entering into direct employment arrangements with recruitmentour CEO, CFO and other key leaders of Scientific Advisory Boardthe management team, an increase of approximately $120,000 in marketing expenses, and new employee members, $58,628an increase of $138,000 in legal fees and $17,187 in officeroutside consulting services.expenses focused on moving key elements of our programs forward.
Amortization Expenses. Amortization expenses for the three-month periodperiods ended June 30,March 31, 2022 and 2021, totaled $23,021 in comparison with $16,478, for the comparable quarter a year ago. The increase of $6,543 or 38% is due to the added amortization of the $250,000 Jadi Cell asset.$23,021.
Research and Development Expenses. There were no researchResearch and development expenses for the three-month period ended June 30, 2021, andMarch 31, 2022, totaled $10,000 in comparison with no expenses, for the comparable quarter a year ago.
Other Income / Income/Expense. Other There was no other income or expense for the three-month period ended June 30, 2021, totaled $2,389,340March 31, 2022, in comparison with $1,628,299,$28,139,963 income, for the comparable quarter a year ago. The increased expensedecreased income of $761,041, or 47%$28,139,963, is primarily due to an increased lossa gain in the fair value of derivative liabilities of $920,950,$28,476,039, offset by a gain on the extinguishmentinterest expense of convertible notes of $96,444.
Net Income/Loss. For the reasons stated above, our net loss for the three-month period ended June 30, 2021, totaled $2,905,182 in comparison to a loss of $1,842,563$336,076 for the comparable quarter a year ago.
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Results of Operations – For the Six-month Period Ended June 30, 2021 and 2020
Gross Revenue. We generated gross revenue of $10,000 for the six-month period ended June 30, 2021, in comparison with $70,000 for the comparable period a year ago. The decrease of $60,000 or 86% reflects the ongoing negative impact of the COVID-19 pandemic.
Cost of Goods Sold. We generated $4,500 cost of goods sold for the six-month period ended June 30, 2021, in comparison with $24,996 for the comparable period a year ago. The decrease of $20,496 or 82% is due to the lack of sales.
Gross Profit/(Loss). We generated $5,500 gross profit for the six-month period ended June 30, 2021, in comparison with $45,004 for the comparable period a year ago. The decrease of $39,504 or 88% is due to the lack of sales.
General and Administrative Expenses. General and administrative expenses for the six-month period ended June 30, 2021, totaled $779,244 in comparison with $561,054, for the comparable period a year ago. The increase of $218,190 or 39% is primarily due to increases of $211,768 in stock-based compensation associated with recruitment of Scientific Advisory Board and new employee members, $40,292 in legal fees and $17,187 in officer consulting services, offset by a reduction of $18,597 in accounting fees.
Amortization Expenses. Amortization expenses for the six-month period ended June 30, 2021, totaled $46,042 in comparison with $33,250, for the comparable period a year ago. The increase of $12,792 or 38% is due to the added amortization of the $250,000 Jadi Cell asset.
Research and Development Expenses. There were no research and development expenses for the six-month period ended June 30, 2021, and for the comparable period a year ago.
Other Income / Expense. Other income for the six-month period ended June 30, 2021, totaled $25,750,623 in comparison with $2,449,217, for the comparable period a year ago. The increased income of $23,301,406, or 951% is primarily due to an increased gain in the fair value of derivative liabilities of $26,224,593 combined with a gain of $96,444 associated with gains on extinguishment of convertible notes.
Net Income/Loss. For the reasons stated above, our net incomeloss for the six-monththree-month period ended June 30, 2021,March 31, 2022, totaled $24,930,837$1,154,869 in comparison to $1,899,917,net income of $27,836,019, for the comparable periodquarter a year ago.
Liquidity and Capital Resources
Our principal sourceAs of liquidity has been funds received from the saleMarch 31, 2022, we had $9,146,977 of available cash and positive working capital of approximately $8,846,292. In comparison, as of December 31, 2021, we had approximately $10,723,870 of available cash and positive working capital of approximately $9,686,780.
On December 7, 2021, we sold an aggregate of 3,875,000 shares of our common and preferred stock, and issuanceaccompanying warrants to purchase 3,875,000 shares of notes including convertible notes. Our experience to-date indicatescommon stock at an exercise price of $4.13 per share, at a combined public offering price to the lenders are most likelypublic of $4.13 per share of common stock and related Warrant, pursuant to convertan Underwriting Agreement we entered into with Roth Capital Partners, LLC. We received gross proceeds of $16,003,750, before deducting underwriting discounts and commissions of seven percent (7%) of the debt into equity priorgross proceeds and offering expenses. We used a portion of the proceeds from the offering to or(i) redeem our Bridge Notes described below, in lieuthe aggregate outstanding amount of full payment at maturity. Going forward, our short-term funding needs are expected to be satisfied by equity investments, funds to be loaned to us by third parties$5,146,176, and revenues generated(ii) repurchase the Company’s Series A Preferred Stock from our Caverstem® ED and FemCelz® vaginal rejuvenation procedures. Our long-term liquidity needs are expected to be satisfied from future offeringsthe Company’s Chief Executive Officer for an aggregate purchase price 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.approximately $195,000.
Our only commitments for expenditures relateIn addition, following the end of our recent quarter, on May 3, 2022 we completed that same (i) 2,991,669 shares of common stock and pre-funded warrants to generalpurchase 4,563,887 shares of common stock, and administrative costs, including reimbursements(ii) accompanying warrants to our parent company for services performed by their executive officers on our behalf. Duringpurchase 15,111,112 shares of common stock, at a combined offering price of $2.25 per share of common stock/Pre-Funded Warrant and related Common Warrant, to a group of institutional investors, resulting in gross proceeds to the next 12 months we also anticipate incurring expenses related to marketing activities for our ED and vaginal rejuvenation treatments, building the StemSpine patient registry and initiating the ImmCelz Phase I clinical trial.
For the next 12 months our planCompany of operations is to market our disposable kits, partner with leading physicians to build the StemSpine patient registry and initiate the ImmCelz Phase I 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.approximately $17,000,000.
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 $663,657$1,576,893 for the six-monththree-month period ended June 30, 2021March 31, 2022 in comparison to $317,528$441,518 for the comparable period a year ago, thean increase of $346,129$1,135,375 or 109%257%. The increase in cash used in operations was primarily related to a $236,400 decrease in payments owed to CMH and a $45,679 decrease in accounts payable.the increased expenses mentioned above.
Net Cash used in Investing Activities. There was no cash used in investing activities in the six-monththree-month period ended June 30,March 31, 2022 and March 31, 2021, and June 30, 2020, respectively.
Net Cash From Financing Activities. InWe did not raise any funds during the six-monththree-month period ended June 30, 2021, weMarch 31, 2022. We raised $724,233$618,640 through the issuance of convertible debt, preferred stock and a related party advance. Inadvance in the six-monththree-month period ended June 30, 2020, we raised $265,900 primarily through the issuance of convertible debt. The $458,333 or 172% increase in cash flows from financing activities were primarily related to the proceeds from the sale of preferred stock and related party advances offset by approximately $200,000 in payments to settle convertible notes payable and warrants.March 31, 2021.
Basis of Presentation / Going ConcernCritical Accounting Policies and Estimates
The accompanyingOur consolidated financial statements have beenare prepared on a going concern basis, which contemplatesin accordance with generally accepted accounting principles accepted in the realizationUnited States. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the satisfaction of liabilities inrelated disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the normal course of business. As of June 30, 2021, the Company had $159,000 of available cash and a working capital deficit of $1,288,174. For the six-month period ended June 30, 2021, the Company had $10,000 in revenue, $819,786 in operating loss and used net cash for operating activities of $663,657. 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 ontime our consolidated financial condition, changesstatements are prepared. On a regular basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in financial condition, revenues or expenses,accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results of operations, liquidity capital expenditures or capital resources.could differ from our assumptions and estimates, and such differences could be material.
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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
As required by Rule 13a-15 under the Exchange Act, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2021.March 31, 2022.
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 15(d)-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 were 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.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. In April 2016, the Company entered into an agreement with a third party to perform banking services. The banking services did not 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 servicesAs of March 31,2022 we were not 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 has not recorded a loss provision as the amount is not probable.involved in any legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Convertible Notes/Debentures
DuringIn February 2022, we paid the six-months ended June 30, 2021, we issued $157,150 in convertible notes to accredited investors with net proceedsinitial Jadi Cell obligation of $134,640. The notes mature during February$250,000 through the issuance of 2022 and bear interest at rate of 8%. The notes are convertible into shares of the Company’s common stock at conversion prices ranging from 60% to 71% of the average of the two lowest traded prices or the lowest trade price of the Company’s common stock during the previous 15 trading days preceding the conversion date.
On May 28, 2021, our CEO, Mr. Timothy Warbington, and Board Member, Dr. Amit Patel, advanced the company $50,000 and $150,000 respectively. The two notes mature on August, 28 2021, do not have any conversion features, and bear an interest rate of 5%.
On June 21, 2021, we issued a $105,000, non-convertible note to an accredited investor with net proceeds of $100,000. The note matures on September, 21 2021, does not have any conversion features, and bears an interest rate of 10%.
On February 12, 2021, pursuant to the terms identified in Note 7 above, the Company entered into a new preferred equity financing agreement with BHP Capital, LLC (“BHP”) in the amount of $350,000 for 350 shares of the newly-designated Series B Convertible Preferred Stock valued at $1,200 per share for which $326,600 in proceeds were received by the Company. In connection with the closing, the Company issued an additional 1.5 million181,818 shares of common stock as a service fee. The Company has accounted for the transaction with equity at the proceeds received was considered consideration for all securities issued.stock.
On March 30, 2021, pursuant to the terms identified in Note 7, the Company entered into a new preferred equity financing agreement with Fourth Man, LLC (“FM”) in the amount of $150,000. The closing under the SPA consisted of 150 shares of Series C Convertible Preferred Stock, stated value $1,200 per share, issued to FM for a purchase price of $150,000, or $1,000 per share, for which $141,049 in proceeds were received by the Company. In connection with the closing, the Company issued an additional 642,857 shares of common stock as a service fee. The Company has accounted for the transaction with equity at the proceeds received was considered consideration for all securities issued.
Item 6. Exhibits
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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.
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Date: | By | /s/ Timothy Warbington |
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| Timothy Warbington, Chief Executive Officer |
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Date: | By | /s/ Donald Dickerson |
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| Donald Dickerson, Chief Financial Officer |
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