|TEV||113||TEV/EBIT||-52||TTM 2019-09-30, in MM, except price, ratios|
|Item 1. Financial Statements|
|Note 1. Basis of Presentation, Organization, Nature and Continuance of Operations, Recent Accounting Standards and Earnings (Loss) per Share|
|Note 2. Common Stock and Warrants|
|Note 3. Stock Options|
|Note 4. Commitments|
|Note 5. Related Party Transactions|
|Note 6. Subsequent Events|
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations|
|Item 3. Quantitative and Qualitative Disclosures About Market Risk|
|Item 4. Controls and Procedures|
|Part II - Other Information|
|Item 1. Legal Proceedings|
|Item 1A. Risk Factors|
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds|
|Item 6. Exhibits|
|Balance Sheet||Income Statement||Cash Flow|
Rev, G Profit, Net Income
Ops, Inv, Fin
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-30156
|(Exact name of registrant as specified in its charter)|
|(State or other jurisdiction of incorporation)||(I.R.S. Employer Identification No.)|
|9375 E. Shea Blvd., Suite 107-A, Scottsdale, AZ||85260|
|(Address of principal executive offices)||(Zip Code)|
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
|Yes ☒||No ☐|
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
|Yes ☒||No ☐|
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer||☐||Accelerated filer||☐|
|Smaller reporting company||☒||Emerging Growth Company||☐|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in 12b-2 of the Exchange Act):
|Yes ☐||No ☒|
Securities registered pursuant to Section 12(b) of the Act: None.
As of November 12, 2019, the registrant had 87,352,364 shares of its common stock, par value $0.00001 per share, issued and outstanding.
For The Quarter Ended September 30, 2019
TABLE OF CONTENTS
|PART I - FINANCIAL INFORMATION|
|Item 1.||Financial Statements|
|Condensed Consolidated Balance Sheets||1|
|Condensed Consolidated Statements of Operations||2|
|Condensed Consolidated Statements of Stockholders’ Equity||3|
|Condensed Consolidated Statements of Cash Flows||4|
|Notes to Condensed Consolidated Financial Statements||5|
|Item 2.||Management's Discussion and Analysis of Financial Condition and Results of Operations||11|
|Item 3.||Quantitative and Qualitative Disclosures About Market Risk||19|
|Item 4.||Controls and Procedures||19|
|PART II - OTHER INFORMATION|
|Item 1.||Legal Proceedings||20|
|Item 1A.||Risk Factors||20|
|Item 2.||Unregistered Sales of Equity Securities and Use of Proceeds||20|
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2019 AND DECEMBER 31, 2018
|September 30,||December 31,|
|Prepaid expenses and deposits||100,000||168,707|
|Total current assets||13,474,382||15,566,231|
|Equipment, net of accumulated depreciation of $924 and $687, respectively||27||264|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Accounts payable and accrued liabilities||$||413,088||$||222,163|
|Accounts payable - related parties||69,474||3,000|
|Interest payable to related parties||-||167,497|
|Total current liabilities||482,562||392,660|
|Commitments and contingencies|
|Stockholders' equity (deficit)|
|Preferred stock: $0.0001 par value; 10,000,000 shares authorized, no shares issued and outstanding||-||-|
|Common stock: $0.00001 par value; 500,000,000 shares authorized, 87,352,364 and 87,175,522 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively||874||872|
|Additional paid-in capital||32,188,410||32,187,580|
|Total stockholders' equity||13,144,701||15,326,689|
|Total liabilities and stockholders' equity||$||13,627,263||$||15,719,349|
(See accompanying notes to unaudited consolidated financial statements)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|Research and development||130,467||45,683||504,169||279,000|
|General and administrative||1,070,314||386,809||1,944,111||1,176,242|
|Total operating expenses||1,200,781||432,492||2,448,280||1,455,242|
|Loss from operations||(1,200,781||)||(432,492||)||(2,448,280||)||(1,455,242||)|
|Other income (expense)|
|Accretion of debt discount||-||-||-||(58,438||)|
|Total other income (expense)||84,731||(17,088||)||265,460||(107,615||)|
|Basic and Diluted Loss per Common Share||$||(0.01||)||$||(0.01||)||$||(0.03||)||$||(0.02||)|
|Weighted average number of common shares outstanding - basic and diluted||87,243,352||76,840,522||87,198,132||76,727,802|
(See accompanying notes to unaudited consolidated financial statements)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019
|BLANCE JANUARY 1, 2019||87,175,522||$||872||$||32,187,580||$||(16,861,763||)||$||15,326,689|
|Stock based compensation due to common stock purchase options||-||-||832||-||832|
|Net loss for the three months ended March 31, 2019||-||-||-||(519,266||)||(519,266||)|
|BALANCE MARCH 31, 2019||87,175,522||872||32,188,412||(17,381,029||)||14,808,255|
|Net loss for the three months ended June 30, 2019||-||-||-||(547,504||)||(547,504||)|
|BALANCE JUNE 30, 2019||87,175,522||872||32,188,412||(17,928,533||)||14,260,751|
|Issuance of common stock from the exercise of warrants||176,842||2||(2||)||-||-|
|Net loss for the three months ended September 30, 2019||-||-||-||(1,116,050||)||(1,116,050||)|
|BALANCE SEPTEMBER 30, 2019||87,352,364||$||874||$||32,188,410||$||(19,044,583||)||$||13,144,701|
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018
|BLANCE JANUARY 1, 2018||76,145,418||$||762||$||16,404,673||$||(14,740,922||)||$||1,664,513|
|Issuance of common stock from the exercise of warrants||569,797||6||109,994||-||110,000|
|Issuance of common stock from the exercise of stock options||125,307||1||(1||)||-||-|
|Stock based compensation due to common stock purchase options||-||-||122,497||-||122,497|
|Net loss for the three months ended March 31, 2018||-||-||-||(649,147||)||(649,147||)|
|BALANCE MARCH 31, 2018||76,840,522||769||16,637,163||(15,390,069||)||1,247,863|
|Stock based compensation due to common stock purchase options||-||-||47,649||-||47,649|
|Net loss for the three months ended June 30, 2018||-||-||-||(465,479||)||(465,479||)|
|BALANCE JUNE 30, 2018||76,840,522||769||16,684,812||(15,855,548||)||830,033|
|Adjustment related to Q1||-||-||-||1,349||1,349|
|Stock based compensation due to common stock purchase options||-||-||371||-||371|
|Net loss for the three months ended September 30, 2018||-||-||-||(449,580||)||(449,580||)|
|BALANCE SEPTEMBER 30, 2018||76,840,522||$||769||$||16,685,183||$||(16,303,779||)||$||382,173|
(See accompanying notes to unaudited consolidated financial statements)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
|Nine Months Ended|
|Cash flows used in operating activities|
|Adjustments to reconcile net loss to net cash flows used in operating activities|
|Stock based compensation expense||832||170,517|
|Accretion of debt discount||-||58,438|
|Changes in operating assets and liabilities:|
|Decrease (increase) in prepaid expenses||68,707||(17,184||)|
|Increase (decrease) in accounts payable||190,925||64,818|
|Increase (decrease) in accounts payable - related parties||66,474||(41,500||)|
|Increase (decrease) in interest payable - related parties||(167,497||)||63,168|
|Increase (decrease) in contract payable||-||(100,000||)|
|Net cash flows used in operating activities||(2,023,142||)||(1,364,362||)|
|Cash flows from financing activities|
|Proceeds from exercise of warrants and issuance of common stock||-||110,000|
|Net cash flows from financing activities||-||110,000|
|Decrease in cash and cash equivalents||(2,023,142||)||(1,254,362||)|
|Cash at beginning of period||15,397,524||2,906,237|
|Cash at end of period||$||13,374,382||$||1,651,875|
|Supplemental disclosure of cash flow information:|
|Interest paid in cash||$||167,497||$||-|
|Income taxes paid in cash||$||-||$||-|
(See accompanying notes to unaudited consolidated financial statements)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation, Organization, Nature and Continuance of Operations, Recent Accounting Standards and Earnings (Loss) Per Share
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of RenovaCare, Inc. and Subsidiary (the “Company”) as of September 30, 2019, and for the three and nine months ended September 30, 2019 and 2018, include the accounts of the Company and its wholly-owned and controlled subsidiary, RenovaCare Sciences Corp., and have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”), for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.
The preparation of consolidated financial statements in conformity with U.S. GAAP 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 consolidated financial statements, and the reported amounts of expenses during the reporting periods. Actual results may differ from those estimates. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments (including normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of September 30, 2019, results of operations for the three and nine months ended September 30, 2019 and 2018, and stockholders’ equity and cash flows for the nine months ended September 30, 2019 and 2018. The Company did not record an income tax provision during the periods presented due to net taxable losses. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year.
RenovaCare, Inc. focuses on the acquisition, research, development and, if warranted, commercialization of autologous (using a patient's own cells) cellular therapies that can be used for medical and aesthetic applications.
The Company, through its wholly owned subsidiary, RenovaCare Sciences Corp., owns the CellMistTM System which is comprised of (a) a treatment methodology for cell isolation for the regeneration of human skin cells (the “CellMistTM Solution”) and (b) a solution sprayer device (the “SkinGunTM”) for delivering the cells to the treatment area. Along with US patent applications that were granted on November 29, 2016 (Patent No. US 9,505,000) and on April 4, 2017 (Patent No. US 9,610,430), the Company has filed additional patent applications related to the CellMistTM Solution and SkinGunTM technologies.
Nature and Continuance of Operations
The Company does not have any commercialized products. The Company's activities have consisted principally of performing research and development activities and raising capital. These development activities are subject to significant risks and uncertainties, including possible failure of preclinical testing. The Company has not generated any revenue since inception and has sustained recurring losses and negative cash flows from operations since inception. The Company expects to incur losses as it continues development of its products and technologies and expects that it will need to raise additional capital through the sale of its securities to accomplish its business plan and failing to secure such additional funding before achieving sustainable revenue and profit from operations poses a significant risk. The Company's ability to fund the development of its cellular therapies will depend on the amount and timing of cash receipts from future financing activities. There can be no assurance as to the availability or terms upon which such financing and capital might be available.
As of September 30, 2019, the Company had $13,374,382 of cash on hand. As a result of the cash on hand, the Company believes it currently has sufficient cash to meet its funding requirements over the next twelve months following the issuance of this Quarterly Report on Form 10-Q. However, the Company has experienced and continues to experience negative cash flows from operations, as well as an ongoing requirement for substantial additional capital investment. The Company expects that it may need to raise additional capital to accomplish its business plan over the next several years. If additional funding is required, the Company expects to seek to obtain that funding through private equity or convertible debt. There can be no assurance as to the availability or terms upon which such financing and capital might be available.
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplates continuation of the Company as a going concern, which is dependent upon the Company’s ability to establish itself as a profitable business.
Recent Accounting Standards
Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative non-governmental US GAAP as found in the Financial Accounting Standards Board's Accounting Standards Codification.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which supersedes ASC Topic 840, Leases, and creates a new topic, ASC Topic 842, Leases. ASU 2016-02 requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. ASU 2016-02 also expands the required quantitative and qualitative disclosures surrounding leases. ASU 2016-02 is effective for the Company beginning January 1, 2019. Early adoption is permitted. The Company has determined that the adoption of ASU 2016-02 did not have an impact on its consolidated financial statements.
The Company reviews new accounting standards as issued. Although some of these accounting standards issued or effective after the end of the Company’s previous fiscal year may be applicable, the Company has not identified any standards that the Company believes merit further discussion other than as discussed above. The Company believes that none of the new standards will have a significant impact on the financial statements.
Earnings (Loss) Per Share
The Company presents both basic and diluted earnings per share ("EPS") amounts. Basic EPS is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period presented. Diluted EPS amounts are based upon the weighted average number of common and common equivalent shares outstanding during the period presented. The Company has not included the effects of warrants, stock options and convertible debt on net loss per share because to do so would be antidilutive.
Following is the computation of basic and diluted net loss per share for the three and nine months ended September 30, 2019 and 2018:
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|Basic and Diluted EPS Computation|
|Loss available to common stockholders'||$||(1,116,050||)||$||(449,580||)||$||(2,182,820||)||$||(1,562,857||)|
|Weighted average number of common shares outstanding||87,243,352||76,840,522||87,198,132||76,727,802|
|Basic and diluted EPS||$||(0.01||)||$||(0.01||)||$||(0.03||)||$||(0.02||)|
|The shares listed below were not included in the computation of diluted losses per share because to do so would have been antidilutive for the periods presented:|
|Total shares not included in the computation of diluted losses per share||13,424,412||4,052,003||13,424,412||4,052,003|
Note 2. Common Stock and Warrants
At September 30, 2019, the Company had 500,000,000 authorized shares of common stock with a par value of $0.00001 per share, 87,352,364 shares of common stock outstanding and 19,440,765 shares reserved for issuance under the Company’s 2013 Long-Term Incentive Plan (the “2013 Plan”) as adopted and approved by the Company’s Board of Directors (the “Board”) on June 20, 2013 that provides for the grant of stock options to employees, directors, officers and consultants. No stock awards were made during the nine months ended September 30, 2019. See “Note 4. Stock Options” for further discussion.
The following table summarizes information about warrants outstanding at September 30, 2019 and December 31, 2018:
Shares of Common Stock Issuable
from Warrants Outstanding as of
|September 30,||December 31,||Weighted Average|
|Series A||-||240,000||$||0.35||July 12, 2019|
|Series D||810,000||810,000||$||1.10||June 5, 2020|
|Series E||584,416||584,416||$||1.54||September 8, 2021|
|Series F||7,246||7,246||$||3.45||February 23, 2022 & March 9, 2022|
|Series G||460,250||460,250||$||2.68||July 21, 2022|
|Series H||910,000||910,000||$||2.75||October 16, 2022|
|Series I||10,335,000||10,335,000||$||2.00||November 26, 2025|
During the three months ended September 30, 2019, Jörg Gerlach exercised the remaining 240,000 Series A warrants on a cashless basis resulting in the issuance of 176,842 shares of common stock.
Note 3. Stock Options
The following table summarizes stock option activity for the period ended September 30, 2019:
Exercise Price ($)
Remaining Contractual Term (years)
Intrinsic Value ($)
|Outstanding at December 31, 2018||317,500||3.41|
|Outstanding at September 30, 2019||317,500||3.41||6.93||53,450|
|Exercisable at September 30, 2019||317,500||3.41||6.93||53,450|
There were no options granted during the nine months ended September 30, 2019.
The share-based compensation cost resulting from stock option grants, including those previously granted and vesting over time is expensed ratably over the respective vesting periods. During the three months ended September 30, 2019 and 2018, the Company recognized $0 and $371, respectively, in share-based compensation related to stock options. During the nine months ended September 30, 2019 and 2018, the Company recognized $832 and $170,517, respectively, in share-based compensation related to stock options. As of September 30, 2019, the Company had no unrecognized compensation cost related to unvested stock options. Stock-based compensation has been included in the unaudited consolidated statement of operations as follows:
|Three Months Ended September 30,||Nine Months Ended September 30,|
|Research and development||$||-||$||-||$||-||$||27,966|
|General and administrative||-||371||832||142,551|
The following table summarizes information about stock options outstanding and exercisable at September 30, 2019:
|Stock Options Outstanding||Stock Options Exercisable|
|Range of Exercise Prices|
Number of Shares
Subject to Outstanding Options
Contractual Life (years)
Number of Shares
Subject to Options Exercise
Remaining Contractual Life (years)
Note 4. Commitments
In connection with the Company’s anticipated regulatory filings and ongoing investigations of new product development and expanded clinical indications, the Company has engaged StemCell Systems GmbH (“StemCell Systems”) to provide design and engineering services, prototypes, testing, and documentation under various agreements. Pursuant to these engagements the Company incurred expenses of $100,000 and $14,315 during the three months ended September 30, 2019 and 2018, respectively, and $223,175 and $39,499 during the nine months ended September 30, 2019 and 2018, respectively. Dr. Gerlach, from whom the Company purchased the CellMistTM System technologies, is a principal of StemCell Systems.
On June 3, 2019, the Company entered into a Charitable Gift Agreement with the University of Pittsburgh (the "University"), pursuant to which the Company committed to provide a charitable donation to the University in the aggregate amount of $250,000 (the "Grant"). The Company will pay the Grant in four quarterly installments with the first payment made on or before July 1, 2019. During the three and nine months ended September 30, 2019, the Company made payments totaling $0 and $62,500, respectively. At September 30, 2019, the balance remaining under this gift was $187,500. Due to the terms of the Grant, the Company will recognize the related expense upon payment. Dr. Gerlach, from whom the Company purchased the SkinGunTM technology, is a professor at the University.
See also “Note 5. Related Party Transactions.”
Note 5. Related Party Transactions
As compensation for his service on the Board, Dr. Kirkland receives an annual retainer of $6,000, payable in equal quarterly installments in arrears. Additionally, on May 11, 2017, the Company granted to Dr. Kirkland an incentive stock option to purchase up to 75,000 shares of the Company’s common stock at an exercise price of $4.20 per share. The options vested 50% on the date of grant and 50% one year hence on May 11, 2018. The options may be exercised on a cashless basis. Compensation expense of $0 and $43,163 was recorded with respect to the May 11, 2017 grant during the three and nine months ended September 30, 2018, respectively. No compensation costs were recorded in 2019 due to completion of vesting on May 11, 2018.
In connection with the Company’s anticipated FDA and other regulatory filings, the Company engaged StemCell Systems to provide it with prototypes and related documents. Pursuant to these engagements the Company incurred expenses of $100,000 and $14,315 during the three months ended September 30, 2019 and 2018, respectively, and $223,175 and $39,499 during the nine months ended September 30, 2019 and 2018, respectively. Dr. Gerlach, from whom the Company purchased the CellMistTM System technologies, is a principal of StemCell Systems.
Dr. Gerlach is entitled to payments for consulting services. During the three months ended September 30, 2019 and 2018, the Company recognized expenses related to Dr. Gerlach services of $0 and $0, respectively, and $0 and $7,020 during the nine months ended September 30, 2019 and 2018, respectively. Accounts payable to Dr. Gerlach amounted to $0 at September 30, 2019 and December 31, 2018. Additionally, during the three months ended September 30, 2019, Jörg Gerlach exercised the remaining 240,000 Series A warrants on a cashless basis resulting in the issuance of 176,842 shares of common stock.
On August 1, 2013, the Company entered into a consulting agreement, as amended on May 1, 2016, with Jatinder Bhogal, an individual owning in excess of 5% of our issued and outstanding shares of common stock, to provide consulting services to the Company through his wholly owned company, Vector Asset Management, Inc. (“VAM”). Pursuant to the consulting agreement Vector assisted the Company with identifying subject matter experts in the medical device and biotechnology industries and assisted the Company with the ongoing research, development, patents, and strategic positioning of its technologies. Pursuant to an amendment dated May 1, 2016, the VAM monthly consulting fee was increased from $5,000 to $6,800. On June 22, 2018, the Company and VAM entered into an Executive Consulting Agreement (“ECA”) whereby Mr. Bhogal will serve as the Company’s Chief Operating Officer. The ECA supersedes the prior consulting agreement. Pursuant to the ECA, VAM will receive compensation of $120,000 per year. For consulting services provided by VAM, during the three months ended September 30, 2019 and 2018, the Company recognized expenses of $30,000 and $30,000, respectively, and $90,000 and $73,467 during the nine months ended September 30, 2019 and 2018, respectively.
During the year ended December 31, 2018, the Company was offered executive office space located at 9375 E. Shea Blvd., Suite 107-A, Scottsdale, AZ 85260 for consideration of $1 per year. The executive office space is owned indirectly by Harmel S. Rayat, the Company’s majority shareholder and Chairman and CEO.
On November 26, 2018, the Company entered into Subscription Agreements with Kalen Capital Corporation (“KCC”) for the purchase and sale of 10,335,000 Units of the Company's equity securities at a price of $1.50 per Unit, pursuant to a private placement offering conducted by the Company for (i) aggregate cash proceeds of $14,407,500 and (ii) conversion of $1,095,000 principal amount of outstanding loan indebtedness. The unpaid interest related to the loan indebtedness totaled $167,497 and was paid in July 2019. Each Unit consisted of: (i) one (1) share of common stock; and (ii) one (1) Series I Stock Purchase Warrant to purchase one (1) share of common stock at a price of $2.00 per share for a period of seven (7) years commencing on the date the Warrants were first issued. The Series I Warrants do not have a cashless exercise provision. KCC does not have any registration rights with respect to the shares comprising a part of the Units or issuable upon exercise of the Series I Warrants.
On June 3, 2019, the Company entered into the Grant with the University. During the three and nine months ended September 30, 2019, the Company made payments totaling $0 and $62,500, respectively. At September 30, 2019, the balance remaining under this gift was $187,500. Dr. Gerlach, from whom the Company purchased the SkinGunTM technology, is a professor at the University. See Note 4 above for additional information.
Note 6. Subsequent Events
Management has reviewed material events subsequent of the period ended September 30, 2019 and prior to the filing of financial statements in accordance with FASB ASC 855 “Subsequent Events”.
On October 1, 2019, the Company made a payment to the University pursuant to the Charitable Gift Agreement in the amount of $62,500.
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Quarterly Report filed on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors.
This discussion and analysis should be read in conjunction with the accompanying unaudited interim condensed consolidated financial statements and related notes. The discussion and analysis of the financial condition and results of operations are based upon the unaudited interim condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis we review our estimates and assumptions. The estimates were based on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but we do not believe such differences will materially affect our financial position or results of operations. Critical accounting policies, the policies us believes are most important to the presentation of its financial statements and require the most difficult, subjective and complex judgments, are outlined below in "Critical Accounting Policies," and have not changed significantly.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, as well as information relating to RenovaCare, Inc. and its subsidiaries that is based on management's exercise of business judgment and assumptions made by and information currently available to management. Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. When used in this document and other documents, releases and reports released by us, the words "anticipate," "believe," "estimate," "expect," "intend," "the facts suggest" and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forward looking statements and unknown, unidentified or unpredictable factors could materially and adversely impact our future results. We undertake no obligation and do not intend to update, revise or otherwise publicly release any revisions to our forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events. Several of these factors include, without limitation:
|·||our ability to meet requisite regulations or receive regulatory approvals in the United States, and our ability to retain any regulatory approvals that we may obtain; and the absence of adverse regulatory developments in the United States and abroad;|
|·||new entrance of competitive products or further penetration of existing products in our markets;|
|·||the effect on us from adverse publicity related to our products or the company itself; and|
|·||any adverse claims relating to our intellectual property.|
The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, apply to forward-looking statements made by us. The reader is cautioned that no statements contained in this Form 10-Q should be construed as a guarantee or assurance of future performance or results. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks described in this report and matters described in this report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur.
RenovaCare, Inc. (together with its wholly owned subsidiary, “RenovaCare” the “Company” “we” “us” and “our”) was incorporated under the laws of the State of Nevada and has an authorized capital of 500,000,000 shares of $0.00001 par value common stock, of which 87,352,364 shares are outstanding as of September 30, 2019, and 10,000,000 shares of $0.0001 par value preferred stock, of which none are outstanding.
Our principal executive offices are located at 9375 East Shea Blvd., Suite 107-A, Scottsdale, AZ 85260. Our telephone number is (888) 398-0202.
Description of Business
We are a development-stage company focusing on the development and commercialization of autologous (using a patient’s own cells) cellular therapies for medical and aesthetic applications. The Company, through its wholly owned subsidiary, RenovaCare Sciences Corp., owns the CellMistTM System which is comprised of (a) a treatment methodology for cell isolation for the regeneration of human skin cells (the “CellMistTM Solution”) and (b) a solution sprayer device (the “SkinGunTM”) for delivering the cells to the treatment area. Along with US patent applications that were granted on November 29, 2016 (Patent No. US 9,505,000) and on April 4, 2017 (Patent No. US 9,610,430), the Company has filed additional patent applications related to the CellMistTM Solution and SkinGunTM technologies.
In the case of U.S. patents, a typical utility patent term is 20 years from the date on which the application for the patent was filed in the United States or, if the application contains a specific reference to an earlier filed application or applications, from the date on which the earliest such application was filed. Patents filed outside of the U.S. have a patent term typically running 20 years from the date of first filing, but which are determined by the law of the country in which they issue. Patent term may be affected by events such as maintenance (or annuity) fee payment, terminal or statutory disclaimer, post-grant proceedings, patent term adjustment, and/or patent term extension.
The development of our CellMistTM System is in the early stage and we anticipate that we will be required to expend significant time and resources to further develop our technology and determine whether a commercially viable product can be developed. Research and development of new technologies involves a high degree of risk and there is no assurance that our development activities will result in a commercially viable product. The long-term profitability of our operations will be, in part, directly related to the cost and success of our development programs, which may be affected by a number of factors.
The average adult human has a skin surface area of between 16 - 21 square feet, which protects all other organs against the external environment. When a person’s skin is assailed by trauma or exposed to extreme heat, the skin’s various layers may be destroyed and depending on the severity of the injury, might cause life-threatening conditions. Currently, severe trauma to the skin, such as second or third degree burns, requires surgical mesh-grafting of skin, whereby healthy skin is removed from one area of the patient’s body (a “donor site”) and implanted on the damaged area.
While mesh grafting is often the method of choice, there are significant deficiencies with this method. The surgical procedure to remove healthy skin from the donor site can be painful and leaves the patient with a new wound that must also be attended to. In many instances the aesthetic results are not satisfying, as the color of the skin from the donor site may not match the skin color of the damaged skin. Additionally, the size of the donor skin removed must be substantially equal in size to the damaged skin area. These donor and injury sites can take weeks to heal, requiring expensive hospital stays, ongoing wound dressing management, and in some cases, complex anti-infection strategies.
We are currently evaluating the potential of our CellMistTM System in the treatment of tissue that has been subject to severe trauma such as second degree burns. The CellMistTM System utilizes the patient’s own skin stem cells, reduces the size of the donor site, and decreases scarring. Furthermore, we believe the CellMistTM System could enable treatment of other skin disorders.
Our Market Opportunity
According to medical market research firm, Transparency Market Research, the global market for wound healing products is projected to grow to approximately $35.0 Billion by 2025.
Burns are one of the most common and devastating forms of trauma. Patients with serious thermal injury require immediate specialized care in order to minimize morbidity and mortality. Data from the National Center for Injury Prevention and Control in the U.S. show that approximately 2 million fires are reported each year which result in 1.2 million people with burn injuries (see American Burn Association Burn Incidence and Treatment in the US: 2000 Fact Sheet, available at: http://www.ameriburn.org). Moderate to severe burn injuries requiring hospitalization account for approximately 100,000 of these cases, and about 5,000 patients die each year from burn-related complications (see Church D, Elsayed S, Reid O, Winston B, Lindsay R “Burn wound infections” Clinical Microbiology Reviews 2006;19(2):403–34, available at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1471990).
The prevalence of patients with severe burns is even higher in emerging economies. For example, according to the World Health Organization over 1,000,000 people in India are moderately to severely burnt every year and approximately 265,000 people worldwide die from burn related injuries (see World Health Organization “Burns: Fact Sheet No. 365,” reviewed September 2016, available at: http://www.who.int/mediacentre/factsheets/fs365/en/). According to Critical Care, an international clinical medical journal, burns are also among the most expensive traumatic injuries because of long and costly hospitalization, rehabilitation and wound and scar treatment (see Brusselaers, N., Monstrey, et al, “Severe Burn Injury in Europe: A systematic Review of the Incidence, Etiology, Morbidity, and Mortality” available at: http://ccforum.com/content/14/5/R188).
Burn injuries account for a significant cost to the health care system in North America and worldwide. In the U.S. there are currently 127 centers specializing in burn care. Recent estimates in the U.S. show that 40,000 patients are admitted annually for treatment with burn injuries, over 60% of the estimated U.S. acute hospitalizations related to burn injury were admitted to burn centers. Such centers now average over 200 annual admissions for burn injury and skin disorders requiring similar treatment. The other 4,500 U.S. acute care hospitals average less than 3 burn admissions per year (see American Burn Association Burn Incidence and Treatment in the US: 2013 Fact Sheet, available at: http://www.ameriburn.org).
Initial hospitalization costs and physicians' fees for specialized care of a patient with a major burn injury are currently estimated to be $200,000. Overall, costs escalate for major burn cases because of repeated admissions for reconstruction and rehabilitation therapy. In the U.S., current annual estimates show that more than $18 billion is spent on specialized care of patients with major burn injuries (see Church D, Elsayed S, Reid O, Winston B, Lindsay R “Burn wound infections” Clinical Microbiology Reviews 2006;19(2):403–34, available at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1471990).
Most burn injuries involve layers of the upper skin, the epidermis. Severe major trauma involves a complete loss of the entire thickness of the skin and often requires major surgery involving split-skin mesh-grafting. Skin grafting is a procedure where healthy skin is removed from one area of the body and transplanted to a wound site.
Our cell isolation methodology is referred to as the CellMistTM process, and our cell deposition device is referred to as the SkinGunTM. We isolate a patient's stem cells from a small biopsy of the patient's skin. The stem cells are placed into a liquid solution, which is then filled into a sterile syringe. The syringe is inserted into the SkinGunTM, which then sprays the stem cell-loaded liquid solution into the wound.
The first phase of gathering the patient's stem cells, creating a liquid solution, and applying the stem cells takes approximately 1.5–2 hours. Published studies show that within days following the wound treatment procedure, the skin cells generate a protective skin layer (re-epithelialization), and within months the skin regains its color and texture.
Our cell isolation procedure and the cell spraying are performed on the same day, in an on-site setting. Because the skin cells sprayed using the SkinGunTM are actually the patient's own cells, the skin that is regenerated looks more natural than artificial skin replacements. During recovery, the skin cells grow into fully functional layers of the skin and the regenerated skin leaves minimal scarring. Additionally, our methods require substantially smaller donor areas than skin grafting, reducing donor area burden such as pain and the risk of complications.
The CellMistTM System remains an experimental, unproven methodology and we continue to evaluate its efficacy. There is no guarantee that we will able to develop a commercially viable product based upon the CellMistTM System and its underlying technology.
Governmental authorities in the U.S., at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing and export and import of products or devices such as those we are attempting to develop. Our device candidates, to the extent they are developed, will be subject to pre-market approval by the FDA prior to their marketing for commercial use in the U.S., and to any approvals required by foreign governmental entities prior to their marketing outside the U.S. In addition, any changes or modifications to a device that has received regulatory clearance or approval that could significantly affect its safety or effectiveness, or would constitute a major change in its intended use, may require the submission of a new application in the U.S. for pre-market approval, or for foreign regulatory approvals outside the U.S.. The process of obtaining foreign approvals, can be expensive, time consuming and uncertain.
We will be required to file for premarket approval (“PMA”) for the SkinGunTMor any other device that we commercialize if it is deemed a Class III medical device. PMA is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices. Class III devices are those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury. Due to the level of risk associated with Class III devices, the FDA has determined that general and special controls alone are insufficient to assure the safety and effectiveness of class III devices. Therefore, these devices require a PMA application under section 515 of the Federal Food, Drug and Cosmetic Act in order to obtain marketing clearance.
PMA is the most stringent type of device marketing application required by the FDA. The applicant must receive FDA approval of its PMA application prior to marketing the device. PMA approval is based on a determination by FDA that the PMA contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use(s). An approved PMA is, in effect, a private license granting the applicant (or owner) permission to market the device.
Investigational Device Exemption (“IDE”)
Among the data required in a PMA application is human clinical test data. The FDA’s regulation that governs the human testing is the IDE and other patient protection regulations. For devices that are considered Significant Risk, an IDE application is required. It consists of the proposed clinical protocol and all supporting study documentation and must be submitted and approved by FDA and an Institutional Review Board (IRB) prior to initiation of the human testing. Since the CellMistTM System employs the use of stem cells taken from the patient, it is considered Significant Risk by the FDA; therefore, we will be required to file an IDE application prior to conducting a clinical study for any application, such as for treatment of severe burns. The FDA has a specified review timeline and process for IDE reviews - each review phase takes 30 days and if the FDA has questions or concerns about the study design, there may be multiple review rounds until FDA either: (a) conditionally approves, (b) approves or (c) denies approval of the clinical study conduct under the submitted IDE. There is no guarantee that any IDE application we submit will be approved by the FDA.
Other federal legislation may affect our ability to obtain certain health information in conjunction with any research activities we conduct. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), mandates, among other things, the adoption of standards designed to safeguard the privacy and security of individually identifiable health information. In relevant part, the U.S. Department of Health and Human Services (“HHS”), has released two rules to date mandating the use of new standards with respect to such health information. The first rule imposes new standards relating to the privacy of individually identifiable health information. These standards restrict the manner and circumstances under which covered entities may use and disclose protected health information so as to protect the privacy of that information. The second rule released by HHS establishes minimum standards for the security of electronic health information. While we do not believe we are directly regulated as a covered entity under HIPAA, the HIPAA standards impose requirements on covered entities conducting research activities regarding the use and disclosure of individually identifiable health information collected in the course of conducting the research.
Other U.S. Regulatory Requirements
In the U.S., the research, manufacturing, distribution, sale, and promotion of drug and biological products are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services (formerly the Health Care Financing Administration), other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice and individual U.S. Attorney offices within the Department of Justice, and state and local governments. For example, sales, marketing and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, and similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection, unfair competition, and other laws.
The regulation of any potential product candidates we may produce outside of the U.S. varies by country. Certain countries regulate human tissue products as a biological product, which would require us to make extensive filings and obtain regulatory approvals before selling our product candidates. Certain other countries may classify our product candidates as human tissue for transplantation but may restrict its import or sale. Other countries have no application regulations regarding the import or sale of products similar to potential product candidates, creating uncertainty as to what standards we may be required to meet.
The biotechnology, medical device, and wound care industries are characterized by intense competition, rapid product development and technological change. Our CellMistTM System competes with a variety of companies in the wound care markets, many of which offer substantially different treatments for similar problems. Currently Avita Medical Limited has received regulatory approvals for ReCell, a cell spray device and a cell isolation procedure for autologous cells. Integra Lifesciences Holding Corp. sells Integra Dermal Regeneration Template, which does not use autologous cells, but instead uses an animal-derived intercellular matrix with an artificial waterproof barrier. Other competitors include: MiMedx Group, Inc.; Kinetic Concepts Inc.; Fibrocell Science, Inc.; Shire Plc and Organogenesis, Inc.
Many of our competitors are large, well-established companies with considerably greater financial, marketing, sales and technical resources than those available to us. Additionally, many of our present and potential competitors have research and development capabilities that may allow them to develop new or improved products that may compete with our product lines. Our potential products could be rendered obsolete or made uneconomical by the development of new products to treat the conditions addressed by our products, technological advances affecting the cost of production, or marketing or pricing actions by one or more of our competitors.
In the course of conducting our business, we from time to time create inventions. Obtaining, maintaining and protecting our inventions, including seeking patent protection, might be important depending on the nature of the invention. To that end, we seek to implement patent and other intellectual property strategies to appropriately protect our intellectual property. While we file and prosecute patent applications to protect our inventions, our pending patent applications might not result in the issuance of patents or issued patents might not provide competitive advantages. Also, our patent protection might not prevent others from developing competitive products using related or other technology.
The scope, enforceability and effective term of issued patents can be highly uncertain and often involve complex legal and factual questions. Moreover, the issuance of a patent in one country does not assure the issuance of a patent with similar claim scope in another country, and claim interpretation and infringement laws vary among countries, so we are unable to predict the extent of patent protection in any country. The patents we obtain and the unpatented proprietary technology we hold might not afford us significant commercial protection or advantage.
In addition to issued patents, we plan to file additional patent applications that, if issued, would provide further protection for The CellMistTM System. Although we believe the bases for these patents and patent applications are sound, they are untested; and there is no assurance that they will not be successfully challenged. There can be no assurance that any patent previously issued will be of commercial value, that any patent applications will result in issued patents of commercial value, or that our technology will not be held to infringe patents held by others.
Our ultimate goal is to leverage the potential of our CellMistTM System, together with our cell isolation method, as cutting edge treatments in skin therapy. Before we can do so, however, there are a number of steps we must first take, including:
|•||initiating a series of clinical trials to determine the CellMistTM System’s safety and efficacy for treating wounds and burns;|
|•||formalizing collaborations with universities and scientific partners;|
|•||creating a network of clinical and research partners;|
|•||achieving FDA and other regulatory clearance; and|
|•||expanding the range of possible applications.|
Additionally, we will likely continue to raise significant capital in order to fund our ongoing research and development operations, and there is no guarantee that we will be able to continue to raise capital on acceptable terms, if at all.
Results of Operations
Three and Nine Months Ended September 30, 2019 Compared with the Three and Nine Months Ended September 30, 2018
A summary of our operating expenses for the three and nine months ended September 30, 2019 and 2018 follows:
|Three Months Ended September 30,||Increase /||Percentage|
|Research and development||$||130,467||$||45,683||$||84,784||186||%|
|General and administrative||1,070,314||386,438||683,876||177||%|
|Total operating expenses||$||1,200,781||$||432,492||$||768,289||178||%|
|Nine Months Ended September 30,||Increase /||Percentage|
|Research and development||$||504,169||$||251,034||$||253,135||101||%|
|General and administrative||1,943,279||1,033,691||909,588||88||%|
|Total operating expenses||$||2,448,280||$||1,455,242||$||993,038||68||%|
Research and Development
Research and development (“R&D”) costs represent costs incurred to develop our CellMistTM System and are incurred pursuant to agreements with third party providers and certain internal R&D cost allocations. Payments under these agreements include salaries and benefits for R&D personnel, allocated overhead, contract services and other costs. R&D costs are expensed when incurred. R&D costs, excluding stock based compensation, increased during the three and nine months ended September 30, 2019 compared to 2018, as a result of the company’s regulatory, product development, and product expansion efforts.
General and Administrative
General and administrative costs include all expenditures incurred other than research and development related costs, including costs related to personnel, professional fees, travel and entertainment, public company costs, insurance and other office related costs. Costs increased during the three months ended September 30, 2019 compared to 2018 and included an increase of $54,000 related to personnel costs, $596,000 related to professional fees and $44,000 related to travel expenses offset by a $10,000 net reduction in various other general costs. Costs increased during the nine months ended September 30, 2019 compared to 2018 and included an increase of $63,000 related to personnel costs, $890,000 related to professional fees, $42,000 related to travel expenses, $62,500 related to the Charitable Grant Agreement with the University of Pittsburgh offset by a $25,500 net reduction in various other general costs and $122,000 decrease in investor communications costs.
Expense associated with equity based transactions is calculated and expensed in our financial statements as required pursuant to various accounting rules and is non-cash in nature. Stock compensation represents the expense associated with the amortization of our stock options. Stock compensation expense decreased during the three and nine months ended September 30, 2019 compared to 2018 primarily due to the May 11, 2017 grant of 310,000 stock options with a weighted average grant date fair value of $3.38 per share whereby one-half vested on the date of grant and the second half vested on May 11, 2018; combined with no subsequent option grants, resulted in virtually no expense in 2019 compared to 2018.
Other Income (Expense)
Other income relates to interest earned on bank account deposits. Other expense related to our convertible promissory notes. Interest expense relates to the stated interest of the convertible promissory notes. Accretion of debt discount represents the accretion of the discount applied to the notes as a result of the issuance of detachable warrants and the beneficial conversion feature contained in the notes.
Liquidity and Capital Resources
The Company does not have any commercialized products, has not generated any revenue since inception and has sustained recurring losses and negative cash flows since inception. The Company has incurred recurring operating losses of $2,448,280 and $1,455,242 for the nine months ended September 30, 2019 and 2018, respectively. The Company expects to incur losses as it continues development of its products and technologies. The Company has been funded through the sale of equity securities. As of September 30, 2019, the Company had $13,374,382 of cash. The Company believes that it currently has sufficient cash to meet its funding requirements over the next year.
Net cash used in operating activities was $2,023,142 during the nine months ended September 30, 2019, compared to net cash used in operating activities of $1,364,362 during the nine months ended September 30, 2018. The increase in cash used in operating activities is primarily due to the increase in professional fees.
There was no net cash used in investing activities during the nine months ended September 30, 2019 and 2018.
Net cash provided by financing activities was $0 during nine months ended September 30, 2019, compared to $110,000 during the nine months ended September 30, 2018. During the nine months ended September 30, 2018, the Company received $110,000 from the exercise of 100,000 Series D Warrants at an exercise price of $1.10
On November 26, 2018, the Company 1) issued 9,605,000 units of the Company’s equity securities at a price of $1.50 per unit, pursuant to a private placement offering conducted by the Company resulting in $14,407,500 of proceeds to the Company; and 2) issued 730,000 units of the Company’s equity securities at a price of $1.50 per unit, pursuant to a private placement offering conducted by the Company resulting in conversion of $1,095,000 principal amount of loan indebtedness.
On February 13, 2018, the Company issued 100,000 shares of common stock upon the exercise of a Series D Warrant at an exercise price of $1.10 per share resulting in $110,000 of proceeds to the Company.
Fair Value of Financial Instruments and Risks
The carrying value of cash and cash equivalents, accounts payable, and contract and contribution payable, approximate their fair value because of the short-term nature of these instruments and their liquidity. It is not practical to determine the fair value of the Company’s notes payable and accrued interest due to the complex terms. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Recent Accounting Standards
See Note 1 to our Unaudited Condensed Consolidated Financial Statements for more information regarding recent accounting standards and their impact to our consolidated results of operations and financial position.
Related Party Transactions
Our proposed business raises potential conflicts of interests between certain of our officers and directors and us. Certain of our directors are employees or consultants to other companies in the healthcare industry and, to the extent that such other companies may participate in ventures in which we may participate, our directors may have a conflict of interest in negotiating and concluding terms regarding the extent of such participation. In the event that such a conflict of interest arises at a meeting of our directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. Other than as indicated, we have no other procedures or mechanisms to deal with conflicts of interest. We are not aware of the existence of any conflict of interest as described herein.
The Board is responsible for review, approval, or ratification of “related-person transactions” involving RenovaCare, Inc. or its subsidiaries and related persons. Under SEC rules (Section 404 (d) of Regulation S-K), a related person is a director, officer, nominee for director, or 5% stockholder of the company since the beginning of the previous fiscal year, and their immediate family members. RenovaCare, Inc. is required to report any transaction or series of transactions in which the company or a subsidiary is a participant, and a related person has a direct or indirect material interest where the amount involved exceeds the lesser of $120,000 or one percent of the average of the smaller reporting company’s total assets at year end for the last two completed fiscal years.
During the nine months ended September 30, 2019, none of our current directors, officers or principal shareholders, nor any family member of the foregoing, nor, to the best of our information and belief, any of our former directors, senior officers or principal shareholders, nor any family member of such former directors, officers or principal shareholders, has or had any material interest, direct or indirect, in any transaction, or in any proposed transaction which has materially affected or will materially affect us.
For a complete description of the Company’s related party transactions, see “Note 5. Related Party Transactions” included above under the “NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS”.
Evaluation of Disclosure Controls and Procedures
The Company maintains “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) of the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any control and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective.
As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of September 30, 2019. Based on this evaluation, the Company’s Principal Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were not sufficiently effective as of September 30, 2019 because of the following material weakness in our internal control over financial reporting:
|·||Ineffective control environment due to an insufficient number of independent board members; and|
|·||Ineffective design, implementation, and documentation of internal controls impacting financial statement accounts|
Changes in Internal Control over Financial Reporting
As of our fiscal year ended December 31, 2018 and based on the COSO criteria, management identified control deficiencies that constituted material weaknesses. A “material weakness”, as defined by COSO, is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is more than a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following material weaknesses in our internal control over financial reporting as of December 31, 2018:
|·||Ineffective control environment due to an insufficient number of independent board members, insufficient oversight of work performed, and the lack of compensating controls over financial reporting due to limited personnel;|
|·||Ineffective design, implementation, and documentation of internal controls impacting financial statement accounts and general controls over technology pertaining to user access and segregation of duties, banking and disbursements, and financial accounting system applications; and|
|·||Ineffective monitoring controls related to the financial close and reporting process, including management’s risk assessment process and its identification, evaluation, and timely remediation of control deficiencies.|
The Company has begun implementing new and more robust internal controls and continues to take actions to remediate the material weaknesses in our internal controls over financial reporting identified above, including implementing additional processes and controls designed to address the underlying causes associated with the above mentioned material weaknesses. The Company’s internal control implementation and remediation efforts include the following:
|·||On October 22, 2018, we appointed Steve Yan-Klassen, CPA, CMA as our CFO in an effort to provide senior financial oversight and increased segregation of duties;|
|·||Since March 31, 2019, we have been performing more extensive and frequent reviews of critical estimates, journal entries, complex calculations, the financial close and financial reporting processes;|
|·||Realigning certain roles to provide better segregation of duties and implementing stronger user access controls;|
|·||Implementation of new policies and procedures related to controls over various operating activities;|
|·||The hiring of additional staff and modification of duties of existing staff in connection with our remediation efforts;|
|·||Regular onsite and offsite backups of critical electronic data;|
|·||Regular informal and formal meetings of Board members who also have been incorporated into the review process of all financial statement filings.|
We continue to monitor our control environment and will implement additional controls and processes utilizing internal resources, and outside resources (when deemed necessary) to strengthen our controls over the financial reporting and disclosure process as applicable in order to meet the needs of our growing organization.
Smaller reporting companies are not required to provide the information required by this item.
|Exhibit No.||Description of Exhibit|
|4.1||Form of Subscription Agreement for Units Dated November 26, 2018 (Incorporated by reference to Form 8-K filed on November 30, 2018)|
|4.2||Form of Series I Stock Purchase Warrant dated November 26, 2018 (Incorporated by reference to Form 8-K filed on November 30, 2018)|
|10.1||Amendment to the February 2017 Loan Agreement dated November 26, 2018 (Incorporated by reference to Form 8-K filed on November 30, 2018)|
|10.2||Amendment to the September 2016 Loan Agreement as amended dated November 26, 2018 (Incorporated by reference to Form 8-K filed on November 30, 2018)|
|10.3||Executive Services Consulting Agreement dated June 4, 2019 between RenovaCare, Inc. and Roger Esteban-Vives (Incorporated by reference to Form 8-K filed on June 10, 2019)|
|10.4||Executive Services Consulting Agreement dated July 1, 2019 between RenovaCare, Inc. and Rodney L. Sparks (Incorporated by reference to Form 8-K filed on July 3, 2019)|
|10.5||Termination Agreement dated March 30, 2019 between RenovaCare, Inc. and Thomas Bold (Incorporated by reference to Form 8-K filed on April 4, 2019)|
|10.6||Charitable Gift Agreement with the University of Pittsburgh dated June 3, 2019 (Incorporated by reference to Form 10-Q filed on July 31, 2019)|
|10.7||Executive Services Consulting Agreement dated August 15, 2019 between RenovaCare, Inc. and Robin Robinson, Ph.D*|
|31.1||Certification of the Principal Executive Officer pursuant to Rule 13a-14(a).*|
|31.2||Certification of the Principal Financial Officer pursuant to Rule 13a-14(a).*|
|32.1||Certification by the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*|
|101. INS||XBRL Instance Document**|
|101. SCH||XBRL Taxonomy Extension - Schema Document**|
|101. CAL||XBRL Taxonomy Extension - Calculation Linkbase Document**|
|101. DEF||XBRL Taxonomy Extension - Definition Linkbase Document**|
|101. LAB||XBRL Taxonomy Extension - Label Linkbase Document**|
|101. PRE||XBRL Taxonomy Extension - Presentation Linkbase Document**|
|*||Filed herewith. |
|**||Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.|
Pursuant to the requirements of Sections 13 or 15 (d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|Date: November 14, 2019||By||/s/ Harmel S. Rayat|
|Name:||Harmel S. Rayat|
|Title:||Chief Executive Officer and Director|
|(Principal Executive Officer)|
|Date: November 14, 2019||By:||/s/ Stephen Yan-Klassen|
|Title:||Chief Financial Officer|
|(Principal Financial Officer and Principal Accounting Officer)|