RENOVACARE, INC. 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 ofRenovaCare, Inc. ("RenovaCare") and its wholly-owned subsidiary (collectively withRenovaCare , "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 inthe United States . The preparation of financial statements in conformity with accounting principles generally accepted inthe 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
we may obtain; and the absence of adverse regulatory developments in the
· 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.
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The safe harbor provisions of Section 21E of the Securities Exchange Act of
1934, as amended, and Section 27A of the Securities Act of 1933, as amended,
apply to forward-looking statements made by us. The reader is cautioned that no
statements contained in this Form 10-Q should be construed as a guarantee or
assurance of future performance or results. Actual events or results may differ
materially from those discussed in forward-looking statements as a result of
various factors, including, without limitation, the risks described in this
report and matters described in this report generally. In light of these risks
and uncertainties, there can be no assurance that the forward-looking statements
contained in this filing will in fact occur.
Overview
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.
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, that will
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
that is enrolling 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. Currently, the clinical trial is activated, enrolling and
treating patients. The CELLMIST 1 clinical study is expected to reach completion
in late 2022.
Our unique new closed, automated cell isolation device to harvest stem cells
from tissues using the CellMistTM System is in prototype development. We expect
significant time and resources will be devoted to develop our novel technology
and determine the commercial feasibility of the product. Research and
development of new technologies involve a high degree of risk, and there is no
assurance that our development activities will result in a commercially viable
product. The long-term profitability of our operations will be, in part,
directly related to the cost and success of our development programs, which may
be affected by a number of factors.
In August 2019 , the Company was awarded a continuation of a patent allowing the
SkinGunTM to be used to spray all varieties of tissues and cells, thus allowing
for its potential application in the regeneration of tissues and organs, beyond
skin; and, in November 2020 and October 2021 , the Company was issued a total of
three new patents encompassing improvements to the SkinGun™, expanding its
potential application beyond the surgical setting into the field, and allowing
the use of liquid suspension solutions to include drugs, hormones, and other
useful agents.
Currently, our proprietary technologies are the subject of and 43 U.S. and international patents or patent applications and 14 U.S. and international trademarks. Of the issued patents, five areU.S. patents and twelve have issued or are allowed inAustralia ,Canada ,Europe ,Germany ,France ,Italy ,Japan ,Korea ,Netherlands ,Spain ,Switzerland /Lichenstein, andUnited Kingdom . The Company has six allowed trademarks inthe United States , two European registered trademarks, twoUnited Kingdom trademarks, twoJapan trademarks, and two pending inCanada . The Company has not generated any revenue and has sustained recurring losses and negative cash flows from operations since inception. The Company expects to incur losses as it continues development of its products and technologies and expects that it will need to raise additional capital through partnerships or the sale of its securities to accomplish its business plan. Failing to secure such additional funding before achieving sustainable revenue and profit from operations poses a significant risk. The Company's ability to fund the development of its cellular therapies depends on the amount and timing of cash receipts from future financing activities. There can be no assurance as to the availability or terms upon which such financing and capital might be available. 14
Additionally, there is significant uncertainty relating to the full impact of the COVID-19 pandemic on the Company's operations and capital requirements. Should financing when needed be unavailable or prohibitively expensive or the COVID-19 pandemic continue, it may adversely affect the Company's ability to (i) retain employees and consultants; (ii) obtain additional financing on terms acceptable to the Company, if at all; (iii) delay regulatory submissions and approvals; (iv) delay, limit or preclude the Company from the operation of clinical study sites and testing laboratories; (v) delay, limit or preclude the Company from achieving technology or product development goals, milestones, or objectives; and (vi) preclude or delay entry into joint venture or partnership arrangements. The occurrence of any one or more of such events may affect the Company's ability to continue its pathway to commercialization of its technology or products. Although the Company continues to monitor the situation and may adjust policies as more information and public health guidance become available, the COVID-19 pandemic is ongoing, and its dynamic nature, including uncertainties relating to the ultimate spread of the virus, the severity of the disease, the duration of the outbreak and actions that may be taken by governmental authorities to contain the outbreak or to treat its impact, makes it difficult to assess whether there will be further impact on the development and commercialization of the Company's technology which could have a material adverse effect on the Company's results of operations and cash flows.
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.
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 trials.
· 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 and our
operation as a public company.
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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 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$22.3 million as ofDecember 31, 2020 . 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 and Nine Months Ended
Research and Development Expenses
Three Months Ended September
30, Increase / Nine Months Ended September 30, Increase /
2021 2020 (Decrease) 2021 2020 (Decrease)
Manufacturing
clinical
supplies(1) $ 50,019 $ 557,956 $ (507,937 ) $ 298,090 $ 940,021 $ (641,931 )
Personnel
related(2) 113,248 81,667 31,581 382,926 253,216 129,710
Stock-based
compensation(3) 224,000 455,271 (231,271 ) 731,438 1,087,147 (355,709 )
Clinical trials(4) 243,030 29,500 213,530 768,987 33,900 735,087
Regulatory(5) 10,349 69,829 (59,480 ) 32,253 158,716 (126,463 )
All other(5) 103,979 357,766 (253,787 ) 289,793 618,383 (328,590 )
$ 744,625 $ 1,551,989 $ (807,364 ) $ 2,503,487 $ 3,091,383 $ (587,896 ) (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.
(2) Personnel related expenses increased due to the allocation of Stem Cell
Systems personnel in support of the development of our CellMist™ System.
(3) Stock compensation expense decreased due primarily to the completion of
vesting in 2020 of prior issued stock options in excess of the amounts
recognized in the current year upon the continued vesting of other R&D
related stock option grants.
(4) Clinical trial expenses increased due to the addition of clinical
professionals, clinical site activation costs and costs related to the
preparation of our clinical trials which began in the second quarter of 2021.
We expect clinical trial expenses to increase moving forward due to patient
enrollment, treatment, follow-up visits, clinical sample testing and medical
site monitoring.
(5) All other expenses decreased as validation testing for the electronic SkinGun
™ concluded and we transitioned to prototype development of the cell
isolation device at StemCell Systems.
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General and Administrative Expenses
Three Months Ended September
30, Increase / Nine Months Ended September 30, Increase /
2021 2020 (Decrease) 2021 2020 (Decrease)
Personnel
related(1) $ 223,591 $ 245,135 $ (21,544 ) $ 691,954 $ 681,823 $ 10,131
Stock-based
compensation(2) 44,000 664,544 (620,544 ) (1,138,601 ) 2,084,953 (3,223,554 )
Professional and
consultant fees(3) 644,077 246,062 398,015 1,069,550 790,826 278,724
All other(4) 44,231 135,149 (90,918 ) 196,762 466,715 (269,953 )
Total G&A Expense $ 955,899 $ 1,290,890 $ (334,991 ) $ 819,665 $ 4,024,317 $ (3,204,652 ) (1) Personnel related costs are expected to decrease slightly due to lower
headcount starting mid-year 2021.
(2) Stock compensation expense decreased due to the forfeiture and cancellation
of 2,805,571 stock options as a result of the resignation of the Company's
former Chairman, President and Chief Executive Officer, the Company's former
Chief Financial 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
the prior recognized compensation expense related to the cancelled options
for the three and nine months ended
expense recognized for options still in their vesting period totaled
and
respectively.
(3) Professional and consultant fees increased primarily due to an increase in
legal fees related to the SEC Complaint and fees related to our patents and
trademarks offset by a decrease in accounting and consulting fees.
(4) All other costs decreased primarily due to the absence of the charitable
contribution to the
the Company recognized
2020 in addition to decreases in investor relations and insurance offset by
an increase in rent.
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. The Company has incurred operating losses of$3.3 million and$7.1 million during the nine months endedSeptember 30, 2021 and 2020, respectively. The Company expects to incur losses as it continues development of its products and technologies. Historically, the Company has been funded through the sale of equity securities and debt financings. AtSeptember 30, 2021 , the Company had approximately$3,400,000 in cash on hand and current liabilities of$713,000 . The Company estimates cash will be depleted in less than one year from the date that these financial statements are available to be issued, if the Company does not generate sufficient cash to support operations. 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. Net cash used in operating activities was$4.0 million during the nine months endedSeptember 30, 2021 , primarily due to operating costs of$3.3 million and the payment of liabilities of approximately$600 thousand .
Net cash used in investing was
There was no net cash used in financing activities during the nine months ended
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Fair Value of Financial Instruments and Risks
The carrying value of cash and accounts payable approximate their fair value because of the short-term nature of these instruments and their liquidity. Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Market Risk Disclosures We have not entered into derivative contracts either to hedge existing risks or for speculative purposes during the nine months endedSeptember 30, 2021 or year endedDecember 31, 2020 , and the subsequent period through the date of this report.
Off-Balance Sheet Arrangements and Contractual Obligations
We do not have any off-balance sheet arrangements or contractual obligations atSeptember 30, 2021 , and the subsequent period through the date of this annual report, that are likely to have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that have not been disclosed in our consolidated financial statements.
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
See Note 6 to our Consolidated Financial Statements for more information regarding transactions with related persons and their impact to our consolidated results of operations and financial position.
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