NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
Note 1. Basis of Presentation, Organization,
Overview of Operations, Liquidity, Recent Accounting Standards and Earnings (Loss) Per Share
Basis of Presentation
The accompanying unaudited interim consolidated
financial statements of RenovaCare, Inc. and Subsidiary (the “Company”) as of March 31, 2021, and for the three
months ended March 31, 2021 and 2020 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, 2020 included in our Annual Report on Form 10-K filed with the SEC on March
31, 2021.
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 March 31, 2021, results of operations,
stockholders’ equity and cash flows for the three months ended March 31, 2021 and 2020. 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. was incorporated on July
14, 1983 in the State of Utah under the name Far West Gold, Inc., and changed its domicile to Nevada in 1997. On January 7, 2014,
the Company changed its name at the time from “Janus Resources, Inc.” to “RenovaCare, Inc.” so as to more
fully reflect its current operations and business, and changed its trading symbol to “RCAR” effective as of January
9, 2014.
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 March 31, 2021, and 10,000,000
shares of $0.0001 par value preferred stock, of which none are outstanding.
Overview of Operations
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”), along
with associated United States patent applications and two foreign patent applications, all of which have been granted. 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 with our SkinGun™ spray device as a cell
therapy onto wounds including burns to facilitate healing.
In August 2019, the Company was awarded
a continuation of a patent allowing the Company’s novel solution sprayer device (the “SkinGunTM”)
to 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; and, in November 2020, the Company was issued two new patents encompassing
improvements to the SkinGun™, expanding its potential application beyond the surgical setting into the field, and allowing
the use of liquid suspension solutions to include drugs, hormones, and other useful agents.
Improvements in the design and efficiency
of the CellMist™ System including a closed, automated cell isolation device and the SkinGun™ spray device are in development
with StemCell Systems (Berlin, Germany), the Company’s R&D innovation partner. The Company is adapting its core technologies
for possible use in other clinical indications. The Company is also developing the cell isolation and spray gun devices as stand-alone
510 (k)-cleared products for isolation of cells from other tissues and spraying other solutions of medical importance.
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 enlisted the assistance of several Contract Manufacturing Organizations (CMO) to manufacture
clinical supplies including components of the CellMist System™ and the electronic SkinGun™ spray devices in compliance
with FDA’s guidance for current Good Manufacturing Practices (cGMP) and Contract Research Organizations (CRO) to test and
validate the Company’s products and processes and to conduct clinical trials that evaluate initially the safety and feasibility
of an autologous skin cell therapy using the Company’s products to facilitate burn wound healing. These development activities
are subject to significant risks and uncertainties, including possible failure of preclinical and clinical testing. 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 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 financing
when needed be unavailable or prohibitively expensive or 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 joint 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.
Liquidity
As of March 31, 2021, the Company had $5,607,845
of cash on hand and cash equivalents, and working capital of $5,303,836. As a result, 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. There can be no assurance as to the availability or terms upon which such financing
and capital might be available. See “Overview of Operations” above.
Additionally, there is significant uncertainty
relating to the full impact of the COVID-19 pandemic on the Company’s operations and capital requirements. Should financing
when needed be unavailable or prohibitively expensive or 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 the operation of clinical study
sites and testing laboratories; (v) delay, limit or preclude the Company from achieving technology or product development goals,
milestones, or objectives; and (vi) preclude or delay entry into joint 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.
Recent Accounting Standards
Any reference in these notes to applicable
accounting guidance is meant to refer to the authoritative non-governmental US GAAP as found in the Financial Accounting Standards
Board's Accounting Standards Codification.
The Company reviews new accounting standards
as issued. Although some of these accounting standards issued or effective after the end of the Company’s previous fiscal
year may be applicable, the Company has not identified any standards that the Company believes merit further discussion other than
as discussed above. The Company believes that none of the new standards will have a significant impact on the financial statements.
Earnings (Loss) Per Share
The Company presents both basic and diluted
earnings per share ("EPS") amounts. Basic EPS is calculated by dividing net income (loss) by the weighted average number
of common shares outstanding during the period presented. Diluted EPS amounts are based upon the weighted average number of common
and common equivalent shares outstanding during the period presented. The Company has not included the effects of warrants, stock
options and convertible debt on net loss per share because to do so would be antidilutive.
Following is the computation of basic and
diluted net loss per share for the three months ended March 31, 2021 and 2020:
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
Basic and Diluted EPS Computation
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Loss available to common stockholders'
|
|
$
|
(517,242
|
)
|
|
$
|
(1,174,753
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
87,352,364
|
|
|
|
87,352,364
|
|
Basic and diluted EPS
|
|
$
|
(0.01
|
)
|
|
$
|
(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
|
|
|
3,164,999
|
|
|
|
2,938,071
|
|
Warrants
|
|
|
12,296,912
|
|
|
|
13,106,912
|
|
Total shares not included in the computation of diluted losses per share
|
|
|
15,461,911
|
|
|
|
16,044,983
|
|
Note 2. 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 as of December 31, 2020 and
2019.
Note 3. Prepaid Expenses
Prepaid expenses consist of the following:
|
|
March 31,
|
|
December 31,
|
|
|
2021
|
|
2020
|
Prepaid insurance
|
|
$
|
-
|
|
|
$
|
54,180
|
|
Prepaid stock options for services
|
|
|
87,001
|
|
|
|
86,999
|
|
Prepaid professional fees
|
|
|
65,000
|
|
|
|
65,000
|
|
Prepaid research and development expense
|
|
|
289,746
|
|
|
|
289,746
|
|
Other prepaid costs
|
|
|
20,424
|
|
|
|
70,350
|
|
Total prepaid expenses
|
|
$
|
462,171
|
|
|
$
|
566,275
|
|
Note 4. Common Stock and Warrants
Common Stock
At March 31, 2021, 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 16,593,266
shares reserved for future issuances 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”) and stockholders on June 20,
2013 and ratified by the Company’s stockholders on November 15, 2013, that provides for the grant of stock options to employees,
directors, officers, and consultants. See “Note 7. Stock Options” for further discussion.
During the three months ended March 31,
2021 and 2020, the Company did not have any common stock transactions.
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 March 31, 2021 and December 31, 2020:
|
|
Shares of Common Stock Issuable
from Warrants Outstanding as of
|
|
Weighted
|
|
|
|
|
March 31,
|
|
December 31,
|
|
Average
|
|
|
Description
|
|
2021
|
|
2020
|
|
Exercise Price
|
|
Expiration
|
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
|
|
|
|
12,296,912
|
|
|
|
|
|
|
|
Note 5. Stock Options
On June 20, 2013, the Company’s Board
adopted the 2013 Long-Term Incentive Plan and on November 15, 2013, a stockholder owning a majority of the Company’s issued
and outstanding stock approved adoption to the 2013 Plan. Pursuant to the terms of the 2013 Plan, an aggregate of 20,000,000 shares
of the Company’s common stock have been reserved for issuance to the Company’s officers, directors, employees and consultants
in order to attract and hire key technical personnel and management. Options granted to employees under the 2013 Plan, including
directors and officers who are employees, may be incentive stock options or non-qualified stock options; options granted to others
under the 2013 Plan are limited to non-qualified stock options. As of March 31, 2021, there were 16,593,266 shares available for
future grants.
The 2013 Plan is administered by the Board
or a committee designated by the Board. Subject to the provisions of the 2013 Plan, the Board has the authority to determine the
officers, employees and consultants to whom options will be granted, the number of shares covered by each option, vesting rights
and the terms and conditions of each option that is granted to them; however, no person may be granted options to purchase more
than 2,000,000 shares in any one fiscal year under the 2013 Plan, and the aggregate fair market value (determined at the time the
option is granted) of the shares with respect to which incentive stock options are exercisable for the first time by an optionee
during any calendar year cannot exceed $100,000. Options granted pursuant to the 2013 Plan are exercisable no later than ten years
after the date of grant.
The exercise price per share of common
stock for options granted under the 2013 Plan is the fair market value of the Company's common stock on the date of grant, using
the closing price of the Company's common stock on the last trading day prior to the date of grant, except for incentive stock
options granted to a holder of ten percent or more of the Company's common stock, for whom the exercise price per share will not
be less than 110% of the fair market value. No option can be granted under the 2013 Plan after June 20, 2023.
The following table summarizes stock option
activity for the three months ended March 31, 2021:
|
|
Number of
Options
|
|
Weighted
Average
Exercise
Price ($)
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
Aggregate
Intrinsic
Value ($)
|
Outstanding at December 31, 2020
|
|
|
5,895,570
|
|
|
|
3.41
|
|
|
|
5.68
|
|
|
|
1,460,507
|
|
Forfeited
|
|
|
(2,730,571
|
)
|
|
|
2.75
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2021
|
|
|
3,164,999
|
|
|
|
2.18
|
|
|
|
5.22
|
|
|
|
2,350,775
|
|
Vested and exercisable at March 31, 2021
|
|
|
1,352,499
|
|
|
|
1.98
|
|
|
|
5.17
|
|
|
|
1,251,775
|
|
The valuation methodology used to determine
the fair value of stock options is the Black-Scholes Model. The Black Scholes Model requires the use of a number of assumptions
including volatility of the stock price, the risk-free interest rate, and the expected term of the stock options. The ranges of
assumptions used in the Black-Scholes Model during the three months ended March 31, 2020 is set forth in the table below:
|
|
Three Months Ended
|
|
|
March 31, 2020
|
Risk-free interest rate
|
|
|
1.67
|
%
|
Expected term in years
|
|
|
4.27
|
|
Weighted Avg. Expected Volatility
|
|
|
107.73
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
The risk-free interest rate assumption
is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the expected
term. Estimated volatility is a measure of the amount by which the stock price is expected to fluctuate
each year during the term of an award. Our calculation of estimated volatility is based on historical stock prices over a period
equal to the term of the awards. The average expected life is based on the contractual terms of the stock option using the simplified
method. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention
to pay cash dividends. Future stock-based compensation may significantly differ based on changes in the fair value of our Common
Stock and our estimates of expected volatility and the other relevant assumptions.
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 months ended March 31, 2021 and 2020:
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
Research and development
|
|
$
|
278,815
|
|
|
$
|
-
|
|
General and administrative
|
|
|
(1,153,575
|
)
|
|
|
465,763
|
|
Total
|
|
$
|
(874,760
|
)
|
|
$
|
465,763
|
|
Three Months Ended March 31, 2021
During our first quarter 2021, certain
individuals resigned from the Company resulting in the forfeiture and cancellation of 2,730,571 options. 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. The expensed recognized for options still in their vesting period totaled
$373,815 ($278,815 in R&D expense and $95,000 in G&A expense).
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 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 $4,356; and $4,459 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
lease term commenced on August 1, 2020.
The Company does not have any finance leases.
Supplemental lease information as of March 31, 2021:
|
|
As of March 31, 2021
|
|
As of December 31, 2020
|
|
|
|
|
|
Operating lease right-of-use asset
|
|
$
|
65,603
|
|
|
$
|
79,462
|
|
|
|
|
|
|
|
|
|
|
Current maturities of operating lease
|
|
$
|
49,943
|
|
|
$
|
51,125
|
|
Non-current operating lease
|
|
|
17,579
|
|
|
|
28,607
|
|
Total operating lease liabilities
|
|
$
|
67,522
|
|
|
$
|
79,732
|
|
|
|
|
|
|
|
|
|
|
Weighted Average remaining lease term (in years):
|
|
|
1.34
|
|
|
|
1.6
|
|
Discount rate:
|
|
|
7.0
|
%
|
|
|
7.0
|
%
|
Supplemental cash flow information for the three months ended
March 31, 2021:
Cash paid for amount included in the measurement of lease liabilities for operating lease
|
|
$
|
13,068
|
|
Right-of-use asset obtained in exchange for lease obligation
|
|
$
|
98,402
|
|
The Company leases office space under a
non-cancellable operating lease expiring in 2022. Future lease payments included in the measurement of lease liabilities on the
balance sheet at March 31, 2021 for future periods are as follows:
Years ending December 31, 2021,
|
|
|
2021 (Remaining)
|
|
$
|
39,720
|
|
2022
|
|
$
|
31,213
|
|
Total future minimum lease payments
|
|
$
|
70,933
|
|
Less imputed interest
|
|
$
|
3,411
|
|
Total
|
|
$
|
67,522
|
|
Note 7. Commitments
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. 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 $27,000 monthly fee to be paid to StemCell Systems
along with any additional expenses incurred. The Company, StemCell Systems and certain affiliates of StemCells 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. Pursuant to these engagements the Company incurred expenses of approximately $120,000 and $76,000 during the three
months ended March 31, 2021 and 2020, respectively.
Note 8. Related Party Transactions
During the three months ended March 31,
2020, Talia Jevan Properties, Inc. made payments totaling $5,287 to Stephen Yan-Klassen, former CFO who resigned in 2020, for his
salary on behalf of the Company. Talia Jevan Properties, Inc. is a related party of Harmel S. Rayat, Chairman of the Board.
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 the Company’s
issued and outstanding shares of common stock, to provide consulting services to the Company through his wholly owned company,
Vector Asset Management, Inc. (“VAMI”). Pursuant to the consulting agreement, VAMI 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 VAMI 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 (the “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, VAMI received compensation of $120,000 per year.
On July 1, 2020 the Company amended the ECA and paid VAMI $4,000 per month through November 30, 2020 and $200 per month thereafter
until May 31, 2021 at which time the agreement will expire. During the three months ended March 31, 2021 and 2020, the Company
recognized expenses of $600 and $30,000 for consulting services provided by VAMI. Jatinder Bhogal resigned as the Company’s
COO effective June 30, 2020.
Note 9. Subsequent Events
Management has reviewed material events
subsequent of the period ended March 31, 2021 and prior to the filing of financial statements in accordance with FASB ASC 855 “Subsequent
Events”.