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RenovaCare (RCAR)

Filed: 13 Aug 20, 4:16pm

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 June 30, 2020

 

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

 

For the transition period from ___________ to ___________

 

Commission file number 000-30156

 

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

 

Nevada 98-0170247
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)

 

4 Becker Farm Road, Suite 105

Roseland, NJ 07068

(Address of principal executive offices)

 

888-398-0202

(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 filerAccelerated filer
Non-accelerated filer  
Smaller reporting companyEmerging 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 August 10, 2020 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 June 30, 2020

 

TABLE OF CONTENTS

 

  Page # 
PART I - FINANCIAL INFORMATION   
     
Item 1.Financial Statements   
     
 Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019 1 
     
 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited) 2 
     
 Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (unaudited) 3 
     
 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (unaudited) 4 
     
 Notes to Condensed Consolidated Financial Statements 5 
     
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations 12 
     
Item 3.Quantitative and Qualitative Disclosures About Market Risk 21 
     
Item 4.Controls and Procedures 21 
     
PART II - OTHER INFORMATION
    
Item 1.Legal Proceedings 22 
     
Item 1A.Risk Factors 22 
     
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds 22 
     
Item 6.Exhibits 23 
     
Signatures 24 

 

 

 

 

 

 

PART I

Item 1. Financial Statements

 

RENOVACARE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2020 (Unaudited) AND DECEMBER 31, 2019

 

 

  June 30, December 31,
  2020 2019
ASSETS        
Current assets        
Cash and cash equivalents $10,258,068  $12,185,248 
Other current assets  404,185   102,500 
Total current assets  10,662,253   12,287,748 
         
Security deposit  7,995   - 
Intangible assets  152,854   152,854 
Total assets $10,823,102  $12,440,602 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
         
Current liabilities        
Accounts payable and accrued liabilities $666,782  $169,044 
Accounts payable - related parties  130,519   111,696 
Total current liabilities  797,301   280,740 
         
Total liabilities  797,301   280,740 
         
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 June 30, 2020 and December 31, 2019  874   874 
Additional paid-in capital  34,431,118   32,378,833 
Retained deficit  (24,406,191)  (20,219,845)
Total stockholders' equity  10,025,801   12,159,862 
Total liabilities and stockholders' equity $10,823,102  $12,440,602 

 

(The accompanying notes are an integral part of these condensed consolidated financial statements)

 

 

 1 

 

 

RENOVACARE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(Unaudited)

 

 

  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
         
Revenue $-  $-  $-  $- 
                 
Operating expense                
Research and development  1,347,005   179,193   1,539,778   373,702 
General and administrative  1,697,476   464,335   2,733,042   873,797 
Total operating expense  3,044,481   643,528   4,272,820   1,247,499 
                 
Loss from operations  (3,044,481)  (643,528)  (4,272,820)  (1,247,499)
                 
Other income (expense)                
Interest income  32,888   96,024   86,474   180,729 
Total other income (expense)  32,888   96,024   86,474   180,729 
                 
Net loss $(3,011,593  $(547,504) $(4,186,346  $(1,066,770)
                 
Basic and Diluted Loss per Common Share $(0.03) $(0.01) $(0.05) $(0.01)
                 
Weighted average number of common shares outstanding - basic and diluted  87,352,364   87,175,522   87,352,364   87,175,522 

 

(The accompanying notes are an integral part of these condensed consolidated financial statements)

 

 

 

 2 

 

 

RENOVACARE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(Unaudited)

 

 

      Additional   Total
  Common Stock Paid-in Retained Stockholders'
  Shares Amount Capital Deficit Equity
Balance, January 1, 2020  87,352,264  $874  $32,378,833  $(20,219,845) $12,159,862 
Stock based compensation  -   -   465,763   -   465,763 
Net loss for the three months ended March 31, 2020  -   -   -   (1,174,753)  (1,174,753)
Balance, March 31, 2020  87,352,264   874   32,844,596   (21,394,598)  11,450,872 
                     
Stock based compensation  -   -   1,586,522   -   1,586,522 
Net loss for the three months ended June 30, 2020  -   -       (3,011,593)  (3,011,593)
Balance, June 30, 2020  87,352,264  $874  $34,431,118  $(24,406,191) $10,025,801 
                     
Balance, January 1, 2019  87,175,522  $872  $32,187,580  $(16,861,763) $15,326,689 
                     
Stock based compensation  -   -   832   -   832 
Net loss for the three months ended March 31, 2019  -   -   -   (547,504)  (547,504)
Balance, March 31, 2019  87,175,522   872   32,188,412   (17,409,267)  14,780,017)
                     
Net loss for the three months ended June 30, 2019  -   -   -   (519,266)  (519,266)
Balance, June 30, 2019  87,175,522  $872  $32,188,412  $(17,928,533) $14,260,751)

 

(The accompanying notes are an integral part of these condensed consolidated financial statements)

 

 

 

 3 

 

 

RENOVACARE, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(Unaudited)

 

 

  Six Months Ended
  June 30,
  2020 2019
Cash flows from operating activities        
Net loss $(4,186,346) $(1,066,770)
Adjustments to reconcile net loss to net cash used in operating activities        
Depreciation  -   158 
Stock based compensation expense  2,052,285   832 
Changes in operating assets and liabilities:        
Increase in other current assets  (301,685)  (24,414)
Increase (decrease) in accounts payable  497,738   (43,822)
Increase in accounts payable - related parties  18,823   9,074 
Net cash flows used in operating activities  (1,919,185)  (1,124,942)
         
         
Cash flows from investing activities        
Increase in security deposit  (7,995)  - 
Net cash flows used in investing activities  (7,995)  - 
         
Decrease in cash and cash equivalents  (1,927,180)  (1,124,942)
         
Cash and cash equivalents at beginning of period  12,185,248   15,397,524 
         
Cash and cash equivalents at end of period $10,258,068  $14,272,582 
         
Supplemental disclosure of cash flow information:        
Interest paid in cash $-  $- 
Income taxes paid in cash $-  $- 

 

(The accompanying notes are an integral part of these condensed consolidated financial statements)

 

 

 

 4 

 

 

RENOVACARE, INC. AND SUBSIDIARY

NOTES TO 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 interim unaudited condensed consolidated financial statements and related disclosures of RenovaCare, Inc. and Subsidiary (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed on May 14, 2020. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted.

 

In the opinion of management, the interim condensed consolidated financial statements reflect all adjustments considered necessary for a fair statement of the interim periods. All such adjustments are of a normal, recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the year ended December 31, 2020.

 

Organization

 

RenovaCare, Inc., together with its wholly owned subsidiary, focuses on the acquisition, 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, through its wholly owned subsidiary, RenovaCare Sciences Corp., completed the acquisition of its flagship technologies (collectively, the “CellMistTM System”) along with associated United States patent applications and two foreign patent applications, the first of which was filed on August 23, 2007 (DE 10 2007 040 252.1) and the second of which was filed on April 27, 2011 (DE 10 2011 100 450.9), both of which have been granted. One of the US patent applications was granted on November 29, 2016 (Patent No. US 9,505,000) and the other patent application was granted on April 4, 2017 (Patent No. US 9,610,430). In August 2019, the Company was awarded a continuation of Patent No. US 9,505,000 (Patent No. US 10,376,658), allowing the Company’s novel solution sprayer device (the “SkinGunTM”) to now be used to spray all varieties of tissues and cells, thus allowing for its potential application in the regeneration of tissues and organs, beyond skin.

 

The CellMistTM System is comprised of (a) a treatment methodology for cell isolation for the regeneration of human skin cells (the “CellMistTM Solution”) and (b) the SkinGunTM for delivering the cells to the treatment area.

 

Overview 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 to support such activities. 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 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. Additionally, there is significant uncertainty relating to the full impact of the COVID-19 pandemic on the Company’s operations and capital requirements. Should the COVID-19 pandemic continue, it may adversely affect the Company’s ability to (i) retain employees and consultants; (ii) obtain additional financing on terms acceptable to the Company, if at all; (iii) delay regulatory submissions and approvals; (iv) delay, limit or preclude the Company from securing clinical study sites; (v) delay, limit or preclude the Company from achieving technology or product development goals, milestones, or objectives; and (vi) preclude or delay entry into join venture or partnership arrangements. The occurrence of any one or more of such events may affect the Company’s ability to continue on its pathway to commercialization of its technology or products.

 

 

 5 

 

 

Liquidity

 

As of June 30, 2020, the Company had $10,258,068 of cash on hand and working capital of $9,864,952. As a result of the cash on hand and working capital, 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.

 

New 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 December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning in fiscal 2021. The Company is currently assessing the impact that this pronouncement will have 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 or stock on net loss per share because to do so would be antidilutive.

 

 

 6 

 

 

Following is the computation of basic and diluted net loss per share for the three and six months ended June 30, 2020 and 2019:

 

  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019   2019
Basic and Diluted EPS Computation                
Numerator:                
Loss available to common stockholders' $(3,011,593) $(547,504) $(4,186,346) $(1,066,770)
Denominator:                
Weighted average number of common shares outstanding  87,352,364   87,175,522   87,352,364   87,175,522 
Basic and diluted EPS $(0.03) $(0.01)  (0.05) $(0.01)

 

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  4,788,071   317,500   4,788,071   317,500 
Warrants  12,296,912   13,346,912   12,296,912   13,346,912 
Total shares not included in the computation of diluted losses per share  17,084,983   13,664,412   17,084,983   13,664,412 

 

Note 2. Other Current Assets

 

Other current assets consist of the following:

 

  June 30, December 31,
  2020 2019
Prepaid insurance $162,540  $- 
Prepaid research and development costs  150,050   - 
Prepaid professional fees  65,000   102,500 
Other prepaid costs  26,595   - 
Total prepaid expenses $404,185  $102,500 

 

Note 3. Assets – Intellectual Property

 

On July 12, 2013, the Company, together with its wholly owned subsidiary, RenovaCare Sciences, entered into an asset purchase agreement (“APA”) with Dr. Jörg Gerlach, MD, PhD, pursuant to which RenovaCare Sciences purchased all of Dr. Gerlach’s 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. Intangible assets amounted to $152,854 at June 30, 2020 and December 31, 2019.

 

Note 4. Common Stock and Warrants

 

Common Stock

 

At June 30, 2020, 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. During the six months ended June 30, 2020, the Company granted options to purchase an aggregate 2,470,571 shares of the Company’s common stock to employees and consultants. See “Note 5. Stock Options” for further discussion.

 

 

 7 

 

 

Warrants

 

The following table summarizes information about warrants outstanding at June 30, 2020 and December 31, 2019:

 

  Shares of Common Stock Issuable from Warrants Outstanding as of Weighted  
  June 30, December 31, Average  
Description 2020 2019 Exercise Price Expiration
Series D  -   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 
Total  12,296,912   13,106,912         

 

Note 5. Stock Options

 

The following table summarizes stock option activity for the period ended June 30, 2020:

 

  Number of Options Weighted Average Exercise Price ($) Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value ($)
Outstanding at December 31, 2019  2,317,500   2.68   5.68  $1,460,507 
Grants  2,470,571   1.90   -   - 
Outstanding at June 30, 2020  4,788,071   2.28   5.49  $827,500 
Vested and Exercisable at June 30, 2020  1,242,500   1.96   5.40   441,250 
Available for grant at June 30, 2020  14,970,194             

 

On January 2, 2020, the Company granted Alan L. Rubino, the Company’s President and Chief Executive Officer, an option to purchase up to 620,571 shares of the Company’s common stock at an exercise price of $3.23. The option was granted in fulfillment of the Company’s obligation under the terms of Mr. Rubino’s employment agreement dated November 15, 2019. On May 22, 2020, the Board of Directors approved the modification of these 620,571 options to accelerate the vesting from November 14, 2023 to November 14, 2022. The Company calculated the fair value of the options immediately before and after the modification using the Black-Scholes model. There was no incremental consideration due to the modification.

 

On May 22, 2020, the Company granted options to two consultants and a board member to purchase an aggregate 1,550,000 shares of the Company’s common stock at an exercise price of $1.40. On June 1, 2020, pursuant to his employment agreement, the Company granted Dr. Robin Robinson, the Company’s Chief Scientific Officer, an option to purchase up to 200,000 shares of the Company’s common stock at an exercise price of $1.65. On June 22, 2020, pursuant to his employment agreement, the Company granted Robert Cook, the Company’s Chief Financial Officer, an option to purchase up to 100,000 shares of the Company’s common stock at an exercise price of $1.96. The fair value of the options was estimated at the date of grant using the Black-Scholes option pricing model. Assumptions regarding volatility, expected term, dividend yield and risk-free interest rate are required under the Black-Scholes model. The volatility assumption is based on the Company’s historical experience. The risk-free interest rate is based on a U.S. Treasury note with maturity similar to the option award’s expected life. The expected life represents the average period of time that options granted are expected to be outstanding.

 

The assumptions for volatility, expected life, dividend yield and risk-free interest rate for the options granted are as follows:

 

  Six Months Ended
  June 30, 2020
Risk-free interest rate 0.34%-1.67%
Expected life in years 3.25-4.98
Expected Volatility 105.71%-106.88%
Expected dividend yield  0% 

 

 

 8 

 

 

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 and six months ended June 30, 2020, the Company recognized $465,763 and $2,052,285, respectively, in stock-based compensation. During each of the three and six months ended June 30, 2019, the Company recognized $832 in stock-based compensation. As of June 30, 2020, the Company’s unrecognized compensation cost related to unvested stock options was $2,919,698 to be amortized through 2022. Stock-based compensation has been included in the consolidated statement of operations as follows:

 

  Three Months Ended Six Months Ended
  June 30, June 30,
  2020 2019 2020 2019
Research and development $631,876  $-  $631,876  $- 
General and administrative  954,646   832   1,420,409   832 
Total $1,586,522  $832  $2,052,285  $832 

 

The following table summarizes information about stock options outstanding and exercisable at June 30, 2020:

 

  Stock Options Outstanding Stock Options Exercisable
Range of Exercise Prices Number of Shares Subject to Outstanding Options Weighted Average Contractual Life (years) Weighted Average Exercise Price Number of Shares Subject to Options Exercise Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price
 1.05   55,000   4.00   1.05   55,000   3.75   1.05 
 1.25   7,500   5.21   1.25   7,500   4.96   1.25 
 1.34   7,500   5.25   1.34   7,500   5.00   1.34 
 1.40   1,550,000   5.90   1.40   775,000   5.90   1.40 
 1.65   200,000   5.92   1.65   100,000   5.92   1.65 
 1.70   7,500   5.54   1.70   7,500   5.29   1.70 
 1.96   100,000   5.98   1.96   50,000   5.98   1.96 
 2.28   7,500   6.30   2.28   7,500   6.05   2.28 
 4.20   232,500   4.03   4.20   232,500   4.03   4.20 
 1.98   667,800   5.63   1.98   -   -   - 
 2.48   667,800   5.63   2.48   -   -   - 
 3.23   664,400   5.63   3.23   -   -   - 
 3.23   620,571   5.76   3.23   -   -   - 
 Total   4,788,071   5.49  $2.28   1,242,500   5.40  $1.96 

 

Note 6. Leases

 

The Company determines if an arrangement is a lease, or contains a lease, at the inception of an arrangement. If the Company determines that the arrangement is a lease, or contains a lease, at lease inception, it then determines whether the lease is an operating lease or finance lease. Operating and finance leases result in recording a right-of-use (“ROU”) asset and lease liability on the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. For purposes of calculating operating lease ROU assets and operating lease liabilities, the Company uses the non-cancellable lease term plus options to extend that it is reasonably certain to exercise. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The Company’s leases generally do not provide an implicit rate. As such, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company has elected not to recognize ROU assets and lease liabilities that arise from short-term (12 months or less) leases for any class of underlying asset. The Company has elected not to separate lease and non-lease components for any class of underlying asset.

 

In February of 2020, the Company entered into a two-year lease for office premises located at 4 Becker Farm Road, Suite 105, Roseland, New Jersey. Monthly base rent in year one of the lease is $3,998; and $4,100 in year 2 of the lease. The term (and payment of the monthly rent) commences upon substantial completion of the landlord’s work, which was expected to occur on or before May 31, 2020. Due to the COVID-19 pandemic the landlord’s work has not been completed as of the date these condensed interim financial statements have been released. During the period of the landlord’s work, the Company does not have the right of use of the office premise; accordingly, the Company has not recognized a ROU asset and lease liability as of June 30, 2020.

 

 

 9 

 

 

Note 7. Commitments and Contingencies

 

In connection with the Company’s anticipated regulatory filings, the Company has engaged StemCell Systems GmbH (“StemCell Systems”) to provide it with prototypes and related documents under various agreements. Pursuant to these engagements the Company incurred expenses of $122,312 and $198,772 in during the three and six months ended June 30, 2020 and, $85,175 and $161,775 during the three and six months ended June 30, 2019, respectively. Dr. Gerlach, from whom the Company purchased the CellMistTM System and SkinGunTM technologies, is a principal of StemCell Systems.

 

On June 3, 2019, the Company entered into a Charitable Gift Agreement with the University of Pittsburgh (“University”), pursuant to which the Company committed to provide a charitable donation to the University in the agreement amount of $250,000 (the “Grant”). The Company paid the Grant in four installments with the first payment made in July 2019. During the three and six months ended June 30, 2020 the Company made payments totaling $0 and $62,500, respectively. During each of the three and six months ended June 30, 2019 the Company made payments totaling $62,500. At June 30, 2020, the balance remaining under this gift was $62,500 which has been included in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets. Subsequent to the quarter ending June 30, 2020 the Company paid $62,500 fulfilling its obligation under the Grant. Dr. Gerlach, from whom the Company purchased the CellMistTM System and SkinGunTM technology, is a professor at the University.

 

See also “Note 8. Related Party Transactions.”

 

Note 8. Related Party Transactions

 

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 Company paid the Grant in four installments with the first payment made in July 2019. During the six months ended June 30, 2020, the Company made the third of four payments totaling $62,500 and made the final payment of $62,500 in July 2020. Dr. Gerlach, from whom the Company purchased the CellMistTM System and SkinGunTM technology, is a professor at the University.

 

During the three months ended June 30, 2020, Talia Jevan Properties, Inc. made a payment of $5,287 to Stephen Yan-Klassen, former CFO, for his salary on behalf of the Company. Talia Jevan Properties, Inc. is a related party of Harmel Rayat, Chairman of the Board. The total compensation Talia Jevan Properties, Inc. made to Stephen Yan-Klassen during the three and six months ended June 30, 2020 was $5,287 and $10,811, respectively.

 

 

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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 its ongoing research, development and eventual commercialization of its Regeneration Technology. 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”) pursuant to which Mr. Bhogal served 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. During each of the three months ended June 30, 2020 and 2019, the Company recognized expenses of $30,000 and $60,000 during each of the six months ended June 30, 2020 and 2019 for consulting services provided by VAM. Jatinder Bhogal resigned as the Company’s COO effective June 30, 2020.

 

Kalen Capital Corp (“KCC”) is wholly owned by Mr. Harmel Rayat, the Chairman of the Board. On April 1, 2020 KCC provided a short-term advance of $50,000 to the Company. The short-term advance was repaid by the Company to KCC subsequent to June 30, 2020.

 

Note 9. Subsequent Events

 

Research and Development Agreement

 

The Company and StemCell Systems GmbH (“SCS”), entered into a Strategic R&D Agreement dated July 1, 2020 (the “Strategic Agreement”) having an initial term of three years with successive one-year extensions unless earlier terminated. The Strategic Agreement includes a $25,000 monthly fee to paid to SCS along with any additional expenses incurred.

 

The Company, SCS, and certain affiliates of SCS entered into a non-binding memorandum of understanding dated July 1, 2020 (the “MOU”) which was subject to execution and delivery of a definitive agreement on or before July 31, 2020 relating to among other things, certain rights of first refusal and first offer pertaining to SCS Inventions and Ownership Interests as defined in the MOU. On July 29, 2020, the Company and SCS entered into a Right of First Refusal and Corporate Opportunities Agreement (the “ROFR Agreement”). Pursuant to this ROFR Agreement, (i) in the event an SCS Stockholder receives an offer from a third party to acquire the SCS Stockholder’s SCS ownership interest, the Company shall have ten business days to purchase such ownership interest, and (ii) if during the term of the Strategic Agreement, any SCS 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 SCS, the Company shall have the first option to negotiate mutually agreeable terms for the Company’s acquisition or licensing of the SCS Inventions.

 

In consideration of entering into the ROFR Agreement, SCS was granted an option to purchase up to 999,999 shares of the Company’s common stock. The option grant will vest as follows: (i) 99,999 on July 29, 2020, (ii) 900,000 in equal monthly installments beginning on August 31, 2020. Concurrent with the option grant, SCS assigned and transferred its rights in the options to Dr. Jörg Gerlach, MD, PhD.

 

New Board Member

 

On August 1, 2020, the Company appointed Lydia M. Evans, M.D. to its Board of Directors. In connection with the appointment, Dr. Evans was granted an option to purchase up to 20,000 shares of the Company’s common stock at an exercise price of $3.00 per share. 10,000 of the options vest immediately with the balance vesting August 3, 2021.

 

Related Party Advance Repayment

 

Subsequent to the period ended June 30, 2020, the Company repaid a $50,000 short-term advance from Kalen Capital Corp, a wholly owned corporation of Mr. Harmel Rayat, the Chairman of the Board.

 

Management has reviewed material events subsequent of the period ended June 30, 2020, and prior to the filing of financial statements in accordance with FASB ASC 855 “Subsequent Events”.

 

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

 

Forward-Looking Statements

 

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 consolidated financial statements and related notes. The discussion and analysis of the financial condition and results of operations are based upon the unaudited interim 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.

 

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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.

 

Overview

 

RenovaCare, Inc. (formerly Janus Resources, 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 June 30, 2020, and 10,000,000 shares of $0.0001 par value preferred stock, of which none are outstanding.

 

On January 7, 2014, we filed a Certificate of Amendment to Articles of Incorporation changing our name from “Janus Resources, Inc.” to “RenovaCare, Inc.” so as to more fully reflect our operations. The Financial Industry Regulatory Authority (“FINRA”) declared the name change effective as of January 9, 2014. In conjunction with the name change, we changed our stock symbol on the OTCQB from “JANI” to “RCAR”.

 

Our principal executive offices are located at 4 Becker Farm Road, Suite 105, Roseland, NJ 07068. 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 CellMist™ System which is comprised of (a) a treatment methodology for cell isolation for the regeneration of human skin cells (the “CellMist™ Solution”) and (b) a solution sprayer device (the (SkinGun™”) for delivering cells to the treatment area. Along with US patent applications that were granted in November 2016 (Patent No. US 9,505,000), and April 2017 (Patent No. 9,610,430) and, most recently, in August 2019 (Patent No. 10,376,658). The Company has filed additional patent applications related to the CellMist™ System and other technologies.

 

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.

 

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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, and can reduce the size of the donor site and significantly decrease scarring. Furthermore, we believe the CellMistTM System could enable treatment of other skin disorders with minimal scarring.

 

In August 2020, the Company announced that the US Food and Drug Administration (“FDA”) conditionally approved the Company’s Investigational Device Exemption (IDE) application to conduct a clinical trial to evaluate the safety and feasibility of autologous stem cells rendered by its CellMist™ System from donor skin and applied topically with the SkinGun™ spray device for treatment of burn wounds. The clinical trial protocol is for an open-label single-arm clinical study that will enroll 14 human burn subjects with partial-thickness second- or- third degree thermal burn wounds. The Company expects to conduct the clinical study at multiple U.S. burn centers.

 

Our Mission and Strategy

 

Our ultimate goal is to leverage the potential of our CellMistTM System, 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, scientific, and/or commercial partners;

 

 ·creating a network of clinical research partners;

 

 ·achieving FDA and/or other regulatory clearance; and

 

 ·expanding the range of possible clinical applications.

 

We believe that we now have an experienced leadership team which has come together to achieve our mission of improving the lives of burn patients by creating potentially more effective, safer and tolerable treatments. To achieve our goal, we have established the following strategic priorities:

 

 ·Obtain regulatory approval and prepare to commercialize our CellMistTM System.

 

We intend to continue to pursue our efforts to secure regulatory (FDA) approval in 2020, and if ultimately approved, commence our feasibility study in the United States.

 

 ·Selectively pursue strategic partnership, join venture, and licensing opportunities to complement our existing operations.

 

We intend to continue to pursue strategic licensing, partnership, and joint venture opportunities. We will continue to target opportunities that will complement our existing technology and operations to create value for stockholders and support our business strategy and mission.

 

 ·Secure additional financing as and when required.

 

Additionally, we will need to pursue financing opportunities, traditional and non-dilutive, and if available on acceptable terms, if at all, in order to raise sufficient capital to fund our ongoing research and development operations in order to expand the range of possible clinical applications of our CellMistTM System.

 

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Our Market Opportunity

 

We believe that expedited healing is urgently needed for patients suffering from burns, chronic wounds, acute wounds and scars. In the U.S. alone, this $45 billion market is greater than spending on high-blood pressure management, cholesterol treatments, and back pain therapeutics.

 

Burns

 

Burns are one of the most common and devastating forms of trauma. 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.

 

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 180,000 people worldwide die from burn related injuries (see World Health Organization “Burns: Fact Sheet No. 365,” reviewed March 6, 2018, 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 128 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).

 

According to the Agency for Healthcare Research and Quality, the annual costs for the treatment of burns is $1.5 billion, with another $5 billion in costs associated with lost work (see http://www.hcup-us.ahrq.gov/reports/statbriefs/sb217-Burn-Hospital-Stays-ED-Visits-2013.pdf). 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).

 

Wounds

 

According to The Wall Street Journal, 6.5 million people are affected by chronic wounds, and $25 billion is spent annually on treating chronic wounds on patients in the U.S. alone (see Järbrink, Krister et al. “Prevalence and incidence of chronic wounds and related complications: a protocol for a systematic review.” Systematic reviews vol. 5,1 152. 8 Sep. 2016 doi:10.1186/s13643-016-0329-y).

 

 

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The Wound Care Market Global Forecast to 2024 report issued by Markets& Markets states that in 2019, advanced wound care products accounted for the largest market share and is expected to have the highest growth projected at a compound annual growth rate of 4.6% to 2024. Major factors driving the growth of this market of hard-to-heal wounds are an increase in an aging population and greater prevalence of chronic disease, including diabetes and obesity. The development of regenerative medicine and healing capabilities allow for more effective treatment, quicker healing and improved health economic outcomes.

 

The healthcare facilities (hospitals and clinics) segment accounted for the largest market share in 2019 as these systems are used for critical cases, improve quality of care for patients, and have the infrastructure and resources to support treatment.

 

Our Technology

 

Our CellMist System is comprised of the CellMistTM solution, a liquid suspension of a patient’s own skin cells, and our proprietary SkinGunTM sprays isolated stem cells and related skin cells from a small biopsy of the patient's skin. The stem cells are placed into the CellMistTM solution, which is then filled into a sterile syringe. The sterile 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 skin 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 other skin replacement technologies. During recovery, the skin cells grow into fully functional layers of the skin and the regenerated skin leaves minimal scarring in observational patient treatment. Additionally, our methods require substantially smaller donor areas than skin grafting, reducing donor area burden such as pain and the risk of complications.

 

In August 2019, the Company was awarded a continuation of Patent No. US 9,505,000 (Patent No. US 10,376,658), allowing the SkinGunTM to be used to spray all varieties of tissues and cells, thus opening the door for its potential application in the regeneration of tissues and organs, beyond skin.

 

The CellMistTM System remains an experimental, unproven methodology and we continue to evaluate its safety and efficacy. There is no guarantee that we will able to develop a commercially viable product based upon the CellMistTM System and its underlying technology.

 

 

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Competition

 

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.

 

Many of our competitors are larger, 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.

 

Intellectual Property

 

General

 

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 describe above, 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.

 

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Operations

 

We expect to be engaged in research and development activities for the foreseeable future.

 

Results of Operations

 

Three Months Ended June 30, 2020 Compared with the Three Months Ended June 30, 2019

 

Operating Expenses

 

A summary of our operating expenses for the three months ended June 30, 2020 and 2019 follows:

 

  Three Months Ended June 30, Increase / Percentage
  2020 2019 (Decrease) Change
Operating expenses                
Research and development $1,347,005  $179,193  $1,167,812   652%
General and administrative  1,697,476   464,335   1,233,141   266%
Total operating expenses $3,044,481  $643,528  $2,400,953   373%

 

Research and Development

 

Research and development costs relate to the development of our CellMistTM System. Our business model is dependent upon our company continuing to conduct a significant amount of research and development. Our research and development costs consist primarily of expenses incurred under agreements for preclinical support to our regulatory submissions including manufacturing of our clinical trial supplies, consultants that assist in research and development activities and employee-related expenses, which include salaries and benefits, and non-cash share-based compensation.

 

We make payments to consultants based on agreed upon terms that may include payments in advance of preclinical support. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Advance payments to be expensed in future research and development activities are capitalized, and were $150,050 at June 30, 2020 and $0 at December 31, 2019. Research and development expenditures will continue to be significant as we continue development of our CellMistTM System.

 

Research and development costs for the three months ended June 30, 2020 increased $1,167,812, or 652%, to $1,347,005, compared with $179,193 for the three months ended June 30, 2019. Research of development costs increased as a result of a scale up of our manufacturing activities for clinical trial support and employee-related expenses. Costs related to the scale up of our manufacturing activities for clinical trial support increased approximately $485,000 during the three months ended June 30, 2020 compared to the three months ended June 30, 2019. Employee-related expenses increased approximately $680,000 during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to the additions of the Company’s new Chief Scientific Officer and Chief Medical Officer. Included in the $680,000 increase is share-based compensation of approximately $632,000 to the Company’s new Chief Scientific Officer pursuant to his employment agreement.

 

General and Administrative

 

General and administrative costs for the three months June 30, 2020 increased $1,233,141 or 266%, to $1,697,476, compared with $464,335 for the three months ended June 30, 2019. General and administrative costs include employee-related expenses, which include salaries and benefits, and non-cash share-based compensation, professional fees for legal, accounting and consulting and other general operating expenses. Employee-related expenses increased approximately $1,012,000, including share-based compensation in the amount of approximately $955,000, during the three months ended June 30, 2020 compared to the three months ended June 30, 2019. The increase is primarily attributable to the addition of our new Chief Executive Officer in November 2019 and stock option grants to employees and consultants. Professional fees increased approximately $165,000 during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due to increased costs related to corporate compliance and governance matters. Other general operating expenses increased approximately $61,000 during the three months ended June 30, 2020 compared to the three months ended June 30, 2020 due primarily to increased insurance costs.

 

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Other Income

 

Other income relates to interest earned on bank account deposits. Other income decreased approximately $63,000 to approximately $32,900 for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due to due a lower average cash balance during the three months ended June 30, 2020 compared June 30, 2019 and lower rates being earned on deposits.

 

Six Months Ended June 30, 2020 Compared with the Six Months Ended June 30, 2019

 

  Six Months Ended June 30, Increase / Percentage
  2020 2019 (Decrease) Change
Operating expenses                
Research and development $1,539,778  $373,702  $1,166,076   312%
General and administrative  2,733,042   873,797   1,859,245   213%
Total operating expenses $4,272,820  $1,247,499  $3,025,231   243%

 

Research and Development

 

Research and development costs relate to the development of our CellMistTM System. Our business model is dependent upon our company continuing to conduct a significant amount of research and development. Our research and development costs consist primarily of expenses incurred under agreements for preclinical support to our regulatory submissions including manufacturing of our clinical trial supplies, consultants that assist in research and development activities and employee-related expenses, which include salaries and benefits, and non-cash share-based compensation.

 

We make payments to consultants based on agreed upon terms that may include payments in advance of preclinical support. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Advance payments to be expensed in future research and development activities are capitalized, and were $150,050 at June 30, 2020 and $0 at December 31, 2019. Research and development expenditures will continue to be significant as we continue development of our CellMistTM System.

 

Research and development costs for the six months ended June 30, 2020 increased $1,166,076, or 312%, to $1,539,778, compared with $373,702 for the six months ended June 30, 2019. Research of development costs increased as a result of a scale up of our manufacturing activities for clinical trial support and employee-related expenses. Costs related to the scale up of our manufacturing activities for clinical trial support increased approximately $442,000 during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. Employee-related expenses increased approximately $720,000 during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the additions of the Company’s new Chief Scientific Officer and Chief Medical Officer. Included in the $720,000 increase is share-based compensation of approximately $632,000 to the Company’s new Chief Scientific Officer pursuant to his employment agreement.

 

General and Administrative

 

General and administrative costs for the six months June 30, 2020 increased $1,859,245 or 213%, to $2,733,042, compared with $873,797 for the six months ended June 30, 2019. General and administrative costs include employee-related expenses, which include salaries and benefits, and non-cash share-based compensation, professional fees for legal, accounting and consulting and other general operating expenses. Employee-related expenses increased approximately $1,648,000, including share-based compensation in the amount of approximately $1,420,000, during the six months ended June 30, 2020 compared to the three months ended June 30, 2019. The increase is primarily attributable to the addition of our new Chief Executive Officer in November 2019 and stock option grants to employees and consultants. Professional fees increased approximately $77,000 during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due to increased costs related to corporate compliance and governance matters. Other general operating expenses increased approximately $138,000 during the three months ended June 30, 2020 compared to the three months ended June 30, 2020 due primarily to increased insurance costs and the charitable gift agreement with the University of Pittsburgh entered into in June 2019.

 

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Other Income

 

Other income relates to interest earned on bank account deposits. Other income decreased approximately $94,000 to approximately $86,000 for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due to due a lower average cash balance during the six months ended June 30, 2020 compared June 30, 2019 and lower rates being earned on deposits.

 

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 from operations since inception. The Company has incurred operating losses of $4,272,820 and $1,247,499 for the six months ended June 30, 2020 and 2019, respectively. For the three months ended June 30, 2020 and 2019 the Company has incurred operating losses of $3,044,181 and $643,528, 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 June 30, 2020, the Company had $10,258,068 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 $1,919,185 during the six months ended June 30, 2020, compared to net cash used in operating activities of $1,124,942 during the six months ended June 30, 2019. The increase in cash used in operating activities is primarily attributable to our increase in net loss.

 

Cash used in investing activities was $7,995 compared for the six months ended June 30, 2020 compared to $0 for the six months ended June 30, 2019. The increase is due to a payment of a security deposit for our new corporate headquarters located in Roseland, New Jersey.

 

Fair Value of Financial Instruments and Risks

 

The carrying value of cash and cash equivalents, prepaid expenses and accounts payable, approximate their fair value because of the short-term nature of these instruments and their liquidity. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.

 

Off-balance Sheet Arrangements and Contractual Obligations

 

We do not have any off-balance sheet arrangements or contractual obligations at June 30, 2020, and the subsequent period to through the date of this report, that are likely to have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that have not been disclosed in our consolidated financial statements.

 

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Recently Issued 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.

 

Related Party Transactions

 

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 Company paid the Grant in four installments with the first payment made in July 2019. During the six months ended June 30, 2020, the Company made the third of four payments totaling $62,500 and made the final payment of $62,500 in July 2020. Dr. Gerlach, from whom the Company purchased the CellMistTM System and SkinGunTM technology, is a professor at the University.

 

During the three months ended June 30, 2020, Talia Jevan Properties, Inc. made a payment of $5,287   to Stephen Yan-Klassen, former CFO , for his salary on behalf of the Company. Talia Jevan Properties, Inc. is a related party of Harmel Rayat, Chairman of the Board. The total compensation Talia Jevan Properties, Inc. made to Steve Yan-Klassen during the three and six months ended June 30, 2020 was $5,287 and $10,811, respectively.

 

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 its ongoing research, development and eventual commercialization of its Regeneration Technology. 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”) pursuant to which Mr. Bhogal served 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. During the three months ended June 30, 2020 and 2019, the Company recognized expenses of $30,000 and $30,000, respectively, and $60,000 and $60,000 during the six months ended June 30, 2020 and 2019, respectively, for consulting services provided by VAM. Jatinder Bhogal resigned as the Company’s COO as June 30, 2020.

 

Kalen Capital Corp (“KCC”) is wholly owned by Mr. Harmel Rayat, the Chairman of the Board. On April 1, 2020 KCC provided a short-term advance of $50,000 to the Company. The short-term advance was repaid by the Company to KCC subsequent to June 30, 2020.

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined as a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

 

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The Company maintains “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) and 15d-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.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that our internal control over financial reporting was not effective at June 30, 2020 because of the material weaknesses described below.

 

There is inadequate segregation of duties consistent with control objectives. Our Company’s management is comprised of a very small number of individuals resulting in a situation where limitations of segregation of duties exist. In order to remedy this situation, we would need to hire additional staff to provide greater segregation of duties. In addition, management has concluded that there are 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.

 

Changes in Internal Control over Financial Reporting

 

During the period ended June 30, 2020 the company hired additional personnel including a new Chief Financial Officer to work to remediate material weaknesses of our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), or in factors that could materially affect internal controls, during the period ended June 30, 2020.

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

Smaller reporting companies are not required to provide the information required by this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

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Item 6. Exhibits

 

No. Exhibit No.
4.1 Form of Stock Option Agreement dated May 22, 2020 (Incorporated by reference to Form 8-K filed on May 29, 2020).
4.2 Form of Subscription Agreement for Units Dated November 26, 2018 (Incorporated by reference to Form 8-K filed on November 30, 2018)
4.3 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 Employment Agreement dated May 26, 2020 between RenovaCare, Inc. and Robin Robinson (Incorporated by reference to Form 8-K filed on May 29, 2020).
10.2 Amendment to the February 2017 Loan Agreement dated November 26, 2018 (Incorporated by reference to Form 8-K filed on November 30, 2018)
10.3 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)
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.

 

 

 

 

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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: August 13, 2020

By:/s/ Alan L. Rubino 
 Name:Alan L. Rubino 
 Title:Chief Executive Officer 
  (Principal Executive Officer) 

 

Date: August 13, 2020By:/s/ Robert W. Cook 
 Name:Robert W. Cook 
 Title:Chief Financial Officer 
  (Principal Financial Officer and Principal Accounting Officer)

 

 

 

 

 

 

 

 

 

 

 

 

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