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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2022

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Commission file number 000-30156

 

RENOVACARE, INC.
(Exact name of registrant as specified in its charter)

 

Nevada   98-0384030
(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)

 

888-398-0202

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

 

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 x No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)  
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

 

As of November 10, 2022, the registrant had 87,352,364 shares of its common stock, par value $0.00001 per share, issued and outstanding.

 

 

 

 

RENOVACARE, INC.

FORM 10-Q

For The Quarter Ended September 30, 2022

 

TABLE OF CONTENTS

 

    Page #  
PART I - FINANCIAL INFORMATION      
         
Item 1. Financial Statements      
  Consolidated Balance Sheets   1  
  Consolidated Statements of Operations   2  
  Consolidated Statements of Stockholders’ Equity   3  
  Consolidated Statements of Cash Flows   4  
  Notes to Consolidated Financial Statements   5  
         
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations   14  
         
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 6. Exhibits   20  
         
Signatures   21  

 

 

 

 

 

 

 

 

 

 

 

PART I

Item 1. Financial Statements

RENOVACARE, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

 

           
   September 30,  December 31,
   2022  2021
ASSETS  (Unaudited)   
Current assets          
Cash  $100,738   $2,849,192 
Prepaid expenses   954,636    533,445 
Total current assets   1,055,374    3,382,637 
           
Equipment, net of accumulated depreciation of $0 and $12,952, respectively   -    29,271 
Intangible asset   -    152,854 
Security Deposit   -    7,995 
Right of Use Asset   -    28,630 
Other Assets   -    50,747 
Total assets  $1,055,374   $3,652,134 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          
           
Current liabilities          
Accounts payable and accrued liabilities  $838,240   $1,274,748 
Related party payables   872,466      
Lease liability - current   -    30,497 
Total current liabilities   1,710,706    1,305,245 
Convertible promissory note to related party   800,000    - 
Interest payable on convertible promissory note to related party   4,367    - 
Total liabilities   2,515,073    1,305,245 
           
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 shares issued and outstanding at September 30, 2022 and December 31, 2021   874    874 
Additional paid-in capital   37,178,669    36,585,919 
Retained deficit   (38,639,242)   (34,239,904)
Total stockholders' equity (deficit)   (1,459,699)   2,346,889 
Total liabilities and stockholders' equity (deficit)  $1,055,374   $3,652,134 

 

(See accompanying notes to unaudited consolidated financial statements)

 

1

 

 

RENOVACARE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

                     
   Three Months Ended  Nine Months Ended
   September 30,  September 30,
   2022  2021  2022  2021
Revenue  $-   $-   $-   $- 
                     
Operating expenses                    
Research and development   388,082    744,625    1,363,739    2,503,487 
General and administrative   1,489,273    955,899    4,385,085    819,665 
Total operating expenses, net   1,877,355    1,700,524    5,748,824    3,323,152 
Loss from operations   (1,877,355)   (1,700,524)   (5,748,824)   (3,323,152)
                     
Other income                    
Interest income   288    2,239    1,659    4,861 
Other income   1,498,307    -    1,524,674    190,803 
Interest expense   (2,053)   -    (4,367)   - 
Impairment of intangible asset   -    -    (152,854)   - 
Loss on disposal of fixed assets   (19,626)   -    (19,626)   - 
Total other income   1,476,916    2,399    1,349,486    195,664 
Net loss  $(400,439)  $(1,698,285)  $(4,399,338)  $(3,127,488)
                     
Basic and Diluted Loss per Common Share  $(0.00)  $(0.02)  $(0.05)  $(0.04)
                     
Weighted average number of common shares outstanding - basic and diluted   87,352,364    87,352,364    87,352,364    87,352,364 

 

(See accompanying notes to unaudited consolidated financial statements)

 

 

 

 

2

 

 

RENOVACARE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

 

                          
            Total
      Additional     Stockholders’
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022  Common Stock  Paid-in  Retained  Equity
   Shares  Amount  Capital  Deficit  (deficit)
Balance, December 31, 2021   87,352,364   $874   $36,585,919   $(34,239,904)  $2,346,889 
Stock based compensation due to common stock purchase options   -    -    201,250    -    201,250 
Net loss for the three months ended March 31, 2022   -    -    -    (1,727,334)   (1,727,334)
Balance, March 31, 2022   87,352,364    874    36,787,169    (35,967,238)   820,805 
Stock based compensation due to common stock purchase options   -    -    195,750    -    195,750 
Net loss for the three months ended June 30, 2022   -    -    -    (2,271,565)   (2,271,565)
Balance, June 30, 2022   87,352,364    874    36,982,919    (38,238,803)   (1,255,010)
Stock based compensation due to common stock purchase options   -    -    195,750    -    195,750 
Net loss for the three months ended September 30, 2022   -    -    -    (400,439)   (400,439)
Balance, September 30, 2022   87,352,364   $874   $37,178,669   $(38,639,242)  $(1,459,699)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021                         
Balance, December 31, 2020   87,352,364   $874   $36,846,082   $(29,768,181)  $7,078,775 
Stock based compensation due to common stock purchase options   -    -    352,063    -    352,063 
Reversal of stock-based compensation due to common stock purchase option cancellations   -    -    (1,248,575)   -    (1,248,575)
Net loss for the three months ended March 31, 2021   -    -    -    (517,242)   (517,242)
Balance, March 31, 2021   87,352,364    874    35,949,570    (30,285,423)   5,665,021 
Stock based compensation due to common stock purchase options   -    -    243,979    -    243,979 
Reversal of stock based compensation due to common stock purchase option cancellations   -    -    (66,130)   -    (66,130)
Net loss for the three months ended June 30, 2021   -    -    -    (911,961)   (911,961)
Balance, June 30, 2021   87,352,364    874    36,127,419    (31,197,384)   4,930,909 
Stock based compensation due to common stock purchase options   -    -    246,250    -    246,250 
Net loss for the three months ended September 30, 2021   -    -    -    (1,698,285)   (1,698,285)
Balance, September 30, 2021   87,352,364   $874   $36,373,669   $(32,895,669)  $3,478,874 

 

(See accompanying notes to unaudited consolidated financial statements)

 

 

 

3

 

 

RENOVACARE, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

           
   Nine Months Ended
   September 30,
   2022  2021
Cash flows used in operating activities          
Net loss  $(4,399,338)  $(3,127,488)
Adjustments to reconcile net loss to net cash flows used in operating activities          
Depreciation expense   4,645    7,046 
Stock based compensation expense   730,497    (407,163)
Impairment of intangible asset   152,854    - 
Non cash lease (benefit) expense   (1,867)   1,753 
Loss on disposal of fixed assets   19,626      
Changes in operating assets and liabilities:          
(Increase) decrease in prepaid expenses and other assets   (500,196)   101,960 
Increase (decrease) in accounts payable   (436,508)   (567,312)
Increase (decrease) in related party accounts payable   872,466    - 
Increase (decrease) in related party interest payable   4,367    - 
Net cash flows used in operating activities   (3,553,454)   (3,991,204)
           
Cash flows from investing activity          
Proceeds from the sale of fixed assets   5,000    - 
Net cash flows from investing activity   5,000    - 
           
Cash flows from financing activities          
Proceeds from the issuance of a related party convertible promissory note   800,000    - 
Net cash flows from financing activities   800,000    - 
Decrease in cash   (2,748,454)   (3,991,204)
Cash at beginning of period   2,849,192    7,412,969 
Cash at end of period  $100,738   $3,421,765 

 

(See accompanying notes to unaudited consolidated financial statements)

 

 

 

4

 

 

RENOVACARE, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1. Basis of Presentation, Organization, Going Concern, Recent Accounting Standards and Earnings (Loss) Per Share

 

Basis of Presentation

 

The accompanying unaudited interim consolidated financial statements of RenovaCare, Inc. and Subsidiary (“RenovaCare” or the “Company”) as of September 30, 2022, and for the three and nine months ended September 30, 2022 and 2021 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for  quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. These Consolidated Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the SEC on March 30, 2022.

 

The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying disclosures. Actual results may differ from those estimates. The accompanying unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments (including normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s consolidated financial position as of September 30, 2022, results of operations and stockholders’ equity for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. 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.

 

Organization

 

RenovaCare, Inc., formerly Janus Resources, is a Nevada corporation. RenovaCare, Inc. was incorporated under the laws of the State of Utah on July 14, 1983, as Far West Gold, Inc.

 

The Company 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, 2022, and 10,000,000 shares of $0.0001 par value preferred stock, of which none are outstanding.

 

RenovaCare, Inc., through its wholly owned subsidiary, RenovaCare Sciences Corp. is a development-stage company focusing on the research, development and commercialization of autologous (using a patient’s own cells) cellular therapies that can be used for medical and aesthetic applications.

 

On July 12, 2013, the Company completed the acquisition of its flagship technologies (collectively, the “CellMistTM System”). The CellMist™ System is a cell isolation procedure that enzymatically renders stem cells from the patient’s own skin or other tissues. The resulting stem cell suspension is administered topically from the Company’s novel solution sprayer device (the “SkinGunTM”) as a cell therapy onto wounds including burns to facilitate healing.

 

Currently, the Company’s proprietary technologies are the subject of forty-four (44) U.S. and foreign granted or pending patents or patent applications and seventeen (17) U.S. and foreign trademarks. Of the issued patents, five (5) are U.S. patents and seventeen (17) have issued or are allowed in Australia, Canada, China, Europe, Germany, France, Italy, Japan, Korea, Netherlands, Spain, Switzerland/Liechtenstein, and the United Kingdom. The Company has six (6) allowed trademarks in the United States, two (2) European registered trademarks, two (2) United Kingdom trademarks, two (2) Japan trademarks, and two (2) pending in Canada.

 

The Company does not have any commercialized products. The Company's activities have consisted principally of performing research and development activities and raising capital to support such activities. The Company has not generated any revenue 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 will need to raise additional capital through partnerships or the sale of its securities to accomplish its business plan. 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 depends 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.

 

5

 

 

Going Concern

 

The Company has not generated any revenue since inception and has sustained recurring losses and negative cash flows from operations since inception. On September 30, 2022, the Company had $100,738 in cash on hand, current liabilities of $1,710,706 and an accumulated deficit of $38,639,242. The Company has historically funded its operations through the issuance of convertible notes, the sale of common stock and issuance of warrants.

 

The Company evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q. Based on such evaluation and the Company’s current plans, which are subject to change, management believes that the Company’s existing cash as of September 30, 2022 is insufficient to satisfy its operating cash needs for the year after the filing of this Quarterly Report on Form 10-Q.

 

The Company is responsible to bear the costs to defend itself and its directors and officers, pursuant to the indemnification clause in the Company’s bylaws, against various Lawsuits (as each of those terms are defined in “Note 8. Commitments and Contingencies—Legal Proceedings” below) currently consisting of a civil action filed by the SEC and two class actions and four derivative actions. See “Note 8. Commitments and Contingencies—Legal Proceedings.” The legal costs to defend the Company against the Lawsuits have been material. During the three and nine months ended September 30, 2022, the Company recognized $1,413,185 and $3,469,527, respectively, in legal costs related to the Lawsuits and received $1,524,674 of reimbursements from our directors and officer’s (the “D&O Policy”) insurance policy. The D&O Policy coverage is exhausted as of September 30, 2022. To assist the Company in paying the costs to defend against the Lawsuits, Kalen Capital Corporation, an Alberta Canada corporation (“Kalen Capital”) which is wholly-owned by the Mr. Harmel S. Rayat (“Mr. Rayat”), the Company’s President, Chief Executive Officer and Chairman, 1) loaned the Company $800,000 on March 18, 2022, as evidenced by the Unsecured Note (as defined in “Note 3. Related Party Convertible Promissory Note” below), and 2) advanced, on behalf of the Company to its legal counsel, $750,000 on August 3, 2022. Due to the nature and early stage of the Lawsuits, the Company is unable to estimate the total costs to defend itself or the potential costs to the Company if it is not successful in its defense.

 

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 future of the Company will depend on its ability to successfully raise capital from external sources. As noted above, management believes that the Company’s existing cash as of September 30, 2022, are insufficient to satisfy its operating cash needs for the year after the filing of this Quarterly Report on Form 10-Q. If the Company is unable to maintain sufficient financial resources, its business, financial condition, and results of operations will be materially and adversely affected. This could affect future development and business activities and potential future product development and/or other future ventures. There can be no assurance that the Company will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or convertible debt financings will likely have a dilutive effect on the holdings of the Company’s existing stockholders. Debt financing may involve agreements that include covenants limiting or restricting the Company’s ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, and may be secured by all or a portion of the Company’s assets.

 

Accounting Pronouncements

 

The Company evaluates all Accounting Standards Updates (ASUs) issued by the Financial Accounting Standards Board (FASB) for consideration of their applicability. ASUs not included in the Company’s disclosures were assessed and determined to be either not applicable or are not expected to have a material impact on its Consolidated Financial Statements.

 

 

6

 

 

New Accounting Pronouncements Not Yet Adopted

 

None.

 

Accounting Pronouncements Recently Adopted

 

In August 2020, the FASB issued ASU 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40),” to address the complexity in accounting for certain financial instruments with characteristics of liabilities and equity. Amongst other provisions, the amendments in this ASU significantly changed the guidance on the issuer’s accounting for convertible instruments and the guidance on the derivative scope exception for contracts in an entity’s own equity such that fewer conversion features will require separate recognition, and fewer freestanding instruments, like warrants, will require liability treatment. For smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted the new standard on January 1, 2022, with no impact to its financial statements.

 

Earnings (Loss) Per Share

 

The Company presents both basic and diluted earnings per share ("EPS"). 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 or stock options 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, 2022, and 2021:

 

                    
   Three Months Ended  Nine Months Ended
   September 30,  September 30,
   2022  2021  2022  2021
Basic and Diluted EPS Computation                    
Numerator:                    
Loss available to common stockholders'  $(400,439)  $(1,698,285)  $(4,399,338)  $(3,127,488)
Denominator:                    
Weighted average number of common shares outstanding   87,352,364    87,352,364    87,352,364    87,352,364 
Basic and diluted EPS  $(0.00)  $(0.02)  $(0.05)  $(0.04)
                     
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:                    
                    
Stock options   3,074,999    3,139,999    3,074,999    3,139,999 
Warrants   11,245,000    11,712,496    11,245,000    11,712,496 
Total shares not included in the computation of diluted losses per share   14,319,999    14,852,495    14,319,999    14,852,495 

 

 

7

 

 

Note 2. Assets – Intellectual Property

 

On July 12, 2013, the Company, together with its wholly owned subsidiary, RenovaCare Sciences, Inc., entered into an Asset Purchase Agreement, pursuant to which RenovaCare Sciences purchased all the rights, title and interest in the CellMistTM System. Acquisition related costs amounted to $52,852 and were capitalized together with the cash payment upon the closing of the transaction in July 2013 of $100,002 for a total of $152,854 as of December 31, 2021.

 

During the nine months ended September 30, 2022, the Company recorded an impairment of the full carrying value of the intangible asset of $152,854 based on its assessment that its ability to realize the value of the intangible asset has been placed into doubt due to the significant decline in the Company’s market capitalization decreasing cash resources, ongoing Lawsuits which continue to strain the Company’s resources, cancellation of the Strategic Agreement (as defined below under Note 8. Commitments and Contingencies) with StemCell Systems and significant additional capital required to complete development which is dependent on additional financing.

 

Note 3. Prepaid Expenses

 

Prepaid expenses and other current assets consist of the following:

 

          
   September 30,  December 31,
   2022  2021
Prepaid stock options for services   -    87,001 
Prepaid professional fees   847,500    100,930 
Prepaid research and development expense   104,636    289,746 
Other prepaid costs   2,500    13,964 
Refunds due   -    41,804 
Total prepaid expenses  $954,636   $533,445 

 

Note 4. Related Party Convertible Promissory Note

 

On March 18, 2022, the Company issued an Unsecured Convertible Promissory Note (the “Unsecured Note”) to Kalen Capital. Pursuant to the terms of the Unsecured Note, Kalen Capital loaned the Company $800,000 at an annual interest rate of 1% per year, compounded daily. The Note, including any interest due thereon, may be prepaid at any time without penalty. The Unsecured Note, and any balance thereunder, is due by June 30, 2024, and automatically converts into securities of the Company upon receipt of an equity financing from third-party(s) of not less than ten million dollars ($10,000,000) at a conversion price equal to 80% of the price paid in such a financing. Also, after June 23, 2023, Kalen Capital may convert all or any portion of the balance into shares of common stock at a conversion price of $0.45 per share, representing a fifty 50% percent premium to the closing price of the Company’s common stock on March 17, 2022. There is no commitment from Kalen Capital for any additional funding.

 

During the three and nine months ended September 30, 2022, the Company recognized $2,053 and $4,367, respectively, of interest expense.

 

Note 5. Current Liabilities

 

Current liabilities consist of the following:

 

          
  

September 30,

2022

 

December 31,

2021

Legal fees and related  $286,259   $869,950 
Officer compensation   -    55,040 
Consultants   13,250    117,943 
Trade payables   538,731    231,815 
Related party payables   872,466    - 
Total  $1,710,706   $1,274,748 

 

 

8

 

 

Note 6. Equity

 

Common Stock

 

At September 30, 2022, the Company had 500,000,000 authorized shares of common stock with a par value of $0.00001 per share and 87,352,364 shares of common stock outstanding.

 

Warrants

 

The Company has issued warrants to purchase common stock at various exercise prices in connection with loan agreements and private placements. The following table summarizes information about warrants outstanding at September 30, 2022 and December 31, 2021:

 

                   
  

Shares of Common Stock Issuable from

Warrants Outstanding as of

  Weighted    
    

September 30,

    

December 31,

    Average     

Description

   

2022

    

2021

    

Exercise Price

  

Expiration

 
Series F   -    7,246   $3.45   February 23, 2022 
Series G   -    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 
Total   11,245,000    11,712,496          

 

No warrants were exercised during the three and nine months ended September 30, 2022.

 

Stock Options

 

The following table summarizes stock option activity for the nine months ended September 30, 2022:

 

                    
   Number of Options 

Weighted

Average

Exercise Price

($)

 

Weighted

Average

Remaining

Contractual Term

 

Aggregate

Intrinsic Value

($)

Outstanding at December 31, 2021   3,139,999    2.17           
Granted   -    -           
Forfeited   (115,000)   2.23           
Outstanding at September 30, 2022   3,024,999    2.17    3.84    - 
Vested and exercisable at September 30, 2022   2,674,999    2.03    3.79 years    - 

 

The following table sets forth the share-based compensation cost resulting from stock option grants, including those previously granted and vesting over time, that were recorded in the Company’s Statements of Operations for the three and nine months ended September 30, 2022 and 2021:

 

                    
  

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

   2022  2021  2022  2021
Research and development  $289,997   $224,000   $724,997   $731,438 
General and administrative   -    44,000    5,500    (1,138,601)
Total  $289,997   $268,000   $730,497   $(407,163)

 

 

9

 

 

Note 7. Leases

 

In February 2020, the Company entered into a two-year lease for office premises located at 4 Becker Farm Road, Suite 105, Roseland, New Jersey (the “Premises”). Monthly base rent in year one of the lease is $4,356 and $4,459 in year 2 of the lease. The term (and payment of the monthly rent) commenced upon completion of the landlord’s work on August 1, 2020. The Company vacated the premises in May of 2021 and relocated its corporate offices to 9375 E. Shea Blvd., Suite 107-A, Scottsdale, AZ 85260.

 

In July 2022, Premises lease expired and was not renewed. The Company sold all office funiture for proceeds of $5,000 and disposed of assets, including office furnishings, leasehold improvements and equipment with a gross carrying cost of $42,223 and accumulated depreciation totaling $17,597 resulting in a $19,626 loss on the dosposal of assets.

 

As of September 30, 2022, the Company has not entered into any leases which have not yet commenced which would entitle the Company to significant rights or create additional obligations.

 

The Company does not have any finance leases.

 

Supplemental lease information:

 

          
  

As of

September 30,

 

As of

December 31,

   2022  2021
Operating lease right-of-use asset  $-   $28,630 
           
Current maturities of operating lease  $-   $30,497 
Current maturities of operating lease in accounts payable   -    - 
     Total operating lease liabilities  $-   $30,497 

 

Note 8. Commitments and Contingencies

 

Stem Cell Systems (SCS)

 

In connection with the Company’s anticipated future regulatory filings, the Company has engaged StemCell Systems GmbH (“StemCell Systems”) to provide it with medical device prototypes and related design documents and data under various agreements. On July 1, 2020, the Company and StemCell Systems entered into a Strategic R&D Agreement (the “Strategic Agreement”) having an initial term of three years with successive one-year extensions unless earlier terminated. The Strategic Agreement includes a $39,000 monthly fee to be paid to StemCell Systems along with any additional expenses incurred. The Company, StemCell Systems and certain affiliates of StemCell Systems entered into a Rights of First Refusal and Corporate Opportunities Agreement (the “ROFR Agreement”). Pursuant to the ROFR Agreement, (i) in the event a StemCell Systems stockholder receives an offer from a third party to acquire the StemCell Systems stockholders ownership interest, the Company shall have ten business days to purchase such ownership, and (ii) if during the terms of the Strategic Agreement, any StemCell Systems inventions, with respect to skin, burns and wounds, designs, inventions and among other things, whether or not patentable, copyrightable or otherwise legally protectable are discovered by StemCell Systems, the Company shall have the first option to negotiate mutually agreeable terms for the Company’s acquisition or licensing of the StemCell Systems inventions.

 

On April 28, 2022, the Company provided StemCell Systems with notice of termination of the Strategic Agreement.

Pursuant to the terms of the Strategic Agreement, upon cancelation, the Company recognized a termination fee equal to 12 months of the base monthly fee and totaling $372,000. Pursuant to the Strategic Agreement, the Company incurred expenses of $0 and $142,000 during the three months ended September 30, 2022 and 2021, respectively; and $545,000 and $391,000 during the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, included in the Company’s accounts payable balance is approximately $503,000 due to StemCell Systems.

 

 

10

 

 

Legal Proceedings

 

SEC Civil Complaint

 

On May 28, 2021, the SEC filed a civil complaint (the “SEC Action”), in the United States District Court for the Southern District of New York, naming the Company and Harmel S. Rayat, the Company’s current President, Chief Executive Officer, Chief Financial Officer and Sole Director as defendants (the “Defendants”). The SEC Action alleges among other things that Mr. Rayat and the Company with violated the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and alleges that Mr. Rayat aided and abetted the violations of those provisions by the Company. The SEC Action also alleges that the Company violated the reporting provisions of Exchange Act Section 15(d) and Rules 15d-11 and 12b-20 thereunder. The SEC seeks, among other relief, permanent injunctions and civil penalties against the Defendants, and officer-and-director and penny stock bars against Mr. Rayat. On August 31, 2021, the Defendants filed an answer to the Complaint. On September 21, 2021, the SEC filed a motion to strike Defendants equitable affirmative defenses which motion was granted by the court on October 18, 2021. The Company continues to defend itself and the named individuals against the allegations set forth in the SEC Action. Due to the nature and early stage of the SEC Action, the Company is unable to estimate the total costs to defend itself or the potential costs to the Company in the event that it is not successful in its defense.

 

Class Action Complaints

 

On July 16, 2021, Gabrielle A. Boller filed a class action lawsuit in the U.S. District Court for the District of New Jersey (the “Boller Lawsuit”), against the Company and certain past and current officers and members of the Company’s board of directors (collectively, the “Boller Defendants”). The Boller Lawsuit alleges, among other things, that in connection with the facts and circumstances underlying the allegations in the SEC Action, the Boller Defendants engaged in fraudulent conduct and made false and misleading statements of material fact or omitted to state material facts necessary to make the statements made not misleading. The plaintiff seeks a determination that the Boller Lawsuit is a proper class action, compensatory damages in favor of the plaintiff and other class members, reasonable costs and expenses incurred in the Boller Lawsuit, including counsel fees and expert fees, and such other relief as the Court may deem proper.

 

The Company disputes the plaintiffs’ claims in the Boller Lawsuit and intends to defend these matters vigorously. To that end, the Company has engaged counsel to defend the Boller Defendants. Given the uncertainty of litigation, the preliminary stage of these cases, the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss that may result from these actions.

 

On July 21, 2021, Michael Solakian, filed a class action lawsuit in the U.S. District Court for the District of New Jersey (the “Solakian Lawsuit”), against the Company and certain past and current officers and members of the Company’s board of directors (collectively, the “Solakian Defendants”). The Solakian Lawsuit alleges, among other things, that in connection with the facts and circumstances underlying the allegations in the SEC Action, the Solakian Defendants engaged in fraudulent conduct and made false and misleading statements of material fact or omitted to state material facts necessary to make the statements made not misleading. The plaintiff seeks a determination that the Solakian Lawsuit is a proper class action, compensatory damages in favor of the plaintiff and other class members, reasonable costs and expenses incurred in the Solakian Lawsuit, including counsel fees and expert fees, and such other relief as the Court may deem proper.

 

The Company disputes the plaintiffs’ claims in the Solakian Lawsuit and intends to defend these matters vigorously. To that end, the Company has engaged counsel to defend the Solakian Defendants. Given the uncertainty of litigation, the preliminary stage of these cases, the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss that may result from these actions.

 

Shareholder Derivative Complaints

 

On December 20, 2021, Melvin Emberland (“Emberland”), derivatively and on behalf of nominal defendant RenovaCare, Inc. filed a lawsuit (the “Emberland Lawsuit”) in the United States District Court for the District of New Jersey against the Company and certain of its current and former executive officers (the “Emberland Defendants”). In the complaint, Emberland’s allegations, relating to the facts and circumstances underlying the allegations in the SEC Action include, but are not limited to (i) breach of fiduciary duties by the individual Emberland Defendants, (ii) unjust enrichment and (iii) violation of Section 10(b) and 21D of the Securities Exchange Act of 1934. Emberland did not quantify any alleged damages in his complaint but, in addition to attorneys’ fees and costs, Emberland seeks (i) a declaration that the Emberland Defendants have breached and/or aided and abetted the breach of their fiduciary duties to the Company, (ii) a determination awarding to the Company restitution from the Meyer Defendants, and each of them, and ordering disgorgement of all profits, benefits and other compensation obtained by the Emberland Defendants, (iii) a directive to the Company and the Emberland Defendants to take all necessary actions to reform and improve the Company’s corporate governance and internal procedures to comply with applicable laws, and (iv) Plaintiff is seeking, among other things, restitution from the individual Emberland Defendants and disgorgement of profits, benefits and other compensation obtained by such Emberland Defendants, costs and disbursements of the action including reasonable attorney’s fees, accountants’ and expert fees and expenses, an order directing the taking of certain corporate actions relating to its board of directors and corporate governance.

 

11

 

 

The Company disputes Emberland’s claims and intends to defend these matters vigorously. To that end, the Company has engaged counsel to defend the Emberland Defendants. Given the uncertainty of litigation, the preliminary stage of the Emberland Lawsuit, the legal standards that must be met for success on the merits, the Company cannot estimate the reasonably possible loss or range of loss that may result from these actions.

 

On January 6, 2022, Zoser Vargas (“Vargas”), derivatively and on behalf of nominal defendant RenovaCare, Inc. filed a lawsuit (the “Vargas Lawsuit”) in the United States District Court for the District of New Jersey against the Company and certain of its current and former executive officers (the “Vargas Defendants”). In the complaint Vargas’ allegations relating to the facts and circumstances underlying the allegations in the SEC Action include but are not limited to, (i) breach of fiduciary duties, (ii) waste of corporate assets, (iii) violation of law, and (iii) unjust enrichment. Vargas did not quantify any alleged damages in his complaint but, in addition to attorneys’ fees and costs, Vargas seeks, in addition to other things, (i) against the Vargas Defendants and in favor of the Company the amount of damages sustained by the Company as a result of the Vargas Defendants’ breaches of fiduciary duties, waste of corporate assets and unjust enrichment, (ii) directive for the Company to take all necessary actions to improve its corporate governance and internal procedures to comply with applicable law and (iii) awarding to the Company restitution from the Vargas Defendants, and each of them, and ordering disgorgement of all profits, benefits and other compensation obtained by the Vargas Defendants.

 

The Company disputes Vargas’ claims and intends to defend these matters vigorously. To that end, the Company has engaged counsel to defend the Vargas Defendants. Given the uncertainty of litigation, the preliminary stage of these cases, the legal standards that must be met for success on the merits, the Company cannot estimate the reasonably possible loss or range of loss that may result from these actions.

 

On January 28, 2022, Aviva Meyer (“Meyer”), derivatively and on behalf of nominal defendant RenovaCare, Inc. filed a lawsuit (the “Meyer Lawsuit”) in the United States District Court for the District of New Jersey against the Company and certain of its current and former executive officers (the “Meyer Defendants”). In the complaint Meyer’s allegations relating to the facts and circumstances underlying the allegations in the SEC Action include but are not limited to, (i) breach of fiduciary duties, (ii) waste of corporate assets, (iii) violation of law, and (iii) unjust enrichment. Meyer did not quantify any alleged damages in his complaint but, in addition to attorneys’ fees and costs, Meyer seeks, in addition to other things, (i) against the Meyer Defendants and in favor of the Company the amount of damages sustained by the Company as a result of the Meyer Defendants’ breaches of fiduciary duties, waste of corporate assets and unjust enrichment, (ii) directive for the Company to take all necessary actions to improve its corporate governance and internal procedures to comply with applicable law and (iii) awarding to the Company restitution from the Meyer Defendants, and each of them, and ordering disgorgement of all profits, benefits and other compensation obtained by the Meyer Defendants.

 

The Company disputes Meyer’s claims and intends to defend these matters vigorously. To that end, the Company has engaged counsel to defend the Meyer Defendants Given the uncertainty of litigation, the preliminary stage of these cases, the legal standards that must be met for success on the merits, the Company cannot estimate the reasonably possible loss or range of loss that may result from these actions.

 

On March 28, 2022, Peter Rigsby (“Rigsby”), derivatively and on behalf of nominal defendant RenovaCare, Inc. filed a lawsuit (the “Rigsby Lawsuit”) in the Eight Judicial District Court of the State of Nevada in and for Clark County, against the Company and certain of its current and former executive officers (the “Rigsby Defendants”). In the complaint Rigsby’s allegations relating to the facts and circumstances underlying the allegations in the SEC Action include but are not limited to, (i) breach of fiduciary duties, (ii) waste of corporate assets, (iii) violation of law, and (iii) unjust enrichment. Rigsby did not quantify any alleged damages in his complaint but, in addition to attorneys’ fees and costs, Rigsby seeks, in addition to other things, (i) against the Rigsby Defendants and in favor of the Company the amount of damages sustained by the Company as a result of the Rigsby Defendants’ breaches of fiduciary duties, waste of corporate assets and unjust enrichment, (ii) directive for the Company to take all necessary actions to improve its corporate governance and internal procedures to comply with applicable law and (iii) awarding to the Company restitution from the Rigsby Defendants, and each of them, and ordering disgorgement of all profits, benefits and other compensation obtained by the Rigsby Defendants.

 

 

12

 

 

On May 19, 2022, Helen Medrano (“Medrano”), derivatively and on behalf of nominal defendant RenovaCare, Inc. filed a lawsuit (the “Medrano Lawsuit”) in the Superior Court of Arizona against the Company and certain of its current and former executive officers (the “Medrano Defendants”). In the complaint Medrano’s allegations relating to the facts and circumstances underlying the allegations in the SEC Action include but are not limited to, (i) breach of fiduciary duties, (ii) conspiracy, aiding and abetting, (iii) violation of law, and (iii) unjust enrichment. Medrano did not quantify any alleged damages in her complaint but, in addition to attorneys’ fees and costs, Medrano seeks, in addition to other things, (i) against the Medrano Defendants and in favor of the Company the amount of damages sustained by the Company as a result of the Medrano Defendants’ breaches of fiduciary duties, waste of corporate assets and unjust enrichment, (ii) directive for the Company to take all necessary actions to improve its corporate governance and internal procedures to comply with applicable law and (iii) awarding to the Company restitution from the Medrano Defendants, and each of them, and ordering disgorgement of all profits by the Medrano Defendants.

 

The Company believes that the claims asserted in the SEC Action, the Boller Lawsuit, the Solakian Lawsuit, the Emberland Lawsuit, the Vargas Lawsuit, the Meyer Lawsuit, the Rigsby Lawsuit, and the Medrano Lawsuit (collectively, the “Lawsuits”) are without merit and intends to vigorously defend each Lawsuit.

 

Note 9. Related Party Transactions

 

During the three and nine months ended September 30, 2022, Kalen Capital made payments related to the Lawsuits totaling $835,779 and $872,466, respectively. Of the total $872,466, payments made to the Company’s legal counsel totaled $825,000 and payments made for travel and lodging costs totaled $47,466. No reimbursements have been made as of the date of this quarterly report.

 

Note 10. Subsequent Events

 

Management has reviewed material events subsequent of the period ended September 30, 2022 and prior to the filing of financial statements in accordance with FASB ASC 855 “Subsequent Events.”

 

 

 

 

 

 

 

 

 

 

 

 

13

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cautionary Note Regarding Forward-Looking Statements

 

This discussion and analysis of financial condition and results of operations is based upon and should be read in conjunction with the unaudited interim consolidated financial statements of RenovaCare, Inc. (“RenovaCare”) and its wholly-owned subsidiary (collectively with RenovaCare, “we,” “our,” “us,” or the “Company”), appearing elsewhere in this Quarterly Report on Form 10-Q, 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 requires the Company 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 the Company reviews its estimates and assumptions. The estimates were based on historical experience and other assumptions that the Company believes 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 the Company 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 since 2020.

 

This Quarterly Report on Form 10-Q also 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 the Company 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 failure to successfully defend the Lawsuits (as such term is defined in footnote 8 to our financial statements set forth in Part 1, Item 1;

  · Our failure to obtain necessary financing to our ability to obtain financing as, and when needed, on commercially acceptable terms to (i) defend against the Lawsuits and (ii) fund continuing operations;
  · 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;
  · our ability to resume our clinical trials and the results thereof;
  · failure of our products to gain market acceptance;
  · the cost and success of our development programs;
  · our failure to obtain financing as, if and when needed, on commercially acceptable terms;
  · our failure to attract and retain qualified personnel;
  · our failure to adequately manage our growth and expansion;
  · the effect on us from adverse publicity related to the Lawsuits; and
  · our failure to defend against any adverse claims relating to our intellectual property.

 

14

 

 

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. Considering these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur.

 

Overview

 

We are a development-stage biotechnology and medical device company focusing on the research, development and commercialization of autologous (using a patient’s own cells) cellular therapies that can be used for medical and aesthetic applications. The Company does not have any commercialized products. The Company’s activities have consisted principally of performing research and development activities, business development efforts, and raising capital to support such activities.

  

The Company, through its wholly owned subsidiary, RenovaCare Sciences Corp., owns the CellMist™ System which is a cell isolation procedure that enzymatically renders stem cells from the patient’s own skin or other tissues. The resulting stem cell suspension is administered topically with our SkinGun™ spray device as a cell therapy onto wounds including burns to facilitate healing. The CellMist™ System also includes our unique, closed, automated cell isolation device (the “CID”) to harvest stem cells from tissues which is in prototype development.

 

Currently, our proprietary technologies are the subject of forty-four (44) U.S. and foreign granted or pending patents or patent applications and seventeen (17) U.S. and foreign trademarks. Of the issued patents, five (5) are U.S. patents and seventeen (17) have issued or are allowed in Australia, Canada, China, Europe, Germany, France, Italy, Japan, Korea, Netherlands, Spain, Switzerland/Lichtenstein, and the United Kingdom. The Company has six (6) allowed trademarks in the United States, two (2) European registered trademarks, two (2) United Kingdom trademarks, two (2) Japan trademarks, and two (2) pending in Canada.

 

In May 2021, the Company announced that the US Food and Drug Administration (FDA) fully approved the Company’s Investigational Device Exemption (IDE) application to conduct a clinical trial, designated CELLMIST 1, designed to evaluate the safety and feasibility of autologous skin and pluripotent stem cells rendered by its manual CellMist™ System from donor skin and applied topically with the electronic SkinGun™ spray device for treatment of acute burn wounds. The clinical trial protocol is an open-label, single-arm clinical study designated to enroll 14 adult human burn subjects with partial-thickness, second-degree deep thermal burn wounds covering between 10% and 30% total body surface area. The Company may engage up to four (4) U.S. burn centers to conduct the clinical study.

 

During the end of Q1 2022, the Board decided to stop enrollment of patients into the clinical trial and take other measures to reduce the Company’s overhead to conserve financial resources as it continues to defend against the Lawsuits as described under “Note 8. Commitments and Contingencies” in the footnotes to the financial statements above. The Company hopes to restart the clinical trial at a future date upon the occurrence of a favorable outcome against the Lawsuits and with additional financing. 

 

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 future of the Company will depend on its ability to successfully raise capital from external sources. Management believes that the Company’s existing cash as of September 30, 2022, are insufficient to satisfy its operating cash needs for the year after the filing of this Quarterly Report on Form 10-Q. If the Company is unable to maintain sufficient financial resources, its business, financial condition, and results of operations will be materially and adversely affected. In turn, this will affect future development and business activities and potential future product development and/or other future ventures. There can be no assurance that the Company will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or convertible debt financings will likely have a dilutive effect on the holdings of the Company’s existing stockholders. Debt financing may involve agreements that include covenants limiting or restricting the Company’s ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends, and may be secured by all or a portion of the Company’s assets.

 

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Components of Our Results of Operations

 

Revenue

 

To date we have not generated any product revenues and do not expect to generate any revenue for the foreseeable future. Our ability to generate revenue and become profitable depends upon our ability to obtain marketing approval and successfully commercialization of our CellMistTM System.

 

Operating Expenses

 

Research and Development

 

Research and development (“R&D”) expenses consist primarily of costs incurred for the development of our CellMistTM System and include:

 

  · design, pilot-scale manufacturing, and pre-clinical testing of our cell isolation and SkinGunTM spray devices.

  · employee-related expenses associated with our research and development activities, including salaries, benefits, travel, and non-cash stock-based compensation expenses.

  ·

costs associated with quality management systems including device verification and validation testing,

and regulatory operations and regulatory compliance.

  · expenses incurred under agreements related to our clinical trial.

  · other research and development costs including contract consulting fees and non-cash stock-based compensation to contract research organizations (CROs) and other third parties.

 

We do not believe that it is possible at this time to accurately project total expenses required for us to reach commercialization of our CellMistTM System. In the future, we expect that research and development expenses will increase due to our ongoing product development and approval efforts. We expense research and development costs as incurred.

 

General and Administrative

 

General and administrative expenses consist primarily of personnel costs, including non-cash stock-based compensation related to directors and employees, professional service costs including legal, accounting, and other consulting fees and other general and administrative expenses including investor relations, insurance, and facilities costs. We expect general and administrative expenses to increase in the future as we hire personnel and incur additional costs to support the expansion of our research and development activities, our operation as a public company and to defend against the Lawsuits.

 

Stock-Based Compensation

 

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.

 

Income Taxes

 

We have yet to generate taxable income. We have historically incurred operating losses resulting in carry forward tax losses totaling approximately $21,945,000 as of December 31, 2021. We anticipate that we will continue to generate tax losses for the foreseeable future and that we will be able to carry forward these tax losses indefinitely to future taxable years. Accordingly, we do not expect to pay taxes until we have taxable income after the full utilization of our carry forward tax losses. We have provided a full valuation allowance with respect to the deferred tax assets related to these carry forward losses.

 

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Results of Operations

 

Comparison of Three and Nine Months Ended September 30, 2022 and 2021

 

Research and Development Expenses

 

   Three Months Ended
September 30,
     Nine Months Ended
September 30,
   
   2022  2021  Change  2022  2021  Change
Manufacturing clinical supplies(1)  $10,207   $50,019   $(39,812)  $41,922   $298,090   $(256,168)
Personnel related(2)   32,700    113,248    (80,548)   216,875    382,926    (166,051)
Stock-based compensation(3)   289,997    224,000    65,997    724,997    731,438    (6,441)
Clinical trials(4)   54,363    243,030    (188,667)   249,733    768,987    (519,254)
Regulatory   815    10,349    (9,534)   5,831    32,253    (26,422)
All other(5)   -    103,979    (103,979)   124,381    289,793    (165,412)
   $388,082   $744,625   $(356,543)  $1,363,739   $2,503,487   $(1,139,748)

 

(1)Manufacturing clinical supplies decreased due to completion of the pilot-scale manufacturing and validation testing of the components of the CellMist™ System and the electronic SkinGun™ spray device used in our clinical trial which mostly tailed off during the quarter ended June 30, 2022.
(2)Personnel related expenses decreased primarily due to the suspension of the clinical trial.
(3)Stock compensation expense relates to the stock purchase options granted to R&D related personnel.
(4)In 2020 and early 2021, the Company’s incurred certain costs in preparation for its clinical trial during which time the set-up costs were mostly completed with future clinical trial costs expected to fluctuate depending on the number of enrollees into the clinical trial. During the three and nine months ended September 30, 2022, compared to the same periods in 2021, clinical trial expenses decreased primarily due to the completion of the set-up costs, and subsequent enrollment of only two patients. As a result of the decision during Q1 2022 to stop enrollment, clinical trial expenses are expected to continue to decrease.
(5)All other expenses relate primarily to the prototype development of the electronic SkinGun™ and cell isolation device at StemCell Systems. The costs have decreased due to the Company’s cancellation of the Strategic Agreement dated April 28, 2022.

 

General and Administrative Expenses

 

  

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   2022  2021  Change  2022  2021  Change
Personnel related(1)  $16,699   $223,591   $(206,892)  $189,603   $691,954   $(502,351)
Stock-based compensation(2)   -    44,000    (44,000)   5,500    (1,138,601)   1,144,101 
Professional and consultant fees(3)   1,447,764    644,077    803,687    3,686,223    1,069,550    2,616,673 
All other(4)   24,810    44,231    (19,421)   503,760    196,762    306,998 
Total G&A Expense  $1,489,273   $955,899   $533,374   $4,385,085   $819,665   $3,565,420 

 

(1)Personnel related costs decreased due to lower headcount.
(2)All stock options issued to G&A related personnel fully vested in Q1 2022. Stock compensation expense in 2021 decreased due to the forfeiture and cancellation of 2,730,571 stock options as a result of the resignation of the Company’s former Chairman, President and Chief Executive Officer and two members of the Company’s Board of Directors. Compensation expense was recorded on these options prior to their full vesting. As a result, the Company recognized a $1,248,575 reversal of the prior recognized compensation expense related to the cancelled options.

 

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(3)Professional and consultant fees increased primarily due to an increase in legal fees related to the Lawsuits. During the three months ended June 30, 2022, the Company incurred $27,579 in fees related to patents and trademarks, $1,413,185 in legal fees related to the Lawsuits, and $7,000 related to the preparation and review of our financial statements and related filings with the SEC. During the nine months ended September 30, 2022, the Company incurred $126,945 in fees related to patents and trademarks, $3,469,527 in legal fees related to the Lawsuits, $46,000 related to the preparation and audit of our financial statements and related filings with the SEC, and $43,750 for other legal related costs. The Company is obligated, pursuant to its bylaws, to indemnify its directors and officers. As a result, all legal costs related to the Lawsuits are recorded to the books of the Company. Insurance proceeds to cover the cost of the Company’s defense against the Lawsuits is recorded to other income at the time of receipt.
(4)All other costs increased primarily due to the inclusion of $372,000 termination fee related to the Company’s cancellation of the Strategic Agreement with Stem Cell Systems in April 2022 and $46,699 of travel and lodging costs paid by Mr. Rayat related to the Lawsuits and incurred during Q2.

 

Other Income (Expense)

 

Other expense consists of the interest payable under our convertible note ($4,367), impairment of intangible asset ($152,854) and loss on disposal of assets ($19,626) offset by other income related to interest earned on bank deposits ($1,659) and the reimbursement of legal fees from our Directors & Officers insurance policy ($1,524,674). The Company’s D&O policy limit of $2,000,000 was reached during the three months ended September 30, 2022, and no additional reimbursements will be realized.

 

Liquidity and Capital Resources

 

The Company does not have any commercialized products, has not generated any meaningful revenue since inception and has sustained recurring losses and negative cash flows since inception. During the nine months ended September 30, 2022, and 2021, the Company has incurred operating losses of $5,748,824 and $3,323,152, respectively, and has used cash in operating activities of $3,553,454 and $3,991,204, respectively. The Company expects to incur losses as it continues to fund its legal defense and scaled-back development of its products and technologies.

 

At September 30, 2022, the Company had current and total liabilities of $1,710,706 and $2,515,073 respectively. As of September 30, 2022, the Company’s working capital was negative $655,332. In order to preserve its cash resources, the Company has taken measures to streamline operations, including ending enrollment of patients into its clinical trial, renegotiating and terminating certain agreements and service arrangements, entering into a loan agreement with Kalen Capital for $800,000 on March 18, 2022 and accepting an advance of $825,000 from Kalen Capital paid directly to the Company’s legal counsel. As a result of the actions taken, the Company has temporarily improved its ability to remain solvent. However, due to the nature and stage of the Lawsuits, the Company is unable to estimate the total costs to defend itself or the potential costs to the Company in the event that it is not successful in its defense. As a result, the Company estimates cash on hand will be insufficient for the twelve months following the date these financial statements are issued.

 

Historically, the Company has been funded through the sale of equity securities and debt financings. The future of the Company will depend on its ability to successfully raise capital from external sources to fund operations. If the Company is unable to obtain adequate funds, or if such funds are not available to it on acceptable terms, the Company's ability to continue its business to develop its cellular therapies will be significantly impaired and it may cause the Company to curtail operations. Although the Company has instituted cost savings measures, it will continue to assess its ongoing expenses.

 

 

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Fair Value of Financial Instruments and Risks

 

The carrying value of cash, accounts payable and interest 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 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.

 

Market Risk Disclosures

 

We have not entered into derivative contracts either to hedge existing risks or for speculative purposes during the nine months ended September 30, 2022, and the subsequent period through the date of this report.

 

Off-Balance Sheet Arrangements and Contractual Obligations

 

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually limited purposes. As of September 30, 2022, we were not involved in any SPE transactions. 

 

Recently Accounting Standards

 

See Note 1 to our Consolidated Financial Statements for more information regarding recent accounting standards and their impact to our consolidated results of operations and financial position.

 

Transactions with Related Persons

 

During the three and nine months ended September 30, 2022, Kalen Capital made payments related to the Lawsuits totaling $835,779 and $872,466, respectively. Of the total $872,466, payments made to the Company’s legal counsel totaled $825,000 and payments made for travel and lodging costs totaled $47,466. No reimbursements have been made as of the date of this quarterly report.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for trading purposes.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Interim Chief Executive Officer and Interim Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this quarterly report. Based on this evaluation, our Interim Chief Executive Officer and Interim Chief Financial Officer concluded that as of September 30, 2022, that our disclosure controls and procedures were effective such that the information required to be disclosed in our SEC filings is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we are involved in litigation and other proceedings, including matters related to intellectual property and regulatory claims. See Note 8 to our unaudited consolidated financial statements for information on certain legal proceedings, which is incorporated by reference herein.

 

Item 1A. Risk Factors

 

Our results of operations and financial condition could be adversely affected by numerous risks. In addition to the other information in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for Fiscal 2021. These are not the only risks and uncertainties facing us. Additional risks not currently known to us or that we currently believe are immaterial may also negatively impact our business, financial condition, results of operations and prospects.

 

Item 6. Exhibits

 

Exhibit No. Description of Exhibit
31.1 Certification of the Principal Executive Officer and 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**
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

_______________

* Filed herewith.
** Furnished herewith. iXBRL (Inline 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.

 

 

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SIGNATURES

 

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.

 

RenovaCare, Inc.

(Registrant)

 

Date: November 18, 2022 By: /s/ Harmel S. Rayat  
  Name: Harmel S. Rayat  
  Title:

Interim President & Chief Executive Officer,

and Interim Chief Financial Officer

    (Principal Executive Officer and Principal Financial Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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