Item 1. Financial Statements
RENOVACARE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
| |
| |
|
| |
March 31, | |
December 31, |
| |
2022 | |
2021 |
ASSETS | |
(Unaudited) | |
|
Current assets | |
| | | |
| | |
Cash | |
$ | 1,869,865 | | |
$ | 2,849,192 | |
Prepaid expenses | |
| 905,997 | | |
| 533,445 | |
Total current assets | |
| 2,775,862 | | |
| 3,382,637 | |
| |
| | | |
| | |
Equipment, net of accumulated depreciation of $15,275 and $12,952, respectively | |
| 26,949 | | |
| 29,271 | |
Intangible assets | |
| 152,854 | | |
| 152,854 | |
Security Deposit | |
| 7,995 | | |
| 7,995 | |
Right of Use Asset | |
| 15,866 | | |
| 28,630 | |
Other Assets | |
| 28,997 | | |
| 50,747 | |
Total assets | |
$ | 3,008,523 | | |
$ | 3,652,134 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 1,369,851 | | |
$ | 1,274,748 | |
Lease liability - current | |
| 17,578 | | |
| 30,497 | |
Total current liabilities | |
| 1,387,429 | | |
| 1,305,245 | |
Convertible promissory note to related party | |
| 800,000 | | |
| - | |
Interest payable on convertible promissory note to related party | |
| 289 | | |
| - | |
Total liabilities | |
| 2,187,718 | | |
| 1,305,245 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
| |
| | | |
| | |
Stockholders' equity | |
| | | |
| | |
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 March 31, 2022 and December 31, 2021 | |
| 874 | | |
| 874 | |
Additional paid-in capital | |
| 36,787,169 | | |
| 36,585,919 | |
Retained deficit | |
| (35,967,238 | ) | |
| (34,239,904 | ) |
Total stockholders' equity | |
| 820,805 | | |
| 2,346,889 | |
Total liabilities and stockholders' equity | |
$ | 3,008,523 | | |
$ | 3,652,134 | |
(See accompanying notes to unaudited consolidated financial statements)
RENOVACARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| |
| | | |
| | |
| |
Three Months Ended |
| |
March 31, |
| |
2022 | |
2021 |
Revenue | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Research and development | |
| 596,254 | | |
| 1,054,293 | |
General and administrative | |
| 1,146,556 | | |
| (537,044 | ) |
Total operating expenses, net | |
| (1,742,810 | ) | |
| 517,249 | |
Loss from operations | |
| | | |
| (517,249 | ) |
| |
| | | |
| | |
Other income | |
| | | |
| | |
Interest income | |
| 950 | | |
| 7 | |
Other income | |
| 14,815 | | |
| - | |
Interest expense | |
| (289 | ) | |
| - | |
Total other income | |
| 15,476 | | |
| 7 | |
Net loss | |
$ | (1,727,334 | ) | |
$ | (517,242 | ) |
| |
| | | |
| | |
Basic and Diluted Loss per Common Share | |
$ | (0.02 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | |
Weighted average number of common shares outstanding - basic and diluted | |
| 87,352,364 | | |
| 87,352,364 | |
(See accompanying notes to unaudited consolidated financial statements)
RENOVACARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
| |
| | | |
| | | |
| | | |
| | | |
| | |
FOR THE THREE MONTHS ENDED MARCH 31, 2022 | |
Common Stock | |
Additional
Paid-in | |
Retained | |
Total
Stockholders' |
| |
Shares | |
Amount | |
Capital | |
Deficit | |
Equity |
Balance, December 31, 2021 | |
| 87,352,364 | | |
$ | 874 | | |
$ | 36,585,919 | | |
$ | (34,239,904 | ) | |
$ | 2,346,889 | |
Stock based compensation due to common stock purchase options | |
| - | | |
| - | | |
| 201,250 | | |
| - | | |
| 201,250 | |
Net loss for the three months ended March 31, 2022 | |
| - | | |
| - | | |
| - | | |
| (1,727,334 | ) | |
| (1,727,334 | ) |
Balance, March 31, 2022 | |
| 87,352,364 | | |
| 874 | | |
| 36,787,169 | | |
| (35,967,238 | ) | |
| 820,805 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
FOR THE THREE MONTHS ENDED MARCH 31, 2021 | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2020 | |
| 87,352,364 | | |
$ | 874 | | |
$ | 36,846,082 | | |
$ | (29,768,181 | ) | |
$ | 7,078,775 | |
Stock based compensation due to common stock purchase options | |
| - | | |
| - | | |
| 352,063 | | |
| - | | |
| 352,063 | |
Reversal of stock-based compensation due to common stock purchase option cancellations | |
| - | | |
| - | | |
| (1,248,575 | ) | |
| - | | |
| (1,248,575 | ) |
Net loss for the three months ended March 31, 2021 | |
| - | | |
| - | | |
| - | | |
| (517,242 | ) | |
| (517,242 | ) |
Balance, March 31, 2021 | |
| 87,352,364 | | |
| 874 | | |
| 35,949,570 | | |
| (30,285,423 | ) | |
| 5,665,021 | |
(See accompanying notes to unaudited consolidated financial statements)
RENOVACARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| |
| | | |
| | |
| |
Three Months Ended |
| |
March 31, |
| |
2022 | |
2021 |
Cash flows used in operating activities | |
| | | |
| | |
Net loss | |
$ | (1,727,334 | ) | |
$ | (517,242 | ) |
Adjustments to reconcile net loss to net cash flows used in operating activities | |
| | | |
| | |
Depreciation expense | |
| 2,322 | | |
| 2,324 | |
Stock based compensation expense | |
| 223,000 | | |
| (874,760 | ) |
Non cash lease expense | |
| (155 | ) | |
| 1,649 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
(Increase) decrease in prepaid expenses and other assets | |
| (372,552 | ) | |
| 104,104 | |
Increase (decrease) in accounts payable | |
| 95,103 | | |
| (521,199 | ) |
Increase (decrease) in related party interest payable | |
| 289 | | |
| - | |
Net cash flows used in operating activities | |
| (1,779,327 | ) | |
| (1,805,124 | ) |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
Proceeds from the issuance of a related party convertible promissory note | |
| 800,000 | | |
| - | |
Net cash flows from financing activities | |
| 800,000 | | |
| - | |
Decrease in cash | |
| (979,327 | ) | |
| (1,805,124 | ) |
Cash at beginning of period | |
| 2,849,192 | | |
| 7,412,969 | |
Cash at end of period | |
$ | 1,869,865 | | |
$ | 5,607,845 | |
(See accompanying notes to unaudited consolidated financial statements)
RENOVACARE, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation, Organization,
Going Concern, Recent Accounting Standards and Earnings (Loss) Per Share
Basis of Presentation
The accompanying unaudited interim consolidated
financial statements of RenovaCare, Inc. and Subsidiary (“RenovaCare” or the “Company”) as of March 31,
2022, and for the three months ended March 31, 2022 and 2021 have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information
and note disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial
statements. These Consolidated Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements
and Notes thereto for the fiscal year ended December 31, 2021 included in our Annual Report on Form 10-K filed with the SEC on March
30, 2022.
The accompanying unaudited interim Consolidated
Financial Statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that
affect amounts reported in the Consolidated Financial Statements and accompanying disclosures. Actual results may differ from those estimates.
The accompanying unaudited interim consolidated financial statements have been prepared on the same basis as the audited financial statements
and include all adjustments (including normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation
of the Company’s consolidated financial position as of March 31, 2022, results of operations and stockholders’ equity for
the three months ended March 31, 2022 and 2021, and cash flows for the three months ended March 31, 2022 and 2021. The Company did not
record an income tax provision during the periods presented due to net taxable losses. The results of operations for any interim period
are not necessarily indicative of the results of operations for the entire year.
Organization
RenovaCare, Inc., formerly Janus Resources, is
a Nevada corporation. RenovaCare, Inc. was incorporated under the laws of the State of Utah on July 14, 1983 as Far West Gold, Inc.
The Company has an authorized capital of 500,000,000
shares of $0.00001 par value common stock, of which 87,352,364 shares are outstanding as of March 31, 2022, and 10,000,000 shares of $0.0001
par value preferred stock, of which none are outstanding.
RenovaCare, Inc., through its wholly owned subsidiary,
RenovaCare Sciences Corp. is a development-stage company focusing on the research, development and commercialization of autologous (using
a patient’s own cells) cellular therapies that can be used for medical and aesthetic applications.
On July 12, 2013, the Company completed the acquisition
of its flagship technologies (collectively, the “CellMistTM System”). The
CellMist™ System is a cell isolation procedure that enzymatically renders stem cells from the patient’s own skin or other
tissues. The resulting stem cell suspension is administered topically from the Company’s novel solution sprayer device (the
“SkinGunTM”) as a cell therapy onto wounds including burns to facilitate healing.
Currently,
the Company’s proprietary technologies are the subject of forty-four (44) U.S. and foreign granted or pending patents or patent
applications and seventeen (17) U.S. and foreign trademarks. Of the issued patents, five (5) are U.S. patents and seventeen (17) have
issued or are allowed in Australia, Canada, China, Europe, Germany, France, Italy, Japan, Korea, Netherlands, Spain, Switzerland/Liechtenstein,
and the United Kingdom. The Company has six (6) allowed trademarks in the United States, two (2) European registered trademarks,
two (2) United Kingdom trademarks, two (2) Japan trademarks, and two (2) pending in Canada.
The Company does not have any commercialized products.
The Company's activities have consisted principally of performing research and development activities and raising capital to support such
activities. The Company has not generated any revenue and has sustained recurring losses and negative cash flows from operations since
inception. The Company expects to incur losses as it continues development of its products and technologies and will need to raise additional
capital through partnerships or the sale of its securities to accomplish its business plan. Failing to secure such additional funding
before achieving sustainable revenue and profit from operations poses a significant risk. The Company's ability to fund the development
of its cellular therapies depends on the amount and timing of cash receipts from future financing activities. There can be no assurance
as to the availability or terms upon which such financing and capital might be available.
Going Concern
The Company has not generated any revenue since
inception and has sustained recurring losses and negative cash flows from operations since inception. At
March 31, 2022, the Company had approximately $1,870,000 in cash on hand, current liabilities of $1,387,429 and an accumulated deficit
of $35,967,238. The Company has historically funded its operations through the issuance of convertible notes, the sale of common
stock and issuance of warrants.
The Company evaluated whether there are any conditions
and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year
beyond the filing of this Quarterly Report on Form 10-Q. Based on such evaluation and the Company’s current plans, which are subject
to change, management believes that the Company’s existing cash as of March 31, 2022 is insufficient to satisfy its operating cash
needs for the year after the filing of this Quarterly Report on Form 10-Q.
The Company is responsible to bear the costs
to defend itself and its directors and officers, pursuant to the indemnification clause in the Company’s bylaws, against
various Lawsuits (as defined in “Note 7. Commitments and Contingencies—Legal Proceedings” below) currently
consisting of a civil action filed by the SEC and two class actions and three derivative actions. See “Note 7. Commitments and
Contingencies—Legal Proceedings.” The legal costs to defend the Company against the Lawsuits are expected to be
material. During the three months ended March 31, 2022, the Company made legal retainer payments totaling $1,180,000 and incurred
$864,000 in legal costs related to the Lawsuits. To assist the Company in paying the costs to defend against the Lawsuits, Kalen
Capital Corporation, an Alberta Canada corporation (“Kalen Capital”) which is wholly-owned by the Mr. Harmel S.
Rayat (“Mr. Rayat”), the Company’s President, Chief Executive Officer and Chairman, loaned the Company
$800,000 on March 18, 2022, as evidenced by the Unsecured Note (as defined in “Note 3. Related Party Convertible Promissory
Note” below). Due to the nature and early stage of the Lawsuits, the Company is unable to estimate the total costs to defend
itself or the potential costs to the Company in the event that it is not successful in its defense.
The Company has experienced and continues to experience
negative cash flows from operations, as well as an ongoing requirement for substantial additional capital investment. The future of the
Company will depend on its ability to successfully raise capital from external sources. As noted above, management believes that the Company’s
existing cash as of March 31, 2022 are insufficient to satisfy its operating cash needs for the year after the filing of this Quarterly
Report on Form 10-Q. If the Company is unable to maintain sufficient financial resources, its business, financial condition and results
of operations will be materially and adversely affected. This could affect future development and business activities and potential future
product development and/or other future ventures. There can be no assurance that the Company will be able to obtain the needed financing
on acceptable terms or at all. Additionally, equity or convertible debt financings will likely have a dilutive effect on the holdings
of the Company’s existing stockholders. Debt financing may involve agreements that include covenants limiting or restricting the
Company’s ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends,
and may be secured by all or a portion of the Company’s assets.
Accounting Pronouncements
The Company evaluates all Accounting Standards
Updates (ASUs) issued by the Financial Accounting Standards Board (FASB) for consideration of their applicability. ASUs not included in
the Company’s disclosures were assessed and determined to be either not applicable or are not expected to have a material impact
on its Consolidated Financial Statements.
New Accounting Pronouncements Not Yet Adopted
None.
Accounting Pronouncements Recently Adopted
In August 2020, the FASB issued ASU 2020-06, “Debt-Debt
with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40),”
to address the complexity in accounting for certain financial instruments with characteristics of liabilities and equity. Amongst other
provisions, the amendments in this ASU significantly changed the guidance on the issuer’s accounting for convertible instruments
and the guidance on the derivative scope exception for contracts in an entity’s own equity such that fewer conversion features will
require separate recognition, and fewer freestanding instruments, like warrants, will require liability treatment. For smaller reporting
companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal
years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted the new standard
on January 1, 2022, with no impact to its financial statements.
Earnings (Loss) Per Share
The Company presents both basic and diluted earnings
per share ("EPS"). Basic EPS is calculated by dividing net income (loss) by the weighted average number of common shares
outstanding during the period presented. Diluted EPS amounts are based upon the weighted average number of common and common equivalent
shares outstanding during the period presented. The Company has not included the effects of warrants or stock options on net loss per
share because to do so would be antidilutive.
Following is the computation of basic and diluted
net loss per share for the three months ended March 31, 2022 and 2021:
Schedule of computation of basic and diluted net loss per share | |
| | | |
| | |
| |
Three Months Ended |
| |
March 31, |
| |
2022 | |
2021 |
Basic and Diluted EPS Computation | |
| | | |
| | |
Numerator: | |
| | | |
| | |
Loss available to common stockholders' | |
$ | (1,727,334 | ) | |
$ | (517,242 | ) |
Denominator: | |
| | | |
| | |
Weighted average number of common shares outstanding | |
| 87,352,364 | | |
| 87,352,364 | |
Basic and diluted EPS | |
$ | (0.02 | ) | |
$ | (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 | |
| 3,099,999 | | |
| 3,164,999 | |
Warrants | |
| 11,705,250 | | |
| 12,296,912 | |
Total shares not included in the computation of diluted losses per share | |
| 14,805,249 | | |
| 15,461,911 | |
Note 2. Prepaid Expenses
Prepaid expenses and other current assets consist of the following:
Schedule of prepaid expenses and other current assets | |
| | | |
| | |
| |
March 31, | |
December 31, |
| |
2022 | |
2021 |
Prepaid stock options for services | |
| 87,000 | | |
| 87,001 | |
Prepaid professional fees | |
| 626,126 | | |
| 100,930 | |
Prepaid research and development expense | |
| 173,124 | | |
| 289,746 | |
Other prepaid costs | |
| 19,747 | | |
| 13,964 | |
Refunds due | |
| - | | |
| 41,804 | |
Total prepaid expenses | |
$ | 905,997 | | |
$ | 533,445 | |
Note 3. Related Party Convertible Promissory
Note
On March 18,
2022, the Company issued an Unsecured Convertible Promissory Note (the “Unsecured Note”) to Kalen Capital. Pursuant
to the terms of the Unsecured Note, Kalen Capital loaned the Company $800,000 at an annual interest rate of 1% per year, compounded daily.
The Note, including any interest due thereon, may be prepaid at any time without penalty. The Unsecured Note, and any balance thereunder,
automatically converts into securities of the Company upon receipt of an equity financing from third-party(s) of not less than ten million
dollars ($10,000,000) at a conversion price equal to 80% of the price paid in such a financing. Also, after June 23, 2023, Kalen Capital
may convert all or any portion of the balance into shares of common stock at a conversion price of $0.45 per share, representing a fifty
50% percent premium to the closing price of the Company’s common stock on March 17, 2022. There is no commitment from Kalen Capital
for any additional funding.
During the three months ended March 31, 2022, the Company recognized
$289 of interest expense.
Note 4. Accounts Payable and Accrued Liabilities
Accounts payable and accrued expenses consists of the following:
Schedule of accounts payable and accrued expenses | |
| | | |
| | |
| |
March 31, |
| |
2022 | |
2021 |
Legal fees and related | |
$ | 1,176,033 | | |
$ | 869,950 | |
Officer compensation | |
| - | | |
| 55,040 | |
Consultants | |
| 5,679 | | |
| 117,943 | |
Trade payables | |
| 188,139 | | |
| 231,815 | |
Total | |
$ | 1,369,851 | | |
$ | 1,274,748 | |
Note 5. Equity
Common Stock
At March 31, 2022, the Company had 500,000,000
authorized shares of common stock with a par value of $0.00001 per share and 87,352,364 shares of common stock outstanding.
Warrants
The Company has issued warrants to purchase common stock at various exercise prices in connection
with loan agreements and private placements. The following table summarizes information about warrants outstanding at March 31, 2022 and
December 31, 2020:
Schedule of warrants outstanding | |
| | | |
| | | |
| | | |
|
| |
Shares of Common
Stock Issuable from Warrants Outstanding as of | |
Weighted | |
|
| |
March 31, | |
December 31, | |
Average | |
|
Description | |
2022 | |
2021 | |
Exercise Price | |
Expiration |
Series F | |
| - | | |
| 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 | |
| 11,705,250 | | |
| 12,296,912 | | |
| | | |
|
During the three months ended March 31, 2022,
all the Series F Warrants expired unexercised.
Stock Options
The following table summarizes stock option activity
for the three months ended March 31, 2022:
Schedule of stock option activity | |
| | | |
| | | |
| | | |
| | |
| |
Number of
Options | |
Weighted
Average
Exercise
Price ($) | |
Weighted
Average
Remaining
Contractual
Term
(years) | |
Aggregate
Intrinsic
Value ($) |
Outstanding at December 31, 2020 | |
| 5,895,570 | | |
| 2.45 | | |
| | | |
| | |
Granted | |
| 50,000 | | |
| 1.72 | | |
| | | |
| | |
Forfeited | |
| (2,805,571 | ) | |
| 2.74 | | |
| | | |
| | |
Outstanding at September 30, 2021 | |
| 3,139,999 | | |
| 2.17 | | |
| | | |
| | |
Forfeited | |
| (40,000 | ) | |
| 1.79 | | |
| | | |
| | |
Outstanding at March 31, 2022 | |
| 3,099,999 | | |
| 2.17 | | |
| 4.30 | | |
| - | |
Vested and exercisable at March 31, 2022 | |
| 2,699,999 | | |
| 2.02 | | |
| 4.30 | | |
| - | |
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, 2022 and 2021:
Schedule of consolidated statement of operations | |
| | | |
| | |
| |
Three Months Ended March 31, |
| |
2022 | |
2021 |
Research and development | |
$ | 217,500 | | |
$ | 278,815 | |
General and administrative | |
| 5,500 | | |
| (1,153,575 | ) |
Total | |
$ | 223,000 | | |
$ | (874,760 | ) |
Note 6. Leases
In February 2020, the Company entered into a two-year lease for
office premises located at 4 Becker Farm Road, Suite 105, Roseland, New Jersey (the “Premises”). Monthly base rent in year
one of the lease is $4,356; and $4,459 in year 2 of the lease. The term (and payment of the monthly rent) commenced upon completion of
the landlord’s work on August 1, 2020. The Company vacated the premises in May of 2021 and relocated its corporate offices to 9375
E. Shea Blvd., Suite 107-A, Scottsdale, AZ 85260.
The Company’s existing lease is not subject
to any restrictions or covenants which preclude its ability to pay dividends, obtain financing, or enter into additional Lease’s.
As of March 31, 2022, the Company has
not entered into any leases which have not yet commenced which would entitle the Company to significant rights or create additional obligations.
The Company does not have any finance leases.
Supplemental lease information:
Schedule of supplemental lease information | |
| |
|
| |
As of March 31, | |
As of December 31, |
| |
2022 | |
2021 |
Operating lease right-of-use asset | |
$ | 15,866 | | |
$ | 28,630 | |
| |
| | | |
| | |
Current maturities of operating lease | |
$ | 17,578 | | |
$ | 30,497 | |
Current maturities of operating lease in accounts payable | |
| 8,918 | | |
| - | |
Total operating lease liabilities | |
$ | 26,496 | | |
$ | 30,497 | |
| |
| | | |
| | |
| |
| | | |
| | |
Weighted Average remaining lease term (in years): | |
| 0.34 | | |
| 0.58 | |
Right-of-use asset obtained in exchange for lease obligation | |
| - | | |
$ | 98,405 | |
Supplemental information for the three months ended March 31, 2022
and 2021:
| |
2022 | |
2021 |
Cash paid for amount included in the measurement of lease liabilities for operating lease | |
$ | 4,459 | | |
$ | 13,068 | |
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, 2022 for future periods are as follows:
Schedule of future lease payments | |
| | |
2022 | |
| 26,754 | |
Total future minimum lease payments | |
| 26,754 | |
Less imputed interest | |
| (538 | ) |
Total | |
$ | 26,216 | |
Note 7. Commitments and Contingencies
Stem Cell Systems
In connection with the Company’s anticipated
future regulatory filings, the Company has engaged StemCell Systems GmbH (“StemCell Systems”) to provide it with medical
device prototypes and related design documents and data under various agreements. On July 1, 2020, the Company and StemCell Systems entered
into a Strategic R&D Agreement (the “Strategic Agreement”) having an initial term of three years with successive
one-year extensions unless earlier terminated. The Strategic Agreement includes a $39,000 monthly fee to be paid to StemCell Systems along
with any additional expenses incurred. The Company, StemCell Systems and certain affiliates of StemCell Systems entered into a Rights
of First Refusal and Corporate Opportunities Agreement (the “ROFR Agreement”). Pursuant to the ROFR Agreement, (i)
in the event a StemCell Systems stockholder receives an offer from a third party to acquire the StemCell Systems stockholders ownership
interest, the Company shall have ten business days to purchase such ownership, and (ii) if during the terms of the Strategic Agreement,
any StemCell Systems inventions, with respect to skin, burns and wounds, designs, inventions and among other things, whether or not patentable,
copyrightable or otherwise legally protectable are discovered by StemCell Systems, the Company shall have the first option to negotiate
mutually agreeable terms for the Company’s acquisition or licensing of the StemCell Systems inventions. Pursuant to these engagements
the Company incurred expenses of $125,931 and $120,377 during the three months ended March 31, 2022 and 2021, respectively. As of March
31, 2022, the Company had a balance due to StemCell Systems of $83,700. On April 28, 2022 the Company provided StemCell Systems with notice
of termination of the Strategic Agreement. See “Note 8. Subsequent Events.”
Legal Proceedings
SEC Civil Complaint
On May 28, 2021 the SEC filed a civil complaint
(the “SEC Action”), in the United States District Court for the Southern District of New York, naming the Company and
Harmel S. Rayat, the Company’s current President, Chief Executive Officer, Chief Financial Officer and Sole Director as defendants
(the “Defendants”). The SEC Action alleges among other things that Mr. Rayat and the Company with violated the antifraud
provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and also alleges that Mr. Rayat aided and
abetted the violations of those provisions by the Company. The SEC Action also alleges that the Company violated the reporting provisions
of Exchange Act Section 15(d) and Rules 15d-11 and 12b-20 thereunder. The SEC seeks, among other relief, permanent injunctions and civil
penalties against the Defendants, and officer-and-director and penny stock bars against Mr. Rayat. On August 31, 2021 the Defendants filed
an answer to the Complaint. On September 21, 2021, the SEC filed a motion to strike Defendants equitable affirmative defenses which motion
was granted by the court on October 18, 2021. The Company continues to defend itself and the named individuals against the allegations
set forth in the SEC Action. Due to the nature and early stage of the SEC Action, the Company is unable to estimate the total costs to
defend itself or the potential costs to the Company in the event that it is not successful in its defense.
Class Action Complaints
On July 16, 2021, Gabrielle A. Boller filed a
class action lawsuit in the U.S. District Court for the District of New Jersey (the “Boller Lawsuit”), against the
Company and certain past and current officers and members of the Company’s board of directors (collectively, the “Boller
Defendants”). The Boller Lawsuit alleges, among other things, that in connection with the facts and circumstances underlying
the allegations in the SEC Action, the Boller Defendants engaged in fraudulent conduct and made false and misleading statements of material
fact or omitted to state material facts necessary to make the statements made not misleading. The plaintiff seeks a determination that
the Boller Lawsuit is a proper class action, compensatory damages in favor of the plaintiff and other class members, reasonable costs
and expenses incurred in the Boller Lawsuit, including counsel fees and expert fees, and such other relief as the Court may deem proper.
The Company disputes the plaintiffs’ claims
in the Boller Lawsuit and intends to defend these matters vigorously. To that end, the Company has engaged counsel to defend the Boller
Defendants. Given the uncertainty of litigation, the preliminary stage of these cases, the legal standards that must be met for, among
other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss
that may result from these actions.
On July 21, 2021, Michael Solakian, filed a class
action lawsuit in the U.S. District Court for the District of New Jersey (the “Solakian Lawsuit”), against the Company
and certain past and current officers and members of the Company’s board of directors (collectively, the “Solakian Defendants”).
The Solakian Lawsuit alleges, among other things, that in connection with the facts and circumstances underlying the allegations in the
SEC Action, the Solakian Defendants engaged in fraudulent conduct and made false and misleading statements of material fact or omitted
to state material facts necessary to make the statements made not misleading. The plaintiff seeks a determination that the Solakian Lawsuit
is a proper class action, compensatory damages in favor of the plaintiff and other class members, reasonable costs and expenses incurred
in the Solakian Lawsuit, including counsel fees and expert fees, and such other relief as the Court may deem proper.
The Company disputes the plaintiffs’ claims
in the Solakian Lawsuit and intends to defend these matters vigorously. To that end, the Company has engaged counsel to defend the Solakian
Defendants. Given the uncertainty of litigation, the preliminary stage of these cases, the legal standards that must be met for, among
other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss
that may result from these actions.
Shareholder Derivative Complaints
On December 20, 2021, Melvin Emberland (“Emberland”),
derivatively and on behalf of nominal defendant Renovacare, Inc. filed a lawsuit (the “Emberland Lawsuit”) in the United
States District Court for the District of New Jersey against the Company and certain of its current and former executive officers (the
“Emberland Defendants”). In the complaint, Emberland’s allegations, relating to the facts and circumstances underlying
the allegations in the SEC Action include, but are not limited to (i) breach of fiduciary duties by the individual Emberland Defendants,
(ii) unjust enrichment and (iii) violation of Section 10(b) and 21D of the Securities Exchange Act of 1934. Emberland did not quantify
any alleged damages in his complaint but, in addition to attorneys’ fees and costs, Emberland seeks (i) a declaration that the Emberland
Defendants have breached and/or aided and abetted the breach of their fiduciary duties to the Company, (ii) a determination awarding to
the Company restitution from the Meyer Defendants, and each of them, and ordering disgorgement of all profits, benefits and other compensation
obtained by the Emberland Defendants, (iii) a directive to the Company and the Emberland Defendants to take all necessary actions to reform
and improve the Company’s corporate governance and internal procedures to comply with applicable laws, and (iv) Plaintiff is seeking,
among other things, restitution from the individual Emberland Defendants and disgorgement of profits, benefits and other compensation
obtained by such Emberland Defendants, costs and disbursements of the action including reasonable attorney’s fees, accountants’
and expert fees and expenses, an order directing the taking of certain corporate actions relating to its board of directors and corporate
governance.
The Company disputes Emberland’s claims
and intends to defend these matters vigorously. To that end, the Company has engaged counsel to defend the Emberland Defendants. Given
the uncertainty of litigation, the preliminary stage of the Emberland Lawsuit, the legal standards that must be met for success on the
merits, the Company cannot estimate the reasonably possible loss or range of loss that may result from these actions.
On January 6, 2022, Zoser Vargas (“Vargas”),
derivatively and on behalf of nominal defendant Renovacare, Inc. filed a lawsuit (the “Vargas Lawsuit”) in the United
States District Court for the District of New Jersey against the Company and certain of its current and former executive officers (the
“Vargas Defendants”). In the complaint Vargas’ allegations relating to the facts and circumstances underlying
the allegations in the SEC Action include but are not limited to, (i) breach of fiduciary duties, (ii) waste of corporate assets, (iii)
violation of law, and (iii) unjust enrichment. Vargas did not quantify any alleged damages in his complaint but, in addition to attorneys’
fees and costs, Meyer seeks, in addition to other things, (i) against the Vargas Defendants and in favor of the Company the amount of
damages sustained by the Company as a result of the Vargas Defendants’ breaches of fiduciary duties, waste of corporate assets and
unjust enrichment, (ii) directive for the Company to take all necessary actions to improve its corporate governance and internal procedures
to comply with applicable law and (iii) awarding to the Company restitution from the Vargas Defendants, and each of them, and ordering
disgorgement of all profits, benefits and other compensation obtained by the Vargas Defendants.
The Company disputes Vargas’ claims and
intends to defend these matters vigorously. To that end, the Company has engaged counsel to defend the Vargas Defendants. Given the uncertainty
of litigation, the preliminary stage of these cases, the legal standards that must be met for success on the merits, the Company cannot
estimate the reasonably possible loss or range of loss that may result from these actions.
On January 28, 2022, Aviva Meyer (“Meyer”),
derivatively and on behalf of nominal defendant Renovacare, Inc. filed a lawsuit (the “Meyer Lawsuit”) in the United
States District Court for the District of New Jersey against the Company and certain of its current and former executive officers (the
“Meyer Defendants”). In the complaint Meyer’s allegations relating to the facts and circumstances underlying
the allegations in the SEC Action include but are not limited to, (i) breach of fiduciary duties, (ii) waste of corporate assets, (iii)
violation of law, and (iii) unjust enrichment. Vargas did not quantify any alleged damages in his complaint but, in addition to attorneys’
fees and costs, Meyer seeks, in addition to other things, (i) against the Vargas Defendants and in favor of the Company the amount
of damages sustained by the Company as a result of the Vargas Defendants’ breaches of fiduciary duties, waste of corporate
assets and unjust enrichment, (ii) directive for the Company to take all necessary actions to improve its corporate governance and internal
procedures to comply with applicable law and (iii) awarding to the Company restitution from the Meyer Defendants, and each of them, and
ordering disgorgement of all profits, benefits and other compensation obtained by the Meyer Defendants.
The Company disputes Meyer’s claims and
intends to defend these matters vigorously. To that end, the Company has engaged counsel to defend the Meyer Defendants Given the uncertainty
of litigation, the preliminary stage of these cases, the legal standards that must be met for success on the merits, the Company cannot
estimate the reasonably possible loss or range of loss that may result from these actions.
The Company believes that the claims
asserted in the SEC Action, the Boller Lawsuit, the Solakian Lawsuit, the Emberland Lawsuit, the Vargas Lawsuit, and the Meyer Lawsuit
(collectively, the “Lawsuits”) are without merit and intends to vigorously defend each Lawsuit.
Note 8. Subsequent Events
Management has reviewed material events subsequent
of the period ended March 31, 2022 and prior to the filing of financial statements in accordance with FASB ASC 855 “Subsequent Events”.
On April 21, 2022, the Company made retainer payments
to its attorneys in the amount of $1,180,000.
On April 28, 2022, the Company terminated the Strategic Agreement with
StemCell Systems.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Cautionary Note Regarding Forward-Looking Statements
This discussion and analysis of financial
condition and results of operations is based upon and should be read in conjunction with the unaudited interim consolidated financial
statements of RenovaCare, Inc. (“RenovaCare”) and its wholly-owned subsidiary (collectively with RenovaCare, “we,”
“our,” “us,” or the “Company”), appearing elsewhere in this Quarterly Report on Form 10-Q, which have
been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements
in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date and
reported amounts of revenue and expenses during the reporting period. On an on-going basis the Company reviews its estimates and assumptions.
The estimates were based on historical experience and other assumptions that the Company believes to be reasonable under the circumstances.
Actual results are likely to differ from those estimates under different assumptions or conditions, but we do not believe such differences
will materially affect our financial position or results of operations. Critical accounting policies, the policies the Company believes
are most important to the presentation of its financial statements and require the most difficult, subjective and complex judgments, are
outlined below in “Critical Accounting Policies,” and have not changed significantly since 2020.
This Quarterly Report on Form 10-Q
also contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, as well as information relating to the Company that is based on management's
exercise of business judgment and assumptions made by and information currently available to management. Although forward-looking statements
in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and
factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results
and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. When used
in this document and other documents, releases and reports released by us, the words “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “the facts suggest” and words of similar import, are intended
to identify any forward-looking statements. You should not place undue reliance on these forward-looking statements. These statements
reflect our current view of future events and are subject to certain risks and uncertainties as noted below. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from
those anticipated in these forward-looking statements. Actual events, transactions and results may materially differ from the anticipated
events, transactions or results described in such statements. Although we believe that our expectations are based on reasonable assumptions,
we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our
forward-looking statements and unknown, unidentified or unpredictable factors could materially and adversely impact our future results.
We undertake no obligation and do not intend to update, revise or otherwise publicly release any revisions to our forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events. Several of these factors
include, without limitation:
|
· |
our 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; |
|
· |
results of our clinical trials; |
|
· |
failure of our products to gain market acceptance; |
|
· |
the cost and success of our development programs; |
|
· |
our failure to obtain financing as, if and when needed, on commercially acceptable terms; |
|
· |
our failure to attract and retain qualified personnel; |
|
· |
our failure to adequately manage our growth and expansion; |
|
· |
the effect on us from adverse publicity related to our products or the Company itself; and |
|
· |
our failure to defend against any adverse claims relating to our intellectual property. |
The safe harbor provisions of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, apply to forward-looking
statements made by us. The reader is cautioned that no statements contained in this Form 10-Q should be construed as a guarantee or assurance
of future performance or results. Actual events or results may differ materially from those discussed in forward-looking statements as
a result of various factors, including, without limitation, the risks described in this report and matters described in this report generally.
In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will
in fact occur.
Overview
We are a development-stage biotechnology and medical
device company focusing on the research, development and commercialization of autologous (using a patient's own cells) cellular therapies
that can be used for medical and aesthetic applications. The Company does not have any commercialized products. The Company's activities
have consisted principally of performing research and development activities, business development efforts, and raising capital to support
such activities.
The Company, through its wholly owned subsidiary,
RenovaCare Sciences Corp., owns the CellMist™ System which is a cell isolation procedure that enzymatically
renders stem cells from the patient’s own skin or other tissues. The resulting stem cell suspension is administered topically with
our SkinGun™ spray device as a cell therapy onto wounds including burns to facilitate healing. The CellMist™ System
also includes our unique, closed, automated cell isolation device (the “CID”) to harvest stem cells from tissues which
is in prototype development.
Currently,
our proprietary technologies are the subject of forty-four (44) U.S. and foreign granted or pending patents or patent applications and
seventeen (17) U.S. and foreign trademarks. Of the issued patents, five (5) are U.S. patents and seventeen (17) have issued or are allowed
in Australia, Canada, China, Europe, Germany, France, Italy, Japan, Korea, Netherlands, Spain, Switzerland/Lichtenstein, and the United
Kingdom. The Company has six (6) allowed trademarks in the United States, two (2) European registered trademarks, two (2) United
Kingdom trademarks, two (2) Japan trademarks, and two (2) pending in Canada.
In May 2021, the Company announced that the US
Food and Drug Administration (FDA) fully approved the Company’s Investigational Device Exemption (IDE) application to conduct a
clinical trial, designated CELLMIST 1, designed to evaluate the safety and feasibility of autologous skin and pluripotent stem cells rendered
by its manual CellMist™ System from donor skin and applied topically with the electronic SkinGun™ spray device for treatment
of acute burn wounds. The clinical trial protocol is an open-label, single-arm clinical study designated to enroll 14 adult human burn
subjects with partial-thickness, second-degree deep thermal burn wounds covering between 10% and 30% total body surface area. The Company
may engage up to four (4) U.S. burn centers to conduct the clinical study.
During the three months ended March 31, 2022,
the Board decided to stop enrollment of patients into the clinical trial and take other measures to reduce the Company’s overhead
in an effort to conserve financial resources as it continues to defend against the Lawsuits; however, medical evaluation of the treated
subjects will continue periodically as scheduled in the clinical protocol at the clinical study site until October 2022, when the study
concludes. The Company hopes to restart the clinical trial at a future date upon the occurrence of a favorable outcome against the Lawsuits
and additional financing.
Research, development and commercialization of
new technologies generally requires significant financial resources, involves a high degree of risk, and there is no assurance that development
activities will result in a commercially viable product. 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 defends itself against the Lawsuits (as defined in “Part 2-Other Information, Item 1. Legal Proceedings”).
The Company will need to raise additional capital through partnerships or the sale of securities to accomplish its business plan. Failing
to secure such additional funding poses a significant risk. The Company's ability to meet its financial obligations, including 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.
Components of Our Results of Operations
Revenue
To date we have not generated any product revenues
and do not expect to generate any revenue for the foreseeable future. Our ability to generate revenue and become profitable depends upon
our ability to obtain marketing approval and successfully commercialization of our CellMistTM System.
Operating Expenses
Research and Development
Research and development (“R&D”) expenses consist
primarily of costs incurred for the development of our CellMistTM System and include:
|
· |
design, pilot-scale manufacturing and pre-clinical testing of our cell isolation and SkinGunTM spray devices. |
|
· |
employee-related expenses associated with our research and development activities, including salaries, benefits, travel and non-cash stock-based compensation expenses. |
|
· |
costs associated with quality management systems including device
verification and validation testing, and regulatory operations and regulatory compliance. |
|
· |
expenses incurred under agreements related to our clinical trial. |
|
· |
other research and development costs including contract consulting fees and non-cash stock-based compensation to contract research organizations (CROs) and other third parties. |
We do not believe that it is possible at this
time to accurately project total expenses required for us to reach commercialization of our CellMistTM System. In the
future, we expect that research and development expenses will increase due to our ongoing product development and approval efforts. We
expense research and development costs as incurred.
General and Administrative
General and administrative expenses consist primarily
of personnel costs, including non-cash stock-based compensation related to directors and employees, professional service costs including
legal, accounting, and other consulting fees and other general and administrative expenses including investor relations, insurance, and
facilities costs. We expect general and administrative expenses to increase in the future as we hire personnel and incur additional costs
to support the expansion of our research and development activities, our operation as a public company and to defend against the Lawsuits.
Stock-Based Compensation
Expense associated with equity-based
transactions is calculated and expensed in our financial statements as required pursuant to various accounting rules and is non-cash in
nature. Stock compensation represents the expense associated with the amortization of our stock options.
Other Income (Expense)
Other expense consists of the interest payable under our convertible
note. Other income consists of interest income earned on our cash and cash equivalents and the reimbursement of legal fees from our Directors
& Officers insurance policy.
Income Taxes
We have yet to generate taxable income. We have
historically incurred operating losses resulting in carry forward tax losses totaling approximately $21,945,000 as of December 31, 2021.
We anticipate that we will continue to generate tax losses for the foreseeable future and that we will be able to carry forward these
tax losses indefinitely to future taxable years. Accordingly, we do not expect to pay taxes until we have taxable income after the full
utilization of our carry forward tax losses. We have provided a full valuation allowance with respect to the deferred tax assets related
to these carry forward losses.
Results of Operations
Comparison of Three Months Ended March 31, 2022 and 2021
Research and Development Expenses
| |
Three Months Ended March 31, | |
Increase / |
| |
2022 | |
2021 | |
(Decrease) |
Manufacturing clinical supplies(1) | |
$ | 13,719 | | |
$ | 216,183 | | |
$ | (202,464 | ) |
Personnel related(2) | |
| 117,873 | | |
| 154,175 | | |
| (36,302 | ) |
Stock-based compensation(3) | |
| 217,500 | | |
| 278,813 | | |
| (61,313 | ) |
Clinical trials(4) | |
| 153,715 | | |
| 306,356 | | |
| (152,641 | ) |
Regulatory(5) | |
| 4,716 | | |
| 9,832 | | |
| (5,116 | ) |
All other(5) | |
| 88,731 | | |
| 88,934 | | |
| (203 | ) |
| |
$ | 596,254 | | |
$ | 1,054,293 | | |
$ | (458,039 | ) |
| (1) | Manufacturing clinical supplies decreased due to completion of the pilot-scale
manufacturing and validation testing of the components of the CellMist™ System and the electronic SkinGun™ spray device to
be used in our clinical trials which mostly tailed off during the quarters ended March 31, 2021. |
| (2) | Personnel related expenses decreased primarily due to the absence of a bonus paid
to our Chief Science Officer during the three months ended March 31, 2021. |
| (3) | Stock compensation expense decreased due primarily to the completion of vesting
in 2021 of prior issued stock options. |
| (4) | In 2020 and early 2021, the Company’s incurred certain costs in preparation
for its clinical trial during which time the set-up costs were mostly completed with future clinical trial costs expected to fluctuate
depending on the number of enrollees into the clinical trial. During the three months ended March 31, 2022 compared to the same period
in 2021, clinical trial expenses decreased primarily due to the completion of the set-up costs and subsequent enrollment of only two patients.
As a result of the decision during Q1 to stop enrollment, the Company expects clinical trial expenses to decrease moving forward. |
| (5) | All other expenses relate primarily to the prototype development of the electronic
SkinGun ™ at StemCell Systems. These costs are expected to decrease as a result of the Company’s, April 28, 2022 notice to
terminate the Strategic R&D Agreement. |
General and Administrative Expenses
| |
Three Months Ended March 31, | |
Increase / |
| |
2022 | |
2021 | |
(Decrease) |
Personnel related(1) | |
$ | 129,311 | | |
$ | 208,684 | | |
$ | (79,373 | ) |
Stock-based compensation(2) | |
| 5,500 | | |
| (1,153,575 | ) | |
| 1,159,075 | |
Professional and consultant fees(3) | |
| 985,957 | | |
| 283,791 | | |
| 702,166 | |
All other(4) | |
| 25,788 | | |
| 124,056 | | |
| (98,268 | ) |
Total G&A Expense | |
$ | 1,146,556 | | |
$ | (537,044 | ) | |
$ | 1,683,600 | |
| (1) | Personnel related costs are expected to decrease slightly due to lower headcount
starting mid-year 2021. |
| (2) | Stock compensation expense in 2021 decreased due to the forfeiture and cancellation
of 2,730,571 stock options as a result of the resignation of the Company’s former Chairman, President and Chief Executive Officer
and two members of the Company’s Board of Directors Compensation expense was recorded on these options prior to their full vesting.
As a result, the Company recognized a $1,248,575 reversal of the prior recognized compensation expense related to the cancelled options. |
| (3) | Professional and consultant fees increased primarily due an increase in legal fees
related to the Lawsuits. During the three months ended March 31, 2022, the Company incurred $49,267 in fees related to our patents and
trademarks, $863,940 in legal fees related to the Lawsuits, $29,000 related to the preparation and audit of our financial statements and
related filings with the SEC, and $43,750 for other legal related costs. The Company is obligated, pursuant to its bylaws, to indemnify
its directors and officers. As a result, all legal costs related to the Lawsuits are recorded to the books of the Company. Insurance proceeds
to cover the cost of the Company’s defense against the Lawsuits is recorded to other income at the time of receipt. |
| (4) | All other costs decreased primarily due to the absence of expense related to directors’ and officers’
insurance and, to a lesser extent, a decrease in investor relations activities. |
Liquidity and Capital Resources
The Company does not have any commercialized products,
has not generated any meaningful revenue since inception and has sustained recurring losses and negative cash flows since inception. During
the three months ended March 31, 2022 and 2021, the Company has incurred operating losses of $1,743,000 and $517,000, respectively and
has used cash in operating activities of $1,779,000 and $1,805,000, respectively. The Company expects to incur losses as it continues
to fund its legal defense and scaled-back development of its products and technologies.
At March
31, 2022, the Company had current and total liabilities of $1,387,000 and $2,188,000, respectively, including $1,176,000 of current liabilities
related to its defense against the Lawsuits compared to $2,776,000 of current assets. As of March 31, 2022, the Company’s working
capital totaled $1,388,433 not including approximately $1,042,000 in proceeds expected to be realized under its D&O Policy
with AIG. In order to preserve its cash resources, the Company has taken measures to streamline
operations, including ending enrollment of patients into its clinical trial, renegotiating and terminating certain agreements and service
arrangements and entered into a loan agreement with Kalen Capital Corporation, an Alberta Canada corporation (“Kalen
Capital”) which is wholly-owned by the Mr. Harmel S. Rayat, the Company’s President, Chief Executive Officer and Chairman,
for $800,000 on March 18, 2022. As a result of the actions taken, the Company is in an improved
position to maintain its solvency. However, due to the nature and early stage of the Lawsuits, the Company is unable to estimate
the total costs to defend itself or the potential costs to the Company in the event that it is not successful in its defense. As a result,
the Company estimates cash on hand will be insufficient for the twelve months following the date
these financial statements are issued.
Historically, the Company has been funded through
the sale of equity securities and debt financings. The future of the Company will depend on its ability to successfully raise capital
from external sources to fund operations. If the Company is unable to obtain adequate funds, or if such funds are not available to it
on acceptable terms, the Company's ability to continue its business to develop its cellular therapies will be significantly impaired and
it may cause the Company to curtail operations. Although the Company has instituted cost savings measures, it will continue to assess
its ongoing expenses.
Fair Value of Financial Instruments and Risks
The carrying value of cash, accounts payable and
interest payable approximate their fair value because of the short-term nature of these instruments and their liquidity. It is not practical
to determine the fair value of the Company’s notes payable due to the complex terms. Management is of the opinion that the Company
is not exposed to significant interest or credit risks arising from these financial instruments.
Market Risk Disclosures
We have not entered into derivative
contracts either to hedge existing risks or for speculative purposes during the three months ended March 31, 2022 or year ended December
31, 2021, and the subsequent period through the date of this report.
Off-Balance Sheet Arrangements and Contractual Obligations
As part of our ongoing business, we do not participate
in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to
as structured finance or special purpose entities (SPEs), which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually limited purposes. As of March 31, 2022, we were not involved in any SPE transactions.
Recently Accounting Standards
See Note 1 to our Consolidated Financial
Statements for more information regarding recent accounting standards and their impact to our consolidated results of operations and financial
position.
Transactions with Related Persons
None.