CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.

CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization - Creative Medical Technologies Holdings, Inc. (the “Company”) is a commercial stage biotechnology company dedicated to the advancement of identifying and translating novel biological therapeutics in the fields of immunotherapy, endocrinology, urology, neurology and orthopedics. The Company was incorporated on December 3, 1998, in the State of Nevada under the name Jolley Marketing, Inc. On May 18, 2016, the Company closed a transaction which was accounted for as a recapitalization, reverse merger, under which Creative Medical Technologies, Inc., a Nevada corporation (“CMT”) became the Company’s wholly owned subsidiary, and Creative Medical Health, Inc. (“CMH”), which was CMT’s sole stockholder prior to the merger, became the Company’s principal stockholder. In connection with this merger, the Company changed its name to Creative Medical Technologies Holdings, Inc. to reflect its current business.

CMT was originally created on December 30, 2015 (“Inception”), as the urological arm of CMH to monetize a patent and related intellectual property related to the treatment of erectile dysfunction (“ED”), which it acquired from CMH in February 2016. Subsequently, the Company has expanded its development and acquisition of intellectual property beyond urology to include therapeutic treatments utilizing “re-programmed” stem cells, and the treatment of neurologic disorders, lower back pain, type I diabetes, and heart, liver, kidney, and other diseases using various types of stem cells through our ImmCelz, Inc., StemSpine, Inc. and AlloCelz LLC subsidiaries. However, neither ImmCelz Inc., StemSpine Inc. nor AlloCelz LLC have commenced commercial activities.

The Company currently conducts substantially all of its commercial operations through CMT, which markets and sells the Company’s CaverStem® and FemCelz®disposable kits utilized by physicians to perform autologous procedures that treat erectile dysfunction and female sexual dysfunction, respectively.

In 2020, through the Company’s ImmCelz Inc. subsidiary, the Company began developing 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. The Company believes this process endows the immune cells with regenerative properties that may be suitable for the treatment of multiple indications. In contrast to other stem cell-based approaches, the immune cells are significantly smaller in size than stem cells and are believed to more effectively penetrate areas of the damaged tissues and induce regeneration.

Operating Segments and Related Disclosures

We manage our company as one reportable operating segment, The segment information aligns with how the Company’s Chief Operating Decision Maker (“CODM”) reviews and manages our business. The Company’s CODM is the Company’s Chief Executive Officer. Financial information and annual operating plans and forecasts are prepared and reviewed by the CODM at a consolidated level. The CODM assesses performance for the company and decides how to better allocate resources based on consolidated net income that is reported on the Consolidated Statements of Income. Our objective in making resource allocation decisions is to optimize the consolidated financial results. The accounting policies of our operations segment are the same as those described in the summary of significant accounting policies herein. For single reportable segment-level financial information, total assets, and significant non-cash transactions, see Item 8. Financial Statements.

Risks and Uncertainties - The Company has a limited operating history and has generated minimal revenues from its operations.

The outbreak of the COVID-19 coronavirus has spread across the globe and is impacting worldwide economic activity. A pandemic, including COVID-19 or other public health epidemic, poses the risk that we or our employees, CROs, suppliers, manufacturers and other partners may be prevented from conducting business activities for an indefinite period of time, including due to the spread of the disease or shutdowns that may be requested or mandated by governmental authorities. Another significant, outbreak of COVID-19, a communicable disease, could disrupt our clinical trials, supply chain and the manufacture or shipment of our products, and other related activities, which could have a material adverse effect on our business, financial condition and results of operations, and may also have an adverse impact on global economic conditions which could impair our ability to raise capital when needed.

The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets and the general condition of the U.S. and world economy. A host of factors beyond the Company’s control could cause fluctuations in these conditions, including the political environment and acts or threats of war or terrorism. Adverse developments in these general business and economic conditions, including through recession, downturn or otherwise, could have a material adverse effect on the Company’s financial condition and the results of its operations.

The Company has generated minimal sales and has limited marketing and/or distribution capabilities. The Company has limited experience in developing, training, or managing a sales force and will incur substantial additional expenses if it decides to market any of its current and future products and services with an internal sales organization. Developing a marketing and sales force is also time-consuming and could delay the launch of its future products and services. In addition, the Company will compete with many companies that currently have extensive and well-funded marketing and sales operations. The Company’s marketing and sales efforts may be unable to compete successfully against these companies. In addition, the Company has limited capital to devote to sales and marketing.

The Company’s industry is characterized by rapid changes in technology and customer demands. As a result, the Company’s products and services may quickly become obsolete and unmarketable. The Company’s future success will depend on its ability to adapt to technological advances, anticipate customer demands, develop new products and services, and enhance the Company’s current products and services on a timely and cost-effective basis. Further, the Company’s products and services must remain competitive with those of other companies with substantially greater resources. The Company may experience technical or other difficulties that could delay or prevent the development, introduction or marketing of new products and services or enhanced versions of existing products and services. Also, the Company may not be able to adapt new or enhanced products and services to emerging industry standards, and the Company’s new products and services may not be favorably received. In addition, the Company may not have the capital resources to further the development of existing and/or new ones.

We cannot predict how global supply chain activities, or the economy at large may be impacted by prolonged global conflicts or sanctions imposed in response to the wars, or whether future conflicts, if any, may adversely affect our results of operations.

***Use of Estimates –***The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S. 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 consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the consolidated financial statements include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position for the periods presented.

Concentration Risks – The Federal Deposit Insurance Corporation insures cash deposits in most general bank accounts for up to $250,000 per institution. The Company maintains its cash balances at four financial institutions. As of December 31, 2024, the Company’s balance exceeded the limit at three institutions.

Cash Equivalents – The Company classifies its highly liquid investments with maturities of three months or less at the date of purchase as cash equivalents. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the designations of each investment as of the balance sheet date for each reporting period. The Company classifies its investments as either short-term or long-term based on each instrument’s underlying contractual maturity date. Investments with maturities of less than 12 months are classified as short-term and those with maturities greater than 12 months are classified as long-term. The cost of investments sold is based upon the specific identification method. Investments consist of short-term U.S. treasuries.

Inventories – Inventories are valued on a cost basis. The cost of inventories is determined on a first-in, first-out basis.

Fair Value of Financial Instrument – The Company’s financial instruments consist of cash and cash equivalents, and payables. The carrying amount of cash and cash equivalents and payables approximates fair value because of the short-term nature of these items.

Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Fair value measurements are required to be disclosed by level within the following fair value hierarchy:

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 – Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 – Inputs lack observable market data to corroborate management’s estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

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 December 31, 2024, and 2023, the Company had no outstanding derivative liabilities.

Intangible Assets – Purchased intangible assets with finite lives are amortized over their respective estimated lives and reviewed for impairment whenever events or other changes in circumstances indicate that the carrying amount may not be recoverable. The impairment testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. Impairment charges, if any, are recorded in the period in which the impairment is determined. The costs for intangible assets that are developed internally are expensed as incurred.

Impairment – The Company records impairment losses when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. Furthermore, the Company will make periodic assessments of technology and clinical testing to determine if it plans to continue to pursue the technology and if the license, patent, or other rights have value. To date no impairment has been recorded.

Derivative Liabilities – A derivative is an instrument whose value is “derived” from an underlying instrument or index such as a future, forward, swap, option contract, or other financial instrument with similar characteristics, including certain derivative instruments embedded in other contracts and for hedging activities.

As a matter of policy, the Company does not invest in separable financial derivatives or engage in hedging transactions.

Revenue - The Company recognizes revenues in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from contracts with customers”. Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Deferred revenue represents amounts which still have yet to be earned.

The Company generates revenue from the sale of disposable stem cell concentration kits. Revenues are recognized when control of the promised goods or services are transferred to the customer, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services, which is generally on delivery to the customer.

Payments received for which the earnings process is not yet complete are deferred. As of December 31, 2024, and 2023, the Company had $40,000 in deferred revenue.

Research and Development - Research and development will continue to be a significant function of the Company. Research and development costs are expensed as incurred. Expenses in the accompanying financial statements include certain costs which are directly associated with the Company’s two phase I/II clinical trials, research and development of the ImmCelz TM, AlloStem™, and IPSCs™ technology platforms. ImmCelz TM is based upon re-programming T-regulatory cells with cell-free secreted factors. We are conducting laboratory research to validate the core technology and ability to achieve scalable production.** **These costs, which consist primarily of monies paid for research assets, outsourced research services, laboratory facility expenses, materials and supplies and compensation costs amounted to $2,400,777 for the year ended December 31, 2024. There was $1,970,639 in research costs for the year ended December 31, 2023.

Stock-Based Compensation – The Company accounts for its stock-based compensation in accordance with Accounting Standards Codification (“ASC”) 718, Compensation - Stock Compensation. The Company accounts for all stock-based compensation using a fair-value method on the grant date and recognizes the fair value of each award as an expense over the requisite vesting period. The Company recognizes stock option forfeitures as they occur as there is insufficient historical data to accurately determine future forfeitures rates.

Income Taxes – The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred income taxes are recognized for differences between financial reporting and tax bases of assets and liabilities at the enacted statutory tax rates in effect for the years in which the temporary differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The Company evaluates the realizability of deferred tax assets and valuation allowances are provided when necessary to reduce net deferred tax assets to the amounts expected to be realized.

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. The Company will recognize interest and penalties related to unrecognized tax benefits in the income tax provision in the accompanying statement of operations.

The Company calculates the current and deferred income tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed income tax returns are recorded when identified. The amount of income taxes paid is subject to examination by U.S. federal and state tax authorities. The estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts and circumstances existing at that time. To the extent that the assessment of such tax positions changes, the change in estimate is recorded in the period in which the determination is made.

Basic and Diluted Income (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 loss periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation. During the year ended December 31, 2024, the Company had 11,183 options and 3,184,809 warrants to purchase common stock outstanding; however, the effects were anti-dilutive due to the net loss. During the year ended December 31, 2023, the Company had 11,183 options and 2,284,932 warrants to purchase common stock outstanding; however, the effects were anti-dilutive due to the net loss.

On June 12, 2023, we effected a 1-for-10 reverse split of our authorized and issued and outstanding shares of common stock. All share references have been restated for this reverse split to the earliest period presented. As a result of the split, the authorized shares of the Company’s common stock decreased to 5,000,000 shares. On December 19, 2024, following the approval of the Company’s stockholders, we filed anamendment to our Articles of Incorporation to increase the number of authorized shares of common stock from 5,000,000 to 25,000,000.

Recently Adopted Accounting Pronouncements

Beginning in 2024 annual reporting, the Company adopted Accounting Standards Update (ASU) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023- 07) that was issued by the Financial Accounting Standards Board (“FASB”). This new standard improves reportable segment disclosures by adding and enhancing interim disclosure requirements, clarifying circumstances in which entities can disclose multiple segment measures of profit or loss, providing new segment disclosure requirements for entities with a single reportable segment, and adding other disclosure requirements. This standard is effective for all entities that are subject to Topic 280, Segment Reporting for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. This standard is applicable to the Company due to the single reportable segment requirement. The Company has included all required disclosures within its Form 10-K for the year ended December 31, 2024. See Note 1 for further information on segment disclosures.

Accounting Pronouncements Not Yet Adopted – The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its financial statements.

NOTE 2 – LICENSING AGREEMENTS

ED Patent – The Company acquired a patent from CMH, a related company on February 2, 2016, in exchange for 43,112 shares of CMTH restricted common stock valued at $100,000. CMH holds a significant amount of the Company’s common stock. The patent expires in 2025 and the Company has elected to amortize the patent over a ten-year period on a straight-line basis. Amortization expense of $9,972 was recorded for the years ended December 31, 2024, and 2023. As of December 31, 2024, the carrying value of the patent was $11,069. The Company expects to amortize $9,972 annually through 2026 related to the patent costs.

Multipotent Amniotic Fetal Stem Cells License Agreement - On August 25, 2016, CMT entered into a License Agreement dated August 25, 2016, 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. The license agreement also permits CMT to grant sublicenses. Under the terms of the license agreement, CMT is required to diligently develop, manufacture, and sell any products licensed under the agreement. 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 December 31, 2024, 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 $1,172 was recorded for the years ended December 31, 2024, and 2023. As of December 31, 2024, the carrying value of the patent was $861. The Company expects to amortize approximately $1,172 annually through 2025 related to the patent costs.

Lower Back Patent– The Company, through its subsidiary StemSpine, LLC, acquired a patent from CMH, a related company, on May 17, 2017, covering the use of various stem cells for the treatment of lower back pain from pursuant to a Patent Purchase Agreement, which was amended in November 2017. As amended, the agreement provides the following:

The Company paid CMH the $100,000 obligation of the initial payment due under this agreement, by a $50,000 cash payment and the issuance of 667 shares of common stock on December 12, 2020. On December 31, 2020, 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 14 shares of common stock. On September 30, 2021, the Company paid CMH an additional $40,000 of the $300,000 obligation due under this agreement through the issuance of 8,466 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 8,929 shares of common stock. The remaining portion of the $300,000 obligation was paid in cash in 2020. In August 2023, the Company paid CMH $100,000 related to the filing of an IND with the FDA per the terms of the agreement. In August 2024, the Company paid CMH $200,000 related to the dosing of the first patient in a Phase 1-2 clinical trial.

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 $10,000 was recorded for the years ended December 31, 2024, and 2023. As of December 31, 2024, the carrying value of the initial patent license was $25,000. The Company expects to amortize approximately $10,000 annually through 2026 related to the patent costs.

The Company has elected to amortize the additional $300,000 associated with commercialization over a seven-year period on a straight-line basis. Amortization expense of $45,940 was recorded for the years ended December 31, 2024, and 2023. As of December 31, 2024, the carrying value of the patent was $64,494. The Company expects to amortize approximately $56,000 annually through 2026 related to the patent costs.

The Company has elected to amortize the additional $100,000 associated with filing of the IND over a ten-year period on a straight-line basis. Amortization expense of $10,016 was recorded for the year ended December 31, 2024 and $2,500 for the year ended December 31, 2023. As of December 31, 2024, the carrying value of the patent was $87,484. The Company expects to amortize approximately $10,000 annually through 2033 related to the patent costs.

The Company has elected to amortize the additional $200,000 associated with the dosing of the first patient over a ten-year period on a straight-line basis. Amortization expense of $5,038 was recorded for the year ended December 31, 2024. As of December 31, 2024, the carrying value of the patent was $194,962. The Company expects to amortize approximately $20,000 annually through 2034 related to the patent costs.

ImmCelz™- 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 former director of the Company. The Agreement grants to ImmCelz™ 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 ImmCelz™ 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 to augment autologous cells. The terms of the agreement are as follows:

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 18,018 shares of common stock to Jadi Cell in February 2022.

The Company has elected to amortize the patent over a ten-year period on a straight-line basis. Amortization expenses of $25,000 were recorded for the years ended December 31, 2024, and 2023. As of December 31, 2024, the carrying value of the patent was $150,000. The Company expects to amortize approximately $25,000 annually through 2030 related to the patent costs.

As of December 31, 2024, future expected amortization of these assets is as follows:

For the year ended December 31,

The following is a rollforward of the Company’s licensing agreements for the year end December 31, 2024.

NOTE 3 – STOCK-BASED COMPENSATION

On September 6, 2021, the Company’s Board of Directors, and holders of a majority of the voting power of the Company’s stockholders approved the Company’s 2021 Equity Incentive Plan (the “2021 Plan”) and reserved 60,000 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 expected to contribute to the Company’s future growth and success. As of December 31, 2024, stock options to purchase 11,183** **common shares had been granted under the 2021 Plan.

The Company has also reserved stock options to purchase 3 common shares under its 2016 Stock Incentive Plan (the “Prior Plan”). In July 2016, the Company granted 10-year options to one party under the Prior Plan for accepting appointment to the Company’s scientific advisory board. The award consisted of options to purchase1 share of common stock at $75,000 per share. The options are accounted for as non-employee stock options and thus revalued for reporting purposes at the end of each quarter. The Company does not expect to make any future awards under the Prior Plan.

During 2024 and 2023, the fair market value of the options was insignificant to the financial statements.

Since the expected life of the options was greater than the Company’s historical stock information available, the Company determined the expected volatility based on price fluctuations of comparable public companies.

There were no options issued during the years-ended December 31, 2024 and 2023.

Option activity for the years ended December 31, 2024, and 2023 consists of the following:

See Note 2 for discussion related to the issuance of common stock in connection with licensing agreements. See Note 4 for warrants issued in connection with our October 2024 private offering.

In February 2022, we granted a total of 11,183 options to Timothy Warbington and Donald Dickerson at an exercise price of $16.90. Stock-based compensation recorded during the years ended December 31, 2024 and 2023 was $36,647, and recorded within selling, general and administration expenses The value of the options was determined to be $145,525 based upon the Black-Scholes method, see variables used below. As of December 31, 2024, future estimated stock-based compensation expected to be recorded was estimated to be $3,485**.**

See Note 2 for discussion related to the issuance of common stock in connection with licensing agreements.

See Note 4 for warrant rollforward

NOTE 4 – STOCKHOLDERS’ EQUITY

Registered Direct Offering and Concurrent Private Placement

On October 23, 2024 we sold 418,552 shares of common stock at a price of $4.42 per share to certain institutional investors in a registered direct offering priced at-the-market under Nasdaq rules. In a concurrent private placement, we issued the same investors warrants to purchase up to 837,104 shares of common stock at an exercise price of $4.42 per share, which warrants are exercisable until December 19, 2029. Net proceeds from these offerings were approximately $1.6 million. Roth Capital Partners acted as our placement agent in these transactions.

Preferred Stock

On May 14, 2024, our CEO and Chairman, Timothy Warbington, purchased one share of Series B Preferred Stock for a purchase price of $100 in cash. The Series B Preferred Stock has no voting rights other than the right to 100,000,000 votes solely with respect to a proposal to increase the Company’s authorized shares of common stock (a “Share Increase Proposal”). The Series B Preferred stock will vote together with the Company’s outstanding shares of common stock, as a single class with respect to any Share Increase Proposal, in the same proportion as shares of common stock are voted on such Share Increase proposal. The outstanding share of Series B Preferred Stock was redeemed by the Company for $100, upon the approval by the stockholders to increase the number of authorized common shares, see below. As of December 31, 2024, the $100 is payable to the CEO and is included within accounts payable.

On December 20, 2024, following the approval of the Board of Directors, the Company filed a Certificate of Withdrawal of Certificate of Designation with respect to the Company’s Series A Preferred Stock and Series B Preferred Stock. At the time of such filings, the Company did not have any outstanding shares of Series A Preferred Stock or Series B Preferred Stock.

Common Stock

On June 12, 2023, we effected a 1-for-10 reverse split of our authorized and issued and outstanding shares of common stock. All share references have been restated for this reverse split to the earliest period presented. As a result of the split, the authorized shares of our common stock decreased to 5,000,000 shares.

On December 19, 2024, our stockholders approved an amendment to our Articles of Incorporation to increase the number of authorized shares of common stock from 5,000,000 to 25,000,000.

In October 2024, we entered into a Securities Purchase Agreement with certain accredited and institutional investors pursuant to which the Company agreed to issue and sell to purchasers an aggregate of: (i)418,552 shares of common stock and (ii) warrants to purchase up to 837,104 shares of common stock, exercisable at $4.42 per share. The warrants will expire December 19, 2029. The Company raised $1.8 million in gross proceeds from the offering. In connection with the offering, the Company paid offering costs of $200,000, which related primarily to the placement agent fees.

Share Repurchase Program

On June 12, 2023 the Company announced that its Board of Directors has approved a share repurchase program. The program authorizes the Company to repurchase up to $2 million of its shares of common stock, in the open market or through privately negotiated transactions, in accordance with applicable securities laws and other restrictions. The manner, timing and amount of any purchase will be based on an evaluation of market conditions, the Company’s stock price and other factors. The program has no termination date, may be suspended or discontinued at any time, and does not obligate the Company to acquire any particular number of shares of common stock. A total of 101,250 shares had been repurchased under this program for a total purchase price of $445,916. The shares were cancelled in December 2024.

Warrants

In connection with our October 2024 private offering, we issued warrants to purchase 418,552 shares of common stock and accompanying warrants to purchase 899,886 shares of common stock at a price of $4.42 per share. The warrants were issued in connection with an offering and thus were deemed to be a cost of the offering.

Assumptions used in calculating the fair value of the warrants issued in 2024 were as follows:

As of December 31, 2024, and 2023, warrants to purchase and 3,184,808 and 2,284,932 shares of common stock were outstanding respectively.

Warrant activity for the years ended December 31, 2024 and 2023 consists of the following:

See Note 2 for discussion related to the issuance of common stock in connection with licensing agreements.

NOTE 5 – INCOME TAXES

The provision for income tax expense consists for the years ended December 31, 2024, and 2023:

Deferred tax assets consist of the following at December 31, 2024, and 2023:

The primary difference between the statutory federal rate and the Company’s effective tax rate for the years ended December 31, 2024 and 2022 was due to the 100% valuation allowance. The following is a reconciliation of the statutory federal rate and the Company’s effective tax rate for the year ended December 31, 2024, and 2022:

As of December 31, 2024 the Company had federal and state gross net operating loss carryforwards of approximately $28.6 million. The federal and state net operating losses and tax credits expire in years beginning in 2036. Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to offset its post-change income may be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. To date, the Company hasn’t experienced “ownership changes” under section 382 of the Code and comparable state tax laws. As of December 31, 2024, the Company estimates that none of the federal and state net operating losses will be limited under Section 382 of the Code.

As of December 31, 2024, and 2023, the Company maintained a full valuation allowance on its net deferred tax assets. The valuation allowance was determined in accordance with the provisions of ASC 740, Accounting for Income Taxes, which requires an assessment of both positive and negative evidence when determining whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. The Company’s history of cumulative losses, along with expected future U.S. losses required that a full valuation allowance be recorded against all net deferred tax assets. The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.

The applicable federal and state rates used in calculating the deferred tax provision were 21.0% and 5.7%, respectively.

The Company files income tax returns in the U.S. and Arizona. All years presented remain subject to examination for U.S. federal and state purposes. The Company is not currently under examination in federal or state jurisdictions.

NOTE 6 – SUBSEQUENT EVENTS

On March 6, 2025, we entered into warrant exercise inducement offer letters (the "Inducement Letters") with the holders (the "Holders") of warrants to purchase an aggregate of 837,104 shares of our Common Stock originally issued on October 23, 2024 (collectively, the "Existing Warrants"), pursuant to which the Holders agreed to exercise the Existing Warrants at their current exercise price of $4.42 per share, in exchange for our agreement to issue the Holders new warrants to purchase an aggregate of 1,674,208 shares of common stock (the "Inducement Warrants"). The Inducement Warrants have an exercise price of $3.75 per share, will not be exercisable until we have obtained stockholder approval for the issuance of the shares of Common Stock underlying the Inducement Warrants, and will then be exercisable for a period of five years following the date we obtain such stockholder approval.

Roth Capital Partners, LLC ("Roth") acted as our financial advisor in connection with the transactions described above. Pursuant to a financial advisory agreement between the Company and Roth, we agreed to (i) pay Roth a financial advisory fee equal to 8% of the aggregate gross proceeds received from the Holders' exercise of the Existing Warrants, (ii) reimburse Roth an aggregate of $40,000 for its legal expenses and (iii) issue Roth warrants to purchase shares of common stock equal to 5.0% of the aggregate number of shares of common stock issuable upon exercise of the Existing Warrants and the Inducement Warrants.