We have audited the accompanying consolidated balance sheets of
RenovaCare, Inc. and Subsidiary (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements
of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2019, and the
related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its
operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles
generally accepted in the United States of America.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
(The accompanying notes are an integral part of these consolidated
financial statements)
(The accompanying notes are an integral part of these consolidated
financial statements)
(The accompanying notes are an integral part of these consolidated
financial statements)
(The accompanying notes are an integral part of these consolidated
financial statements)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization, Nature and Continuance of Operations
Organization
RenovaCare, Inc., together with its wholly owned subsidiary, focuses
on the acquisition, research, development and, if warranted, commercialization of autologous (using a patient's own cells) cellular
therapies that can be used for medical and aesthetic applications.
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 opening the door 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.
Nature and Continuance of Operations
The Company does not have any commercialized products. The Company's
activities have consisted principally of performing research and development activities and raising capital. These development
activities are subject to significant risks and uncertainties, including possible failure of preclinical testing. The Company has
not generated any revenue since inception and has sustained recurring losses and negative cash flows from operations since inception.
The Company expects to incur losses as it continues development of its products and technologies and expects that it will need
to raise additional capital through the sale of its securities to accomplish its business plan and failing to secure such additional
funding before achieving sustainable revenue and profit from operations poses a significant risk. The Company's ability to fund
the development of its cellular therapies will depend on the amount and timing of cash receipts from future financing activities.
There can be no assurance as to the availability or terms upon which such financing and capital might be available.
As of December 31, 2019, the Company had $12,185,248 of cash on
hand. On January 26, 2018, the Company entered into the first amendment to the convertible promissory note dated September 9, 2016
and the Company entered into the first amendment to the convertible promissory note dated February 23, 2017 both with KCC pursuant
to which both notes were amended (with a combined principal balance of $1,095,000) to extend the maturity date to December 31,
2019. On February 13, 2018, the Company received $110,000 upon the exercise of 100,000 Series D Warrants. On November 26, 2018,
the Company completed a private placement, whereby the Company received proceeds of $14,407,500 from the sale of common stock and
warrants and settled the principal balance of $1,095,000 of the convertible promissory notes. The Company believes that, as a result
of the financings, it currently has sufficient cash to meet its funding requirements over the next twelve months following the
issuance of this Annual Report on Form 10-K. 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.
Note 2. Significant Accounting Policies
Principles of Consolidation
These consolidated financial statements have been prepared in accordance
with US GAAP and include the accounts of the Company and its wholly owned subsidiary, RenovaCare Sciences Corp. All intercompany
transactions and balances have been eliminated. RenovaCare Sciences was incorporated under the laws of the State of Nevada on
June 12, 2013.
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 February 2016, the Financial Accounting Standards Board, (“FASB”)
issued ASU No. 2016-02, “Leases (Topic 842)”, which supersedes ASC Topic 840, Leases, and creates a new topic, ASC
Topic 842, Leases. ASU 2016-02 requires lessees to recognize a lease liability and a lease asset for all leases, including operating
leases, with a term greater than 12 months on its balance sheet. ASU 2016-02 also expands the required quantitative and qualitative
disclosures surrounding leases. ASU 2016-02 is effective for the Company beginning January 1, 2019. Early adoption is permitted.
The Company has determined that the adoption of ASU 2016-02 did not have an impact on its consolidated financial statements.
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.
Accounting Estimates
The preparation of consolidated financial statements in conformity
with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses during the reporting period. Actual results, as determined by future events, may
differ from these estimates. Management utilizes various other estimates, including but not limited to, determining the estimated
lives of long-lived assets, determining the potential impairment of intangibles, the fair value of warrants issued, the fair value
of stock options and other legal claims and contingencies.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with
an original maturity of three months or less to be cash equivalents. Cash and cash equivalents may at times exceed federally insured
limits.
Fair Value Measurement
The Company measures fair value as the price that would be received
to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting
date. The Company utilizes a three-tier hierarchy which prioritizes the inputs used in the valuation methodologies in measuring
fair value:
Level 1. Valuations based on quoted prices in active markets for
identical assets or liabilities that an entity has the ability to access. The Company has no assets or liabilities valued with
Level 1 inputs.
Level 2. Valuations based on quoted prices for similar assets or
liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable
or can be corroborated by observable data for substantially the full term of the assets or liabilities. The Company has no assets
or liabilities valued with Level 2 inputs.
Level 3. Valuations based on inputs that are supported by little
or no market activity and that are significant to the fair value of the assets or liabilities. The Company has no assets or liabilities
valued with Level 3 inputs.
The Company does not have any assets or liabilities measure at fair
value.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents and accounts payable
approximate their fair value because of the short-term nature of these instruments and their liquidity. The Company is not exposed
to significant interest or credit risks arising from these financial instruments.
Research and Development Costs
The Company intends to outsource its research and development efforts
and expense related costs as incurred, including the cost of manufacturing product for testing, licensing fees and costs associated
with planning and conducting clinical trials. The value ascribed to patents and other intellectual property acquired will be capitalized
as it relates to particular research and development projects that may have alternative future uses and expensed over their useful lives.
Equipment
Equipment is carried at cost, less accumulated depreciation and
amortization. Major improvements are capitalized, while repair and maintenance are expensed when incurred. Renewals and betterments
that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.
Depreciation is computed on a straight-line basis over estimated
useful lives of the related assets. The estimated useful lives of depreciable assets are:
|
|
Estimated
Useful Lives
(in years)
|
|
|
|
|
|
Office equipment
|
|
3
|
-
|
5
|
Furniture & equipment
|
|
5
|
-
|
7
|
Intangible Assets
The Company’s intangible asset consists primarily of the CellMistTM System
technology that the Company acquired during 2013 and is recorded at cost. At the time of acquisition, the technology had not reached
technological feasibility. The amount capitalized is accounted for as an indefinite-lived intangible asset, subject to impairment
testing until completion or abandonment. Upon successful completion, a determination will be made as to the then useful life of
the intangible asset, generally determined by the period in which substantially all of the cash flows are expected to be generated,
and begin amortization. The Company tests the intangible asset for impairment at least annually or more frequently if impairment
indicators exist after performing a qualitative analysis. Management has multiple criteria that it considers when performing the
qualitative analysis. The results of this review are then weighed and prioritized. If the totality of the relevant events and circumstances
indicate that the intangible asset is not impaired, additional impairment tests are not necessary.
The Company assessed the following qualitative factors that could
affect any change in the fair value of the intangible asset: analysis of the technology's current phase, additional testing necessary
to bring the technology to market, development of competing products, changes in projections caused by delays, changes in regulations,
changes in the market for the technology and changes in cost projections to bring the technology to market. Based on a qualitative
assessment, management concluded that a positive assertion can be made from the qualitative assessment that it is more likely than
not that the intangible asset related to the CellMistTM System is not impaired.
Stock Options
The Company measures all stock-based compensation awards using a
fair value method on the date of grant and recognizes such expense in its consolidated financial statements over the requisite
service period. The Company uses the Black-Scholes pricing model to determine the fair value of stock-based compensation awards
on the date of grant. The Black-Scholes pricing model requires management to make assumptions regarding option lives, expected
volatility, and risk free interest rates. Forfeitures are recognized as they occur. The Company’s policy is to issue new
shares upon exercise of options
Financial Instruments, Warrants and Derivatives
The Company reviews its convertible instruments for the existence
of embedded conversion features that may require bifurcation. If certain criteria are met, the bifurcated derivative financial
instrument is required to be recorded at fair value. The Company also reviews and re-assesses, at each reporting date, any common
stock purchase warrants and other freestanding derivative financial instruments and classifies them on the consolidated balance
sheet as equity, assets or liabilities based upon the nature of the instruments.
Income Taxes
The Company accounts for income taxes using the asset and liability
method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences
attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and tax credits and loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected
to be realized. The Company reports a liability for unrecognized tax benefits resulting from uncertain income tax positions, if
any, taken or expected to be taken in an income tax return. Estimated interest and penalties are recorded as a component of interest
expense or other expense, respectively.
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 years ended December 31, 2019 and 2018:
|
|
Years Ended
December 31,
|
|
|
2019
|
|
2018
|
Basic and Diluted EPS Computation
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Loss available to common stockholders
|
|
$
|
(3,358,082
|
)
|
|
$
|
(2,120,841
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
87,237,053
|
|
|
|
77,748,437
|
|
Basic and diluted EPS
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
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
|
|
|
2,317,500
|
|
|
|
317,500
|
|
Warrants
|
|
|
13,106,912
|
|
|
|
13,346,912
|
|
Convertible debt
|
|
|
–
|
|
|
|
–
|
|
Total shares not included in the computation of diluted losses per share
|
|
|
15,424,412
|
|
|
|
13,664,412
|
|
Related Party Transactions
A related party is generally defined as (i) any person who holds
10% or more of the Company's securities and their immediate families; (ii) the Company's management; (iii) someone who directly
or indirectly controls, is controlled by or is under common control with the Company; or (iv) anyone who can significantly influence
the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there
is a transfer of resources or obligations between related parties. See “Note 8. Related Party Transactions” for further
discussion.
Concentration of Credit Risk
At December31, 2019, U.S. cash balances are insured by the Federal
Deposit Insurance Corporation (“FDIC”) up to $250,000 per institution. Canadian cash balances are insured by the Canada
Deposit Insurance Corporation (“CDIC”) up to $100,000 per financial institution. The Company’s cash is primarily
held at two financial institutions, and therefore is in excess of the FDIC or CDIC limits. We periodically assess the financial
condition of the institutions where we deposit funds.
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 December 31, 2019 and 2018.
Note 4. Debt
February 2017 Convertible Promissory Notes
Between February 23, 2017 and March 9, 2017, the Company entered
into three separate loan agreements containing identical terms (the “February 2017 Loan Agreements”) with Joseph
Sierchio (“Sierchio”), an investor (the “Investor”), Paul Barbiero, a related party, and
Kalen Capital Corporation (“KCC”); KCC is wholly owned by Mr. Harmel S. Rayat, the Company's majority shareholder
(collectively, the “Holders”). Pursuant to the terms of the February 2017 Loan Agreements, Sierchio and the
Investor each agreed to loan the Company $25,000 ($50,000 total) and KCC agreed to loan the Company $395,000 at an annual interest
rate of 7% per year, compounded quarterly. Each loan was evidenced by a convertible promissory note (collectively, the “February
2017 Notes”). The February 2017 Notes, including any interest due thereon, may not be prepaid without the consent of
the Holders. The February 2017 Notes were initially due on February 23, 2018, and, beginning on the one month anniversary, can
be converted, at the Holders’ sole discretion, into shares of the Company’s common stock at conversion rate equal to
the lesser of: (i) $3.45, the closing price of the Company’s common stock on the day prior to the issuance of the February
2017 Notes or (ii) a 20% discount to the average closing price of the Company’s common stock for the five days prior to the
date on which the Holder(s) elect to convert the February 2017 Note(s), subject to a floor price of $2.76.
Per the February 2017 Loan Agreement, the Company issued Sierchio,
the Investor and KCC a Series F Stock Purchase Warrant (the “Series F Warrant”) to purchase up to 7,246 shares,
7,246 shares and 114,493 shares, respectively, of the Company’s common stock at an exercise price per share equal to the
lesser of: (i) $3.45, the closing price of the Company’s common stock on the day prior to issuance of the Series F Warrant;
or (ii) a 20% discount to the average closing price of the Company’s common stock for the five days prior to the date on
which the Holder elects to exercise their Series F Warrant. The Series F Warrant is exercisable for a period of five years from
the date of issuance and may be exercised on a cashless basis.
The Company calculated the debt discount related to the February
2017 Notes and Series F Warrants by first allocating the respective fair value of the February 2017 Notes and Series F Warrants
based upon their relative fair values to the total February 2017 Notes proceeds. The fair value of the Series F Warrant issued
with the February 2017 Notes was calculated using the Black-Scholes option pricing model and the following assumptions: exercise
price - $3.45 per share as to $420,000 of February 2017 Note principal and $2.90 per share as to $25,000 of February 2017 Note
principal; market price of common stock - $3.53 as to $420,000 of February 2017 Note principal and $3.80 per share as to $25,000
of February 2017 Note principal; estimated volatility – 110.0% as to $420,000 of February 2017 Note principal and 116.0%
as to $25,000 of February 2017 Note principal; risk free interest rate – 2.13% as to $420,000 of February 2017 Note principal
and 1.87% as to $25,000 of February 2017 Note principal; expected dividend rate - 0% and expected life - 5.0 years. The resulting
fair value of $211,073 was allocated to the Series F Warrant. The intrinsic value of the beneficial conversion feature amounted
to $232,213. The resulting $443,286 discount to the February 2017 Notes is being accreted over their 1.25 year term.
The February 2017 Loan Agreements provide the Holders with registration
rights for all of the shares issuable upon conversion of the February 2017 Notes, including exercise of the Series F Warrants,
beginning on the first anniversary of the February 2017 Loan Agreements.
On July 27, 2017, the Company repaid the Investor in full, including
$25,000 of note principal and $676 of accrued interest.
On October 19, 2017, the Company repaid Sierchio in full, including
$25,000 of note principal and $1,149 of accrued interest.
On January 29, 2018, KCC and the Company entered into an Amendment
No. 1 to the February 2017 Note whereby the maturity date of the KCC February Note was extended from February 23, 2018 to December
31, 2019. On November 26, 2018, KCC and the Company entered into an Amendment No. 2 to the February 2017 Note whereby the principal
amount was settled by the issuance of 296,667 units of the Company’s equity securities (the “Units”) at
a price of $1.50 per Unit. Each Unit consists of: (i) one (1) share of common stock; and (ii) one (1) Series I Stock Purchase Warrant
to purchase one (1) share of common stock at a price of $2.00 per share for a period of seven (7) years commencing on the date
the Warrants are first issued. (the “Series I Warrants”).
The Series I Warrants do not have a cashless exercise provision. KCC
does not have any registration rights with respect to the shares comprising a part of the Units or issuable upon exercise
of the Series I Warrants.
The remaining interest payable at the end of December 31, 2018 was
paid off in full on July 22 and 24, 2019. The Company does not have any debt on its balance sheet as of December 31, 2019.
During the year ended December 31, 2019 and 2018, the Company recognized
$0 and $27,151 of interest expense and $0 and $58,438 of accretion related to the debt discount, respectively.
September 9, 2016 Convertible Promissory Note
On September 9, 2016, the Company entered into a loan agreement
(the “Loan Agreement”) with KCC. Pursuant to the terms of the Loan Agreement, KCC agreed to loan the Company
up to $900,000 at an annual interest rate of 7% per year, compounded quarterly. KCC provided the Company with an initial loan in
the amount of $700,000, which was evidenced by a convertible promissory note (the “Note”); the remaining $200,000
needed to be loaned prior to December 31, 2018. The Note, including any interest due thereon, may be prepaid at any time without
penalty. The Note matured on December 31, 2017, but was extended to December 31, 2019 pursuant to the Amendment No. 1, dated as
of January 29, 2018, to the Note. Beginning on September 9, 2017, the Note became convertible, at KCC’s sole discretion,
into shares of our common stock at conversion rate equal to the lesser of: (i) $1.54, the closing price of our common stock on
the day prior to the issuance of the Note or (ii) a 20% discount to the average closing price of our common stock for the five
days prior to the date on which KCC elects to convert the Note, subject to a floor price of $1.23 per share. On November 26, 2018,
KCC and the Company entered into an Amendment No. 2 to the February 2017 Note whereby the principal amount was settled by the issuance
of 463,333 units of the Company’s equity securities (the “Units”) at a price of $1.50 per Unit. The Unit
price represents a discount of $0.03 from the closing price on November 23, 2018 and a $0.05 discount to the 20-day lookback of
the closing price of the Company's common stock as quoted on the OTC Markets Pink Sheets for the 20 trading days prior to the Closing
Date. Each Unit consists of: (i) one (1) share of common stock; and (ii) one (1) Series I Stock Purchase Warrant to purchase one
(1) share of common stock at a price of $2.00 per share for a period of seven (7) years commencing on the date the Warrants are
first issued. (the “Series I Warrants”).
The Series I Warrants do not have
a cashless exercise provision. KCC does not have any registration rights with respect to the shares comprising a part
of the Units or issuable upon exercise of the Series I Warrants.
Per the Loan Agreement, the Company issued KCC a Series E Stock
Purchase Warrant (the “Series E Warrant”) to purchase up to 584,416 shares of the Company’s common stock
at a purchase price of the lesser of: (i) $1.54, the closing price of the Company’s common stock on the day prior to issuance
of the Series E Warrant; or (ii) a 20% discount to the average closing price of the Company’s common stock for the five days
prior to the date on which KCC elects to exercise the Series E Warrant. The Series E Warrant is exercisable for a period of five
years from the date of issuance and may be exercised on a cashless basis.
The Company calculated the debt discount related to the Note and
Series E Warrant by first allocating the respective fair value of the Note and Series E Warrant based upon their relative fair
values to the total Note proceeds. The fair value of the Series E Warrant issued with the Note was calculated using the Black-Scholes
option pricing model and the following assumptions: exercise price - $1.25 per share; market price of common stock - $1.54 per
share; estimated volatility – 92.3%; risk free interest rate - 1.23%; expected dividend rate - 0% and expected life - 5.0
years. The resulting fair value of $340,735 was allocated to the Series E Warrant. The intrinsic value of the beneficial conversion
feature amounted to $359,265. The resulting $700,000 discount to the Note is being accreted over their 1.25 year term.
During the years ended December 31, 2019 and 2018, the Company recognized
$0 and $49,680, respectively, of interest expense. There was no recognition of accretion related to the debt discount. Accrued
interest was $0 and $167,497 at December 31, 2019 and 2018, respectively.
Note 5. Common Stock and Warrants
Common Stock
At December 31, 2019, the Company had 500,000,000 authorized shares
of common stock with a par value of $0.00001 per share, 87,352,364 shares of common stock outstanding and 17,440,765 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. See “Note 6. Stock Options” for further discussion.
During the year ended December 31, 2019, the Company had the following
common stock related transactions:
|
•
|
On August 26, 2019, Dr. Gerlach exercised a Series A Warrant to purchase up to 240,000 shares, on a cashless basis, resulting in the issuance of 176,842 shares of common stock.
|
During the year ended December 31, 2018, the Company had the following
common stock related transactions:
|
•
|
On February 3, 2018, Thomas Bold, the Company’s President, CEO and Interim Chief Financial Officer exercised options to purchase up to 60,000 shares, on a cashless basis, resulting in the issuance of 44,083 shares of common stock.
|
|
|
|
|
•
|
On February 11, 2018, a consultant exercised options to purchase up to 40,000 shares, on a cashless basis, resulting in the issuance of 17,480 shares of common stock.
|
|
|
|
|
•
|
On February 12, 2018, Dr. Gerlach exercised a Series A Warrant to purchase up to 480,000 shares, on a cashless basis, resulting in the issuance of 457,480 shares of common stock.
|
|
|
|
|
•
|
On February 13, 2018, the Company issued 100,000 shares of common stock, upon the exercise of a Series D Warrant at an exercise price of $1.10 per share resulting in $110,000 of proceeds to the Company.
|
|
|
|
|
•
|
On February 22, 2018, Kenneth Kirkland, a member of the Company’s board of directors, exercised options to purchase up to 50,000 shares, on a cashless basis, resulting in the issuance of 41,033 shares of common stock.
|
|
·
|
On February 22, 2018, Joseph Sierchio, a member of the Company’s board of directors 1) exercised
options to purchase up to 37,500 shares, on a cashless basis, resulting in the issuance of 22,711 shares of common stock; 2) exercised
a Series F Warrant to purchase up to 7,246 shares, on a cashless basis, resulting in the issuance of 4,899 shares of common stock;
and 3) exercised a Series H Warrant to purchase up to 10,000 shares, on a cashless basis, resulting in the issuance of 7,418 shares
of common stock.
|
|
·
|
On November 26, 2018, the Company entered into Subscription Agreements (each, a “Subscription
Agreement”) with KCC, a private corporation owning in excess of 10% of the Company's issued and outstanding common stock,
for the purchase and sale of 10,335,000 units of the Company's equity securities (the “Units”) at a price
of $1.50 per Unit, pursuant to a private placement offering conducted by the Company (the “Offering”) for (i)
aggregate cash proceeds of $14,407,500 and (ii) conversion of $1,095,000 principal amount of outstanding loan indebtedness. The
Each Unit consists of: (i) one (1) share of common stock; and (ii) one (1) Series I Stock Purchase Warrant to purchase one (1)
share of common stock at a price of $2.00 per share for a period of seven (7) years commencing on the date the Warrants are first
issued (the “Series I Warrants”). The Series I Warrants do not have a cashless exercise provision. KCC
does not have any registration rights with respect to the shares comprising a part of the Units or issuable upon exercise
of the Series I Warrants. A deemed dividend of $180,000 was incurred with respect to the difference between the floor price
of the conversion feature of $395,000 of outstanding loan indebtedness. This amount is a reclassification within equity only.
|
Warrants
The following table summarizes information about warrants outstanding
at December 31, 2019 and 2018:
|
|
Shares of Common Stock Issuable
from Warrants Outstanding as of
|
|
Weighted
Average
|
|
|
|
|
December 31,
|
|
December 31,
|
|
Exercise
|
|
|
Description
|
|
2019
|
|
2018
|
|
Price
|
|
Expiration
|
Series A
|
|
|
0
|
|
|
|
240,000
|
|
|
$
|
–
|
|
|
|
July 12, 2019
|
|
Series D
|
|
|
810,000
|
|
|
|
810,000
|
|
|
$
|
1.10
|
|
|
|
June 5, 2020
|
|
Series E
|
|
|
584,416
|
|
|
|
584,416
|
|
|
$
|
1.54
|
|
|
|
September 8, 2021
|
|
Series F
|
|
|
7,246
|
|
|
|
7,246
|
|
|
$
|
3.45
|
|
|
|
February 23, 2022 & March 9, 2022
|
|
Series G
|
|
|
460,250
|
|
|
|
460,250
|
|
|
$
|
2.68
|
|
|
|
July 21, 2022
|
|
Series H
|
|
|
910,000
|
|
|
|
910,000
|
|
|
$
|
2.75
|
|
|
|
October 16, 2022
|
|
Series I
|
|
|
10,335,000
|
|
|
|
10,335,000
|
|
|
$
|
2.00
|
|
|
|
November 26, 2025
|
|
Total
|
|
|
13,106,912
|
|
|
|
13,346,912
|
|
|
|
|
|
|
|
|
|
As consideration for the CellMistTM System and services
performed in connection therewith, the Company issued to Dr. Gerlach a Series A Stock Purchase Warrant entitling him to purchase
1,200,000 shares of the Company’s common stock at an exercise price of $0.35 per share. Pursuant to the terms of the Amended
APA, the Series A Warrant will vest in five equal installments of 240,000 shares on each of July 12, 2014, July 12, 2015, July
12, 2016, July 12, 2017 and July 12, 2018. On August 5, 2015, Dr. Gerlach exercised a Series A Warrant to purchase up to 240,000
shares on a cashless basis and the Company issued him 196,812 shares of common stock. On January 10, 2017, Dr. Gerlach exercised
a Series A Warrant to purchase up to 240,000 shares on a cashless basis and the Company issued him 204,571 shares of common stock.
On February 3, 2018, Dr. Gerlach exercised a Series A Warrant to purchase up to 480,000 shares on a cashless basis and the Company
issued him 457,480 shares of common stock. On August 26, 2019, Dr. Gerlach exercised a Series A Warrant to purchase up to 240,000
shares, on a cashless basis, resulting in the issuance of 176,842 shares of common stock.
Series D Warrants with an exercise price of $1.10 to purchase 1,010,000
shares of common stock were issued on June 5, 2015 in connection with the sale of units pursuant to a private placement. On December
6, 2016, 100,000 Series D Warrants were exercised resulting in the Company receiving $110,000 of proceeds. On February 13, 2018,
an additional 100,000 Series D Warrants were exercised resulting in the Company receiving $110,000 of proceeds
A Series E Warrant to purchase 584,416 shares of common stock was
issued on September 9, 2016 in connection with the Loan Agreement. See “Note 4. Debt” for further discussion.
Three Series F Warrants to purchase 128,985 shares of common stock
were issued between February 22, 2017 and March 9, 2017 in connection with the February 2017 Loan Agreements. On June 28, 2017,
KCC exercised 114,493 Series F Warrants for $3.01 per share resulting in the issuance of 114,493 shares of common stock and proceeds
of $344,624. See “Note 4. Debt” for further discussion. On February 22, 2018, Joseph Sierchio exercised a Series F
Warrant to purchase up to 7,246 shares on a cashless basis and the Company issued him 4,899 shares of common stock.
The Series G Warrants to purchase 460,250 shares of common stock
were issued on July 21, 2017 in connection with the sale of units pursuant to the July 2017 Private Placement. See
above for further discussion.
The Series H Warrants to purchase 920,000 shares of common stock
were issued on October 16, 2017 in connection with the sale of units pursuant to the October 2017 Private Placement. See
“Note 5. Common Stock and Warrants-Common Stock” for further discussion. On February 22, 2018, Joseph Sierchio exercised
a Series H Warrant to purchase up to 10,000 shares on a cashless basis pursuant to which the Company issued him 7,418 shares of
common stock.
The Series I Warrants to purchase up to 10,350,000 shares of common
stock were issued on November 26, 2018 in connection with the sale of units pursuant to the November 26, 2018 private placement.
One (1) Series I Stock Purchase Warrant to purchase one (1) share of common stock at a price of $2.00 per share for a period of
seven (7) years commencing on the date the Warrants are first issued. The Series I Warrants do not have a cashless exercise provision. KCC
does not have any registration rights with respect to the shares comprising a part of the Units or issuable upon exercise
of the Series I Warrants.
Note 6. 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 are 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 December 31, 2019, there were 17,440,765 shares available for grant.
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 in any of the Company's fiscal year, options to purchase
more than 2,000,000 shares 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 $100,000. Options granted pursuant to the 2013 Plan are exercisable no later than ten years after the date of
grant.
The exercise price per share of common stock for options granted
under the 2013 Plan will be the fair market value of the Company's common stock on the date of grant, using the closing price of
the Company's common stock on the last trading day prior to the date of grant, except for incentive stock options granted to a
holder of ten percent or more of the Company's common stock, for whom the exercise price per share will not be less than 110% of
the fair market value. No option can be granted under the 2013 Plan after June 20, 2023.
Stock Option Activity
The following table summarizes stock option activity for the period
ended December 31, 2019:
|
|
Number of
Options
|
|
Weighted
Average Exercise
Price ($)
|
|
Weighted Average
Remaining
Contractual Term
(in years)
|
|
Aggregate
Intrinsic
Value ($)
|
Outstanding at December 31, 2018
|
|
|
317,500
|
|
|
|
3.41
|
|
|
|
|
|
|
|
|
|
Grants
|
|
|
2,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercises
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
2,317,500
|
|
|
|
|
|
|
|
5.68
|
|
|
$
|
1,460,507
|
|
Exercisable at December 31, 2019
|
|
|
317,500
|
|
|
|
|
|
|
|
4.42
|
|
|
$
|
164,975
|
|
Available for grant at December 31, 2019
|
|
|
17,440,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each stock option is estimated at the date of
grant using the Black-Scholes option pricing model. There were 2,000,000 stock options granted during the year ended December 31,
2019 to CEO, Alan L. Rubino. During the year ended December 31, 2019, there were no options exercised on a cashless basis. Non-employee
options are re-measured each reporting period and adjusted to reflect the re-measurement. Final re-measurement was done during
the year ended December 31, 2019 when the options fully vested. Assumptions regarding volatility, expected term, dividend yield
and risk-free interest rate are required for 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 options granted are presented in the table below:
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
Risk-free interest rate
|
|
|
1.65
|
%
|
|
|
2.97
|
%
|
Expected life in years
|
|
|
3.33
|
|
|
|
5.5
|
|
Weighted Avg. Expected Volatility
|
|
|
102
|
%
|
|
|
108
|
%
|
Expected dividend yield
|
|
|
0
|
|
|
|
0
|
|
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 years
December 31, 2019 and 2018, the Company recognized $191,255 and $170,517, respectively, in share-based compensation. As of December
31, 2019, the Company had $2,236,541 unrecognized compensation cost related to unvested stock options to be amortized through 2022.
Stock-based compensation has been included in the consolidated statement of operations as follows:
|
|
Years Ended December 31,
|
|
|
2019
|
|
2018
|
Research and development
|
|
$
|
–
|
|
|
$
|
27,967
|
|
General and administrative
|
|
|
191,255
|
|
|
|
142,550
|
|
Total
|
|
$
|
191,255
|
|
|
$
|
170,517
|
|
The following table summarizes information about stock options outstanding
and exercisable at December 31, 2019:
|
|
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
|
|
|
|
4.25
|
|
|
|
1.05
|
|
|
|
55,000
|
|
|
|
4.25
|
|
|
|
1.05
|
|
1.25
|
|
|
7,500
|
|
|
|
5.46
|
|
|
|
1.25
|
|
|
|
7,500
|
|
|
|
5.46
|
|
|
|
1.25
|
|
1.34
|
|
|
7,500
|
|
|
|
5.50
|
|
|
|
1.34
|
|
|
|
7,500
|
|
|
|
5.50
|
|
|
|
1.34
|
|
1.70
|
|
|
7,500
|
|
|
|
5.79
|
|
|
|
1.70
|
|
|
|
7,500
|
|
|
|
5.79
|
|
|
|
1.70
|
|
1.98
|
|
|
667,800
|
|
|
|
5.88
|
|
|
|
1.98
|
|
|
|
–
|
|
|
|
5.88
|
|
|
|
–
|
|
2.28
|
|
|
7,500
|
|
|
|
5.55
|
|
|
|
2.28
|
|
|
|
7,500
|
|
|
|
6.55
|
|
|
|
2.28
|
|
2.48
|
|
|
667,800
|
|
|
|
5.88
|
|
|
|
2.48
|
|
|
|
–
|
|
|
|
5.88
|
|
|
|
–
|
|
3.23
|
|
|
664,400
|
|
|
|
5.88
|
|
|
|
3.23
|
|
|
|
–
|
|
|
|
5.88
|
|
|
|
–
|
|
4.20
|
|
|
232,500
|
|
|
|
5.36
|
|
|
|
4.20
|
|
|
|
232,500
|
|
|
|
6.36
|
|
|
|
4.20
|
|
Total
|
|
|
2,317,500
|
|
|
|
5.68
|
|
|
$
|
2.54
|
|
|
|
317,500
|
|
|
|
4.42
|
|
|
$
|
3.41
|
|
Note 7. Commitments
Effective March 1, 2015, the Company entered into a lease agreement
(the “Lease”) in the Pittsburgh Life Sciences Greenhouse at a monthly rate of $750. The Lease was renewed effective
March 1, 2016 at a monthly rate of $800 through August 30, 2018. The lease was terminated in 2019. Rent expense for the years ended
December 31, 2019 and 2018 was $0 and $6,400, respectively. The Company has subsequently entered into a lease for premises located
at 4 Becker Farm Road, Suite 105, Roseland, New Jersey. See “Note 10. Subsequent Events” for further discussion.
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 $314,189 and $80,229 during the years
ended December 31, 2019 and 2018, respectively. Dr. Gerlach, from whom the Company purchased the “SkinGunTM and
the technology on which the CellMistTM System technology is based, 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 will pay the Grant in four quarterly
installments with the first payment made on or before July 1, 2019. During the years ended December 31, 2019 and 2018, the Company
made payments totaling $125,000 and $0, respectively. At December 31, 2019, the balance remaining under this gift was $187,500
of which $62,500 was paid subsequent to December 31, 2019. Due to the terms of the Grant, the Company will recognize the related
expense upon payment. Dr. Gerlach, from whom the Company purchased the SkinGunTM technology, is a professor at
the University.
See also “Note 8. Related Party Transactions.”
Note 8. Related Party Transactions
As compensation for their service on the Board, Dr. Kirkland and
Mr. Sierchio receive an annual retainer of $6,000, payable in equal quarterly installments in arrears. Additionally, on March 15,
2016, the Company granted to each of Dr. Kirkland and Mr. Sierchio an incentive stock option to purchase up to 50,000 shares of
the Company’s common stock at an exercise price of $1.91 per share; and on May 11, 2017, the Company granted to each of Dr.
Kirkland and Mr. Sierchio an incentive stock option to purchase up to 75,000 shares of the Company’s common stock at an exercise
price of $4.20 per share. The 50,000 options became fully vested upon grant and the 75,000 options vested 50% on the date of grant
and 50% one year hence. The options may be exercised on a “cashless basis” using the formula contained therein. Compensation
expense of $0 and $86,325 with respect to these options was recorded during the years ended December 31, 2019 and 2018 respectively.
Effective July 1, 2018, Joseph Sierchio resigned his position as
a Company director. The law firm of Satterlee Stephens LLP (“Satterlee”), of which Joseph Sierchio was a partner, continued
to provide counsel to the Company through July 31, 2019, following which Mr. Sierchio commenced providing, through Sierchio Law
LLP, general corporate counsel services to the Company. During the years ended December 31, 2019 and 2018, the Company recognized
$384,021 and $577,718 of fees for legal services billed by Satterlee. At December 31, 2019 and 2018, accounts payable to Satterlee
amounted to $0 and $171,828, respectively. During 2019, the Company recognized $72,917 for legal services billed by Sierchio Law,
LLP. At December 31, 2019, there were no amounts due to Sierchio Law, LLP.
In connection with the Company’s anticipated FDA and other
regulatory filings, the Company engaged StemCell Systems to undertake engineering work, perform preclinical testing and performance
measurements, manufacture prototypes, and generate documentation. Pursuant to this engagement the Company incurred expenses of
$314,189 and $80,229 in during the years ended December 31, 2019 and 2018, respectively. Dr. Gerlach, from whom the Company purchased
the CellMistTM System technologies, is a principal of StemCell Systems. Thomas Bold is a business consultant and
economic advisor to StemCell Systems.
Dr. Gerlach is entitled to payments for consulting services. During
the years ended December 31, 2019 and 2018, the Company recognized expenses related to Dr. Gerlach services of $0 and $7,020, respectively.
Accounts payable to Dr. Gerlach amounted to $0 and $0 at December 31, 2019 and 2018, respectively.
On March 30, 2019, Mr. Bold resigned his position as the Company’s
President and as a member of the Board of Directors. Mr. Bold will continue to provide consulting services to the company pursuant
to an at will consulting agreement. During the years ended December 31, 2019 and 2018, the Company recognized expenses related
to Mr. Bold’s services of $43,000 and $100,000 respectively.
On August 1, 2013, the Company entered into a consulting agreement,
as amended on May 1, 2016 (collectively, the “Prior JSB Consulting Agreements”), with Jatinder Bhogal, an individual,
beneficially 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. (“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 the amendment the monthly consulting fee was increased to $6,800 from $5,000. On June 22, 2018, the Company and VAM
entered into an Executive Consulting Agreement (“ECA”) whereby VAM will cause Mr. Bhogal, and Mr. Bhogal has agreed-to,
serve as the Company’s Chief Operating Officer pursuant to the terms of the ECA. The ECA supersedes the Prior JSB Consulting
Agreement. Pursuant to the ECA, VAM receives compensation in the amount of $120,000 per year. During the year ended December 31,
2019 and 2018, the Company recognized expenses of $120,850 and $103,467, respectively for consulting services provided by VAM.
On September 9, 2016, the Company entered into the Loan Agreement
with KCC whereby KCC loaned the Company $700,000 at an interest rate of 7%. The Note was amended on January 29, 2018 to extend
the maturity date to December 31, 2019. Per the Loan Agreement, the Company issued KCC a Series E Warrant to purchase up to 584,416
shares of the Company’s common stock. See “Note 4. Debt” for further discussion.
On February 23, 2017, the Company entered into two of
the February 2017 Loan Agreements with Sierchio and KCC pursuant to which Sierchio loaned the Company $25,000 and KCC loaned $395,000
at an interest rate of 7%. On October 19, 2017, the Company repaid the Sierchio in full, including $25,000 of note principal and
$1,149 of accrued interest. The remaining note with KCC was amended on January 29, 2018 to extend the maturity date to December
31, 2019. Per the February 2017 Loan Agreement, the Company issued Sierchio, and KCC a Series F Warrant to purchase up to 7,246
shares and 114,493 shares, respectively, of the Company’s common stock. See “Note 5, Debt” for further discussion.
On July 21, 2017, the Company entered into the July 2017 Private
Placement with KCC for the sale of 410,000 units at a price of $2.44 per unit for $1,000,400 in aggregate proceeds. Each unit consisted
of one share of common stock and one Series G Warrant to purchase one (1) share of common stock at an exercise price of $2.68 per
share through July 21, 2022. The warrants may be exercised on a cashless basis. See “Note 5. Common Stock and Warrants”
for further discussion.
On February 12, 2018, Dr. Gerlach exercised a Series A Warrant to
purchase up to 480,000 shares, on a cashless basis, resulting in the issuance of 457,480 shares of common stock.
On February 22, 2018, Kenneth Kirkland, a member of the Company’s
board of directors, exercised options to purchase up to 50,000 shares, on a cashless basis, resulting in the issuance of 41,033
shares of common stock.
On February 22, 2018, Mr. Sierchio, a member of the Company’s
board of directors until his resignation effective July 1, 2018, 1) exercised options to purchase up to 37,500 shares, on a cashless
basis, resulting in the issuance of 22,711 shares of common stock; 2) exercised a Series F Warrant to purchase up to 7,246 shares,
on a cashless basis, resulting in the issuance of 4,899 shares of common stock; and 3) exercised a Series H Warrant to purchase
up to 10,000 shares, on a cashless basis, resulting in the issuance of 7,418 shares of common stock.
On February 3, 2018, Thomas Bold, the Company’s former President,
exercised options to purchase up to 60,000 shares, on a cashless basis, resulting in the issuance of 44,086 shares of common stock.
During the year ended December 31, 2018, the Company
was offered executive office space located at 9375 E. Shea Blvd., Suite 107-A, Scottsdale, AZ 85260 for consideration of $1 per
year. The executive office space is owned indirectly by Harmel S. Rayat, the Company’s majority shareholder and Chairman
and CEO.
Note 9. Income Taxes
Income taxes are accounted for using an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns. A valuation allowance is established to reduce deferred tax
assets if all, or some portion, of such assets will more than likely not be realized.
There is no current or deferred tax expense for 2019 and 2018, due
to the Company’s loss position. Realization of the future tax benefits related to the deferred tax assets is dependent on
many factors, including the Company’s ability to generate taxable income within the net operating loss carryforward period.
Management has considered these factors in reaching its conclusion as to the valuation allowance for financial reporting purposes
and has recorded a full valuation allowance against the deferred tax asset.
The income tax effect of temporary differences comprising the deferred tax assets and
deferred tax liabilities is a result of the following at December 31:
|
|
2019
|
|
2018
|
Deferred tax assets (liability):
|
|
|
|
|
|
|
|
|
Net operating loss and contribution carryforwards
|
|
$
|
3,838,000
|
|
|
$
|
3,068,000
|
|
Intangible asset
|
|
|
(14,000
|
)
|
|
|
85,000
|
|
Capital loss carryforward
|
|
|
–
|
|
|
|
146,000
|
|
Stock-based compensation
|
|
|
248,000
|
|
|
|
208,000
|
|
|
|
|
4,072,000
|
|
|
|
3,361,000
|
|
Valuation allowance
|
|
|
(4,072,000
|
)
|
|
|
(3,361,000
|
)
|
Net deferred tax assets
|
|
$
|
–
|
|
|
$
|
–
|
|
The 2019 increase in the valuation allowance was $711,000 compared
to an increase of $403,000 in 2018.
The Company has available net operating loss and contribution carryforwards
of approximately $18,277,000 for tax purposes to offset future taxable income which $11,592,000 incurred prior to 2018 expire
through the year 2037 while $6,685,000 incurred subsequent do not expire. The capital loss carryforward expired during 2018. Pursuant
to the Tax Reform Act of 1986, annual utilization of the Company’s net operating loss and contribution carryforwards may
be limited if a cumulative change in ownership of more than 50% is deemed to occur within any three-year period. The tax years
2016 through 2019 remain open to examination by federal agencies and other jurisdictions in which it operates.
A reconciliation between the statutory federal income tax
rate and the effective rate of income tax expense for the years ended December 31 follows:
|
|
2019
|
|
2018
|
Statutory federal income tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Permanent differences and other
|
|
|
0
|
%
|
|
|
(2
|
%)
|
Valuation allowance
|
|
|
(21
|
)%
|
|
|
(19
|
%)
|
Total
|
|
|
0
|
%
|
|
|
0
|
%
|
Note 10. Subsequent Events
Management has reviewed material events subsequent of the period
ended December 31, 2019 and prior to the filing of financial statements in accordance with FASB ASC 855 “Subsequent Events.”
On January 2 2020, the Company granted Alan L. Rubino, an option
to purchase up to 620,571 shares of the Company’s common stock at a price of $3.20. The option was granted in fulfillment
of the Company’s obligation under the terms of the Employment Agreement dated November 15, 2019 between the Company and Mr.
Rubino.
The Company has entered into a two-year lease dated February 18,
2020 for offices 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 lease term (and payment of the monthly rent) commences (the “commencement
date”) upon substantial completion of landlord’s work, which is expected to occur on or before May 31, 2020, subject
to potential further delays as a result of the COVID-19 pandemic discussed below. The lease terminates on the last day of the calendar
month immediately preceding the calendar month in which the second anniversary of the commencement date occurs.
The Company already has been impacted by the measures taken by government officials to contain
the spread of COVID-19. The Company’s President and Chief Executive Officer and outside financial consultant are located
in New Jersey. The governors of New York and New Jersey have announced statewide stay at home orders in attempt to prevent the
further spread of COVID-19 in their respective states. Construction was stopped on the Company’s new offices in New Jersey
due to Federal and State restrictions.
However, it is not possible at this time to fully assess the 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 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.