UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172019
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to _________
Commission file number 000-30156
RENOVACARE, INC.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation) | (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(888) 398-0202
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o ☐ No x☒
Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o ☐ No x☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x ☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date fileData File required to be submitted and posted pursuant to Rule 405 of RegulationsRegulation S-T (Section(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x ☒ No o☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| Accelerated filer |
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Non-accelerated filer |
| Smaller reporting company |
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Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o ☐ No x☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing sale price of the registrant’s common stock on June 30, 2017,28, 2019, as reported on the OTCQB was $73,220,246. Common stock held by each officer and director and by each person who owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.$26,094,486.
As of March 6, 2018,May 8, 2020, there were 76,840,52287,352,364 shares of the registrant’s common stock outstanding.
Documents incorporated by reference: None.
RENOVACARE, INC.
FORM 10-K
For The Fiscal Year Ended December 31, 20172019
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Forward-Looking Statements
This Annual Report on Form 10-K (including the section regarding Management’s Discussion and Analysis of Financial Condition and Results of Operations) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, as well as information relating to RenovaCare, Inc. and its subsidiarieswholly-owned subsidiary 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 Annual Report on Form 10-K 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; |
| changes in general economic, business or demographic conditions or trends in the U.S. or throughout the world or changes in the political environment, including changes in GDP, interest rates and inflation; | |
| • | new entrance of competitive products or further penetration of existing products in our markets; |
| our ability to obtain additional financing, if at all, at times and on terms acceptable to us; | |
| • | disruptions or other extraordinary or force majeure events, such as the COVID-19 pandemic, and the ability to insure against losses resulting from such events or disruptions. | |
| • | the effect on us from adverse publicity related to our products or the company itself; and |
| 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 the Company. The reader is cautioned that no statements contained in this Form 10-K 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.
We file reports with the Securities and Exchange Commission.Commission (“SEC”). We make available on our website free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such materials with or furnish them to the SEC. Information appearing at our website is not a part of this Annual Report on Form 10-K. You can also read and copy any materials we file with the SEC on its website at its Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.www.sec.gov).
Overview
RenovaCare, Inc. (formerly Janus Resources, Inc.) (together with its wholly owned subsidiary RenovaCare Sciences Corp., “RenovaCare,” the “Company,” “we,” “us,” and “our,”) was incorporated under the laws of the State of Nevada and has an authorized capital of 500,000,000 shares of $0.00001 par value common stock, of which 76,840,52287,352,364 shares are outstanding as of February 28, 2018,December 31, 2019, and 10,000,000 shares of $0.0001 par value preferred stock, of which none are outstanding.
On January 7, 2014, we filed a Certificate of Amendment to Articles of Incorporation changing our name from “Janus Resources, Inc.” to “RenovaCare, Inc.” so as to more fully reflect our operations. The Financial Industry Regulatory Authority (“FINRA”) declared the name change effective as of January 9, 2014. In conjunction with the name change, we changed our stock symbol on the OTCQB from “JANI” to “RCAR”.
Our principal executive offices are located at Pittsburgh Life Sciences Greenhouse, 2425 Sidney Street, Pittsburgh, PA 15203.4 Becker Farm Road, Suite 105, Roseland, NJ 07068. Our telephone number is (888) 398-0202.
As we are a smaller reporting company, we are not required to make certain disclosures otherwise required to be made in a Form 10-K.
Description of Business
We are a development-stage company focusing on the acquisition, development and commercialization of autologous (using a patient’s own cells) cellular therapies for medical and aesthetic applications. On July 12, 2013, we,The Company, through ourits wholly owned subsidiary, RenovaCare Sciences Corp., completedowns the acquisitionCellMist™ System which is comprised of our flagship CellMistTM System along(a) a treatment methodology for cell isolation for the regeneration of human skin cells (the “CellMist™ Solution”) and (b) a solution sprayer device (the (SkinGun™”) for delivering cells to the treatment area. Along with 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 wasthat were granted to us onin November 29, 2016 (Patent No. US 9,505,000), and the other patent application was granted to us on April 4, 2017 (Patent No. US 9,610,430) and, most recently, in August 2019 (Patent No. 10,376,658). TwoThe Company has filed additional patent applications are pending.
On or about April 11, 2017, we received from Avita Medical a Petition For Inter Partes Review purportingrelated to challenge the validity of the claims in U.S. Patent No. 9,610,430 before the PTAB of the U.S. Patent & Trademark Office . Upon consideration of the argumentsCellMist™ System and evidence set forth by us and Avita, on December 18, 2017, the PTAB rendered a Final Written Decision dismissing the Petition in its entirety and, accordingly, confirming all such claims. Avita Medical’s right to file an appeal expired on February 21, 2018.other technologies.
In the case of U.S. patents, a typical utility patent term is 20 years from the date on which the application for the patent was filed in the United States or, if the application contains a specific reference to an earlier filed application or applications, from the date on which the earliest such application was filed. Patents filed outside of the U.S. have a patent term typically running 20 years from the date of first filing, but which are determined by the law of the country in which they issue. Patent termterms may be affected by events such as maintenance (or annuity) fee payment, terminal or statutory disclaimer, post-grant proceedings, patent term adjustment, and/or patent term extension.
The development of our CellMistTM System is in the early stage and we anticipate that we will be required to expend significant time and resources to further develop our technology and determine whether a commercially viable product can be developed. Research and development of new technologies involves a high degree of risk and there is no assurance that our development activities will result in a commercially viable product. The long-term profitability of our operations will be, in part, directly related to the cost and success of our development programs, which may be affected by a number of factors.
The average adult human has a skin surface area of between 16 - 21 square feet, which protects all other organs against the external environment. When a person’s skin is assailed by trauma or exposed to extreme heat, the skin’s various layers may be destroyed and depending on the severity of the injury, might cause life-threatening conditions. Currently, severe trauma to the skin, such as second or third degree burns, requires surgical mesh-grafting of skin, whereby healthy skin is removed from one area of the patient’s body (a “donor site”“donor site”) and implanted on the damaged area.
While mesh grafting is often the method of choice, there are significant deficiencies with this method. The surgical procedure to remove healthy skin from the donor site can be painful and leaves the patient with a new wound that must also be attended to. In many instances the aesthetic results are not satisfying, as the color of the skin from the donor site may not match the skin color of the damaged skin. Additionally, the size of the donor skin removed must be substantially equallarge in size compared to the damaged skin area. These donor and injury sites can take weeks to heal, requiring expensive hospital stays, ongoing wound dressing management, and in some cases, complex anti-infection strategies.
We are currently evaluating the potential of our CellMistTM System in the treatment of tissue that has been subject to severe trauma such as second degree burns. The CellMistTM System utilizes the patient’s own skin stem cells, reducesand can reduce the size of the donor site and has shown to significantly decrease scarring. Furthermore, we believe the CellMistTM System could enable treatment of other skin disorders with minimal scarring.
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Our Mission and Strategy
Our ultimate goal is to leverage the potential of our CellMistTM System, as cutting edge treatments in skin therapy. Before we can do so, however, there are a number of steps we must first take, including:
| • | initiating a series of clinical trials to determine the CellMistTM System’s safety and efficacy for treating wounds and burns; | |
| • | formalizing collaborations with universities, scientific, and/or commercial partners; | |
| • | creating a network of clinical and research partners; | |
| • | achieving FDA and/or other regulatory clearance; and | |
| • | expanding the range of possible clinical applications. |
We believe that we now have an experienced leadership team which has come together to achieve our mission of improving the lives of burn patients by creating potentially more effective, safer and tolerable treatments. To achieve our goal, we have established the following strategic priorities:
| · | Obtain regulatory approval and prepare to commercialize ourCellMistTM System. |
We intend to continue to pursue our efforts to secure regulatory (FDA) approval in 2020, and if ultimately approved, commence our feasibility study in the United States.
| · | Selectively pursue strategic partnership, joint venture, and licensing opportunities to complement our existing operations |
We intend to continue to pursue strategic licensing, partnership, and joint venture opportunities. We will continue to target opportunities that will complement our existing technology and operations to create value for stockholders and support our business strategy and mission.
| · | Secure additional financing as and when required. |
Additionally, we will need to pursue financing opportunities, traditional and non-dilutive, and if available on acceptable terms, if at all, in order to raise sufficient capital to fund our ongoing research and development operations in order to expand the range of possible clinical applications of our CellMistTM System.
Our Market Opportunity
According to medicalWe believe that expedited healing is urgently needed for patients suffering from burns, chronic wounds, acute wounds and scars. In the U.S. alone, this $45 billion market research firm, Kalorama Information, the global market for wound care products is projected to grow to approximately $18.3 billion by 2019.greater than spending on high-blood pressure management, cholesterol treatments, and back pain therapeutics.
Burn WoundsBurns
Burns are one of the most common and devastating forms of trauma. Most burn injuries involve layers of the upper skin, the epidermis. Severe major trauma involves a complete loss of the entire thickness of the skin and often requires major surgery involving split-skin mesh-grafting. Skin grafting is a procedure where healthy skin is removed from one area of the body and transplanted to a wound site.
Patients with serious thermal injury require immediate specialized care in order to minimize morbidity and mortality. Data from the National Center for Injury Prevention and Control in the U.S. show that approximately 2 million fires are reported each year which result in 1.2 million people with burn injuries (see American Burn AssociationBurn Incidence and Treatment in the US: 2000 Fact Sheet, available at: http://www.ameriburn.org). Moderate to severe burn injuries requiring hospitalization account for approximately 100,000 of these cases, and about 5,000 patients die each year from burn-related complications (see Church D, Elsayed S, Reid O, Winston B, Lindsay R “Burn wound infections” Clinical Microbiology Reviews 2006;19(2):403–34, available at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1471990).
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The prevalence of patients with severe burns is even higher in emerging economies. For example, according to the World Health Organization over 1,000,000 people in India are moderately to severely burnt every year and approximately 265,000180,000 people worldwide die from burn related injuries (see World Health Organization “Burns: Fact Sheet No. 365,” reviewed September 2016,March 6, 2018, available at: http://www.who.int/mediacentre/factsheets/fs365/en/). According to Critical Care, an international clinical medical journal, burns are also among the most expensive traumatic injuries because of long and costly hospitalization, rehabilitation and wound and scar treatment (see Brusselaers, N., Monstrey, et al, “Severe Burn Injury in Europe: A systematic Review of the Incidence, Etiology, Morbidity, and Mortality” available at: http://ccforum.com/content/14/5/R188).
Burn injuries account for a significant cost to the health care system in North America and worldwide. In the U.S. there are currently 127128 centers specializing in burn care. Recent estimates in the U.S. show that 40,000 patients are admitted annually for treatment with burn injuries, over 60% of the estimated U.S. acute hospitalizations related to burn injury were admitted to burn centers. Such centers now average over 200 annual admissions for burn injury and skin disorders requiring similar treatment. The other 4,500 U.S. acute care hospitals average less than 3 burn admissions per year (see American Burn AssociationBurn Incidence and Treatment in the US: 2013 Fact Sheet, available at: http://www.ameriburn.org).
According to the Agency for Healthcare Research and Quality, the annual costs for the treatment of burns is $1.5 billion, with another $5 billion in costs associated with lost work (see https://www.hcup-us.ahrq.gov/reports/statbriefs/sb217-Burn-Hospital-Stays-ED-Visits-2013.pdf). Initial hospitalization costs and physicians' fees for specialized care of a patient with a major burn injury are currently estimated to be $200,000. Overall, costs escalate for major burn cases because of repeated admissions for reconstruction and rehabilitation therapy. In the U.S., current annual estimates show that more than $18 billion is spent on specialized care of patients with major burn injuries (see Church D, Elsayed S, Reid O, Winston B, Lindsay R “Burn wound infections” Clinical Microbiology Reviews 2006;19(2):403–34, available at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1471990).
Wounds
Most burn injuries involve layersAccording to The Wall Street Journal, 6.5 million people are affected by chronic wounds, and $25 billion is spent annually on treating chronic wounds on patients in the U.S. alone (see Järbrink, Krister et al. “Prevalence and incidence of chronic wounds and related complications: a protocol for a systematic review.” Systematic reviews vol. 5,1 152. 8 Sep. 2016 doi:10.1186/s13643-016-0329-y).
The Wound Care Market Global Forecast to 2024 report issued by Markets & Markets states that in 2019, advanced wound care products accounted for the upper skin,largest market share and is expected to have the epidermis. Severe major trauma involveshighest growth projected at a complete losscompound annual growth rate of 4.6% to 2024. Major factors driving the entire thicknessgrowth of this market of hard-to-heal wounds are an increase in an aging population and greater prevalence of chronic disease, including diabetes and obesity. The development of regenerative medicine and healing capabilities allow for more effective treatment, quicker healing and improved health economic outcomes.
The healthcare facilities (hospitals and clinics) segment accounted for the skinlargest market share in 2019 as these systems are used for critical cases, improve quality of care and often requires major surgery involving split-skin mesh-grafting. Skin grafting is a procedure where healthy skin is removed from one area ofhave the bodyinfrastructure and transplantedresources to a wound site.support treatment.
Our Technology
Our cell isolation methodology is referred to as the CellMistTM process,Solution, and our cell deposition device is referred to as the SkinGunTM. We isolate a patient's stem cells and related skin cells from a small biopsy of the patient's skin. The stem cells are placed into a liquid solution, which is then filled into a sterile syringe. The syringe is inserted into the SkinGunTM, which then sprays the stemskin cell-loaded liquid solution into the wound.
The first phase of gathering the patient's stemskin cells, creating a liquid solution, and applying the stem cells takes approximately 1.5–2 hours. Within two weeksPublished studies show that within days following the wound treatment procedure, the skin cells fully generate a normal upperprotective skin layer (re-epithelialization), and within months the skin regains its color and texture.
Our cell isolation procedure and the cell spraying are performed on the same day, in an on-site setting. Because the skin cells sprayed using the SkinGunTM are actually the patient's own cells, the skin that is regenerated looks more natural than artificialother skin replacements.replacement technologies. During recovery, the skin cells grow into fully functional layers of the skin and the regenerated skin leaveshas resulted in minimal scarring.scarring in observational patient treatment. Additionally, our methods require substantially smaller donor areas than skin grafting, reducing donor area burden such as pain and the risk of complications.
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In August 2019 the Company was awarded a continuation of Patent No. US 9.505,000 (Patent No. US 10,376,658), allowing the “SkinGunTM to be used to spray all varieties of tissues and cells, thus opening the door for its potential application in the regeneration of tissues and organs, beyond skin.
The CellMistTMSystem remains an experimental, unproven methodology and we continue to evaluate its safety and efficacy. There is no guarantee that we will be able to develop a commercially viable product based upon the CellMistTMSystem and its underlying technology.
Domestic Regulation
Governmental authorities in the U.S., at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing and export and import of products or devices such as those we are attempting to develop. Our device candidates, to the extent they are developed, will be subject to pre-market approval by the FDA prior to their marketing for commercial use in the U.S.,United States, and to any approvals required by foreign governmental entities prior to their marketing outside the U.S.United States. In addition, any changes or modifications to a device that has received regulatory clearance or approval that could significantly affect its safety or effectiveness, or would constitute a major change in its intended use, may require the submission of a new application in the U.S. for pre-market approval, or for foreign regulatory approvals outside the U.S..United States. The process of obtaining foreign approvals, can be expensive, time consuming and uncertain. See “International Regulation” below.
Premarket Approval
We will be required
In the United States, medical devices are classified on the basis of control deemed necessary to file for premarket approval (“PMA”) for the SkinGunTMor any other device that we commercialize if it is deemed a Class III medical device. PMA is the FDA process of scientific and regulatory review to evaluatereasonably ensure the safety and effectiveness of the device. Most Class I devices are subject to general controls and exempt from Pre-Market Notification (510k)). These controls include registration and listing and adherence to the Good Manufacturing Practice (GMP) requirements of the Quality System Regulation Labeling requirements. Most Class II devices are subject to the Pre-Market Notification ((510(k)) process as well as general and special controls that include performance testing (bench, animal and clinical in some cases), electrical safety testing, biocompatibility testing, sterilization and shelf-life testing, software testing, and system verification and validation testing. Class III medical devices.devices are those which require a Pre-Market Approval (PMA) from the FDA to ensure their safety and effectiveness. Class III devices are those that support or sustain human life, are of substantial importance in preventing impairment of human health, or which present a potential, unreasonable risk of illness or injury. Due to the level of risk associated with Class III devices, the FDA has determined that general and special controls alone are insufficient to assure the safety and effectiveness of classClass III devices. Therefore, these devices require a PMA application under section 515 of the Federal Food, Drug and Cosmetic Act in order to obtain marketing clearance.
PMA is the most stringent type of device marketing application required by the FDA. The applicant must receive FDA approval of its PMA application prior to marketing the device. PMA approval is based on a determination by FDA that the PMA contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use(s). An approved PMA is, in effect, a private license granting the applicant (or owner) permission to market the device.
We will be required to file for a PMA for the SkinGunTM or any other device that we commercialize if it is deemed a Class III medical device. PMA is the FDA process of scientific and regulatory review to evaluate the safety and effectiveness of Class III medical devices.
Investigational Device Exemption (“IDE”)
Among the data required in a PMA application is human clinical test data. The FDA’s regulation that governs the human testing is the IDE and other patient protection regulations. For devices that are considered Significant Risk, an IDE application is required. It consists of the proposed clinical protocol and all supporting study documentation and must be submitted and approved by FDA and an Institutional Review Board (IRB) prior to initiation of the human testing. Since the CellMistTM System employs the use of stem cells taken from the patient, it is considered Significant Risk by the FDA; therefore, we will be required to file an IDE application prior to conducting a clinical study for any application, such as for treatment of severe burns. The FDA has a specified review timeline and process for IDE reviews - each review phase takes 30 days and if the FDA has questions or concerns about the study design, there may be multiple review rounds until FDA either: (a) conditionally approves, (b) approves or (c) denies approval of the clinical study conduct under the submitted IDE. There is no guarantee that any IDE application we submit will be approved by the FDA.
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HIPAA Requirements andOther U.S. Regulatory Requirements
Other federal legislation may affect our ability to obtain certain health information in conjunction with any research activities we conduct. The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), mandates, among other things, the adoption of standards designed to safeguard the privacy and security of individually identifiable health information. In relevant part, the U.S. Department of Health and Human Services (“HHS”), has released two rules to date mandating the use of new standards with respect to such health information. The first rule imposes new standards relating to the privacy of individually identifiable health information. These standards restrict the manner and circumstances under which covered entities may use and disclose protected health information so as to protect the privacy of that information. The second rule released by HHS establishes minimum standards for the security of electronic health information. While we do not believe we are directly regulated as a covered entity under HIPAA, the HIPAA standards impose requirements on covered entities conducting research activities regarding the use and disclosure of individually identifiable health information collected in the course of conducting the research.
Other U.S. Regulatory Requirements
In addition, in the U.S., the research, manufacturing, distribution, sale, and promotion of drug and biological products are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services (formerly the Health Care Financing Administration), other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice and individual U.S. Attorney offices within the Department of Justice, and state and local governments. For example, sales, marketing and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, and similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection, unfair competition, and other laws.
International Regulation
The regulation of any potential product candidates we may produce outside of the U.S. varies by country. Certain countries regulate human tissue products as a biological product, which would require us to make extensive filings and obtain regulatory approvals before selling our product candidates. Certain other countries may classify our product candidates as human tissue for transplantation but may restrict its import or sale. Other countries have no application regulations regarding the import or sale of products similar to potential product candidates, creating uncertainty as to what standards we may be required to meet.
Competition
The biotechnology, medical device, and wound care industries are characterized by intense competition, rapid product development and technological change. Our CellMistTM System competes with a variety of companies in the wound care markets, many of which offer substantially different treatments for similar problems. Currently Avita Medical Limited is evaluating the efficacy ofcommercially marketing ReCell, a cell spray device and a cell isolation procedure for autologous cells. Integra Lifesciences Holding Corp. sells Integra Dermal Regeneration Template, which does not use autologous cells, but instead uses an animal-derived intercellular matrix with an artificial waterproof barrier. Medline Industries, Inc. sells HyaloMatrix, which also does not use autologous cells, but instead is a non-woven pad entirely composed of a benzyl ester of hyaluronic acid, and a semipermeable silicone membrane. Other competitors include: MiMedx Group, Inc.; Kinetic ConceptsCastle Creek Biosciences, Inc.; Fibrocell Science, Inc.; Shire Plc and Organogenesis, Inc.
Many of our competitors are large,larger, well-established companies with considerably greater financial, marketing, sales and technical resources than those available to us. Additionally, many of our present and potential competitors have research and development capabilities that may allow them to develop new or improved products that may compete with our product lines. Our potential products could be rendered obsolete or made uneconomical by the development of new products to treat the conditions addressed by our products, technological advances affecting the cost of production, or marketing or pricing actions by one or more of our competitors.
Intellectual Property
General
In the course of conducting our business, we from time to time create inventions. Obtaining, maintaining and protecting our inventions, including seeking patent protection, might be important depending on the nature of the invention. To that end, we seek to implement patent and other intellectual property strategies to appropriately protect our intellectual property. While we file and prosecute patent applications to protect our inventions, our pending patent applications might not result in the issuance of patents or issued patents might not provide competitive advantages. Also, our patent protection might not prevent others from developing competitive products using related or other technology.
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The scope, enforceability and effective term of issued patents can be highly uncertain and often involve complex legal and factual questions. Moreover, the issuance of a patent in one country does not assure the issuance of a patent with similar claim scope in another country, and claim interpretation and infringement laws vary among countries, so we are unable to predict the extent of patent protection in any country. The patents we obtain and the unpatented proprietary technology we hold might not afford us significant commercial protection or advantage.
In addition to issued patents describe above, we have filed and plan to file additional patent applications that, if issued, would provide further protection for, Theand advancements to, the CellMistTM System. Although we believe the bases for these patents and patent applications are sound, they are untested; and there is no assurance that they will not be successfully challenged. There can be no assurance that any patent previously issued will be of commercial value, that any patent applications will result in issued patents of commercial value, or that our technology will not be held to infringe patents held by others.
Strategy
Our ultimate goal is to leverage the potential of our CellMistTM System, together with our cell isolation method, as cutting edge treatments in skin therapy. Before we can do so, however, there are a number of steps we must first take, including:
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Additionally, we will likely be required to raise significant capital in order to fund our ongoing research and development operations, and there is no guarantee that we will be able to raise capital on acceptable terms, if at all.
Operations
We expect to be engaged in research and development activities for the foreseeable future.
Employees
We currently have onetwo full time employee, Mr. Andrew Danielson, Directoremployees..
We also have a number of Operations, and threeindustry consultants two of whomwho provide services on an as officers: Mr. Thomas Bold, Presidentneeded basis. See “ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE--Directors Executive Officers and Chief Executive Officer and Interim Chief Financial Officer; Ms. Patsy Trisler, Vice-President Clinical & Regulatory Affairs; and Dr. Roger Esteban-Vives, Director of Cell Sciences. Mr. Bold is also one of our directors. FromNon-Executive Officers” for further discussion.
One consultant, based in the United Kingdom, provides services on a full time to time we use additional independent contractors to provide us with services. None of the consultants are required to expend all of their time and efforts on our behalf and may engage in other activities.basis.
Smaller reporting companies are not required to provide the information required by this item.
Our business operations are subject to numerous risks, including the risk of delays in, or discontinuation of, our research and development due to lack of financing, poor results, inability to commercialize our technologies or to obtain necessary regulatory approvals to market the products, unforeseen safety issues relating to the products and dependence on third party collaborators to conduct research and development of the products. Because we are an early stage company with a limited history of operations, we are also subject to many risks associated with early-stage companies. For a more detailed discussion of some of the risks associated with the Company please review our registration statements on Form S-1 filed with the SEC, along with any amendments thereto.
Smaller reporting companies are not required to provide the information required by this item. However, without limiting the generality of the foregoing, and in compliance with SEC Release No. NO. 34-83118, under Section 36 of the Securities Exchange Act of 1934, as amended, you should note that at this time it is not possible 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.
| 7 |
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
We do not own any properties. Our corporate offices are located at Pittsburgh Life Sciences Greenhouse, 2425 Sidney Street Pittsburgh, PA 15203. Rent is $800 per month on a month-to-month basis.4 Becker Farm Road, Suite 105, Roseland, New Jersey.
On or about April 11, 2017, we received from Avita Medical Limited a paper copy of what was labeled a Petition For Inter Partes Review purporting to challenge the validity of the claims in U.S. Patent No. 9,610,430 before the Patent Trial and Appeal Board (“PTAB”) of the U.S. Patent & Trademark Office.None.
Upon consideration of the arguments and evidence set forth by us and Avita, on December 18, 2017, the PTAB rendered a “Final Written Decision” dismissing the Petition in its entirety and, accordingly, confirming all such claims. Avita did not file a Notice of Appeal with the Federal Circuit Court to review the PTAB Final Written Decision prior to the appeal deadline on February 21, 2018.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The following table sets forth the high and low bid prices for our common stock for the calendar quarters indicated as reported by the OTCQBon the OTC Market Group, Inc.’s Pink Sheets for the last two years. These prices represent quotations between dealers without adjustment for retail mark-up, markdown or commission and may not represent actual transactions.
|
| 1st Quarter |
|
| 2nd Quarter |
|
| 3rd Quarter |
|
| 4th Quarter |
| ||||
2017 – High |
| $ | 5.50 |
|
| $ | 2.49 |
|
| $ | 3.95 |
|
| $ | 4.95 |
|
2017 – Low |
| $ | 2.10 |
|
| $ | 4.75 |
|
| $ | 2.87 |
|
| $ | 2.99 |
|
2016 – High |
| $ | 2.35 |
|
| $ | 2.58 |
|
| $ | 2.48 |
|
| $ | 2.81 |
|
2016 – Low |
| $ | 0.96 |
|
| $ | 1.96 |
|
| $ | 1.25 |
|
| $ | 0.88 |
|
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |||||||||||||
| 2019– High | $ | 1.85 | $ | 1.57 | $ | 1.97 | $ | 4.20 | ||||||||
| 2019– Low | $ | 1.50 | $ | 1.08 | $ | 1.08 | $ | 1.55 | ||||||||
| 2018 – High | $ | 10.65 | $ | 6.92 | $ | 4.73 | $ | 2.65 | ||||||||
| 2018 – Low | $ | 4.60 | $ | 2.90 | $ | 1.41 | $ | 1.29 | ||||||||
The closing price of our common stock on March 5, 2018,May 8, 2020, was $5.01$1.40. As of March 5, 2018,May 8, 2020, there were approximately 360362 stockholders of record (this number does not include stockholders who hold their stock through brokers, banks and other nominees).
Transfer Agent
The transfer agent of our common stock is Worldwide Stock Transfer, LLC, having an office at One University Plaza, Suite 505, Hackensack, NJ, USA 07601; their phone number is (201) 820-2008.
Penny Stock
Our stock may be deemed a “penny stock.” The Securities and Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure document prepared by the Commission, which: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities’ laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form as the Commission shall require by rule or regulation. The broker-dealer also must provide to the customer, prior to effecting any transaction in a penny stock: (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock if it becomes subject to these penny stock rules.
Rule 144
There were 76,840,52287,352,364 shares of our common stock issued and outstanding at March 6, 2018,May 8, 2020, of which 51,513,687 shares are deemed “restricted securities” or “control securities” within the meaning of Rule 144. Absent registration under the Securities Act, the sale of suchrestricted or control shares is subject to Rule 144, as promulgated under the Securities Act.
In general, under Rule 144, subject to the satisfaction of certain other conditions, a person deemed to be one of our affiliates, who has beneficially owned restricted shares of our common stock for at least one year is permitted to sell in a brokerage transaction, within any three-month period, a number of shares that does not exceed the greater of 1% of the total number of outstanding shares of the same class, or, if our common stock is quoted on a stock exchange, the average weekly trading volume during the four calendar weeks preceding the sale, if greater.
Rule 144 also permits a person who presently is not and who has not been an affiliate of ours for at least three months immediately preceding the sale and who has beneficially owned the shares of common stock for at least six months to sell such shares without restriction other than the requirement that there be current public information as set forth in Rule 144. To the extent that Rule 144 is otherwise available, this provision is currently applicable to all of the restricted shares. If a non-affiliate has held the shares for more than one year, such person may make unlimited sales pursuant to Rule 144 without restriction. The possibility that substantial amounts of our common stock may be sold under Rule 144 into the public market may adversely affect prevailing market prices for the common stock and could impair our ability to raise capital in the future through the sale of equity securities.
Dividend Policy
We have not paid any dividends on our common stock and our Board of Directors (the “Board”) presently intends to continue a policy of retaining earnings, if any, for use in our operations. The declaration and payment of dividends in the future, of which there can be no assurance, will be determined by the Board in light of conditions then existing, including earnings, financial condition, capital requirements and other factors. The Nevada Revised Statutes prohibit us from declaring dividends where, if after giving effect to the distribution of the dividend:
| we would not be able to pay our debts as they become due in the usual course of business; or | ||
| our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution. |
Except as set forth above, there are no restrictions that currently materially limit our ability to pay dividends or which we reasonably believe are likely to limit materially the future payment of dividends on common stock.
ITEM 6. SELECTED FINANCIAL DATA
Smaller reporting companies are not required to provide the information required by this item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Discussion and Analysis
The following discussion and analysis is based upon our consolidated financial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States, and should be read in conjunction with our financial statements and related notes. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In addition, the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, including, but not limited to, those discussed in “Forward Looking Statements,” and elsewhere in this Form 10-K.
| 9 |
Results of Operations
Year Ended Year Ended December 31, 20172019 versus December 31, 20162018
|
| Year Ended December 31, |
|
| Increase / |
|
| Percentage |
| |||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| Change |
| ||||
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Research and development |
| $ | 473,461 |
|
| $ | 302,503 |
|
| $ | 163,958 |
|
|
| 53 |
|
General and administrative |
|
| 1,318,357 |
|
|
| 1,306,457 |
|
|
| 11,900 |
|
|
| 1 |
|
Stock compensation |
|
| 904,004 |
|
|
| 282,262 |
|
|
| 621,742 |
|
|
| 220 |
|
Total operating expense |
| $ | 2,695,822 |
|
| $ | 1,898,222 |
|
| $ | 797,600 |
|
|
| 42 |
|
| Year Ended December 31, | ||||||||||||||||
| 2019 | 2018 | Increase / (Decrease) | Percentage Change | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 745,945 | $ | 368,954 | $ | 376,991 | 102 | % | ||||||||
| General and Administrative | 2,944,377 | 1,639,068 | 1,305,309 | 80 | % | |||||||||||
| Total operating expenses | $ | 3,690,322 | $ | 2,008,022 | $ | 1,682,300 | 84 | % | ||||||||
Research and Development
Research and development (“R&D”) costs represent costs incurred to develop our CellMistTM System and are incurred pursuant to agreements with third party providers and certain internal R&D cost allocations. Payments under these agreements include salaries and benefits for R&D personnel, allocated overhead, contract services and other costs. R&D costs are expensed when incurred. R&D costs, excluding stock based compensation, increased during the year ended December 31, 20172019 compared to 2016,2018, as a result ofincreased efforts related to the timing of our R&D expenses.Company’s regulatory, and product development efforts.
General and Administrative
General and administrative (“G&A”) costs include all expenditures incurred other than research and development related costs, including costs related to personnel, professional fees, travel and entertainment, public company costs, insurance and other office related costs. 20172019 G&A costs, excluding stock basedstock-based compensation, remained flatincreased approximately $1,257,000 compared to 2016 and included an2018. The increase of $294,000is primarily attributable to approximately a $1,129,000 increase in professional fees related to professional feescorporate compliance and $4,000 of othergovernance matters, and approximately a $57,000 increase in payroll costs offset by a $61,000 decrease in personnel costs and $225,000 decrease in investor communications costs.
Stock 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. Stock compensation expense increased during 2017 compared to 2016 due to the May 11, 2017 granthiring of 310,000 stock options withour new chief executive officer in November 2019 and a weighted average grant date fair valuenet increase in other costs of $3.38 per share of which 160,000 vested on the date of grant whereas in 2016, 187,500 stock options were granted with a fair value of $1.40 and were fully vested upon grant.approximately $70,000.
Other Income (Expense)
Other income relates(expense) was approximately $332,000 in 2019 compared to approximately ($113,000) in 2018. 2019 consisted entirely of interest earned on bank account deposits. Otherincome compared to approximately $22,000 of interest income and approximately ($77,000) and ($58,000) of interest expense relates to our convertible promissory notes. Interest expense relates to the stated interest of the convertible promissory notes. Accretionand accretion of debt discount, represents the accretion of the discount appliedrespectively, in 2018. The increase in other income (expense) is attributable to the notesreduction of debt and increased cash on hand as a result of the issuance of detachable warrants and the beneficial conversion feature containedan private placement entered in the notes.to on November 26, 2018.
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 recurring operating losses since inception of $14,740,922.$3,690,322 and $2,008,022 for the years ended December 31, 2019 and 2018. The Company expects to incur losses as it continues development of its products and technologies. Over the past year,Historically, the Company has been funded through the sale of equity securities and proceeds from convertible promissory notes.debt financings. As of December 31, 2017,2019, the Company had $2,906,237$12,185,248 of cash. The Company believes that it currently has sufficient cash to meet its funding requirements over the next year.
Net cash used in operating activities was $1,674,028$3,212,276 during the year ended December 31, 2017,2019, compared to net cash used in operating activities of $1,788,608$2,026,213 during the year ended December 31, 2016.2018. The decreaseincrease in cash used in operating activities is primarily duewas attributable in part, to increased consultant and professional fees, in the timingamount of payments made against accounts payable where the Company had a higher accounts payable balance in 2017 compared$1,266,000, related to 2016.regulatory compliance and submissions as well as corporate compliance and governance matters.
NetThere was no net cash used in investing activities during the years ended December 31, 2019 and 2018.
There was $0no net cash provided by financing activities in 2019 compared to net cash provided by financing activities of $14,517,500 during the year ended December 31, 2017, compared to $951 during the year ended December 31, 2016.2018.
Net cash provided
| 10 |
On November 26, 2018, the Company issued 9,605,000 units of the Company’s equity securities at a price of $1.50 per unit, pursuant to a private placement offering conducted by financing activities was $4,162,234 during the year ended December 31, 2017, comparedCompany resulting in $14,407,500 of proceeds to $1,810,001 during the year ended December 31, 2016.Company.
On October 16, 2017,November 26, 2018, the Company received proceedsissued 730,000 units of $2,300,000 from the October 2017 Private Placement in exchange for the issuanceCompany’s equity securities at a price of Units with each$1.50 per unit, consisting of one share of common stock and one Series H Warrant.
On July 21, 2017,pursuant to a private placement offering conducted by the Company received proceeds of $1,122,610 from the July 2017 Private Placement in exchange for the issuance of Units with each unit consisting of one share of common stock and one Series G Warrant.
On June 28, 2017, KCC exercised 114,493 Series F Warrants for $3.01 per share resulting in the issuanceconversion of 114,493 shares$1,095,000 principal amount of common stock and proceeds of $344,624.loan indebtedness.
On February 23, 2017 and March 9, 2017, we entered into loan agreements with KCC, Sierchio and an Investor whereby KCC, Sierchio and an Investor loaned us $395,000, $25,000 and $25,000, respectively.
On December 6, 2016,13, 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 September 9, 2016, we entered into a loan agreement with KCC whereby KCC agreed to loan us up to $900,000 with an initial loan in the amount of $700,000.
On February 2, 2016, KCC exercised a portion of its Series B Warrant for 2,173,913 shares of our common stock at an exercise price of $0.46 per share resulting in proceeds of $1,000,000.
Dividends
We have neither declared nor paid any dividends on our common stock. We intend to retain our earnings to finance growth and expand our operations and do not anticipate paying any dividends on our common stock in the foreseeable future.
Fair Value of Financial Instruments and Risks
The carrying value of cash and cash equivalents, accounts payable, and contract and contribution 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 and accrued interest 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.
Plans for Next Twelve Months
During the next twelve months we intend to continue our research and development efforts on the CellMistTM System. As part of these efforts we intend to makepursue certain filings with regulatory bodies, including, but not limited to, the FDA, in order to obtainseeking regulatory approvalclearance for the clinical usestudies of the CellMistTM System. There is no assurance the Company will be able to successfully make any such filings or will receive any such clearance.
Share Capital
At December 31, 2017,2019, we had:
| Authorized share capital of 10,000,000 preferred shares with par value of $0.0001. | ||
| Authorized share capital of 500,000,000 common shares with par value of $0.00001 each. | ||
Market Risk Disclosures
We have not entered into derivative contracts either to hedge existing risks or for speculative purposes during the years ended December 31, 20172019 and 2016,2018, and the subsequent period through the date of this annual report.
Off-balanceOff-Balance Sheet Arrangements and Contractual Obligations
We do not have any off-balance sheet arrangements or contractual obligations at December 31, 2017,2019, and the subsequent period through the date of this annual report, that are likely to have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that have not been disclosed in our consolidated financial statements.
Critical Accounting Policies
See “Note 2. Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Smaller reporting companies are not required to provide the information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our audited consolidated financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
The following audited consolidated financial statements are filed as part of this annual report:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the StockholdersShareholders and the Board of Directors of
RenovaCare, Inc.
Pittsburgh, Pennsylvania and Subsidiary
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of RenovaCare, Inc. and Subsidiaries ("the Company"Subsidiary (the “Company”) as of December 31, 20172019 and 2016, and2018, the related consolidated statements of operations, stockholders'stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2017,2019, and the related notes (collectively referred to as the "consolidated financial statements"“financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017,2019, in conformity with accounting principles generally accepted in the United States.States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated 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 auditaudits to obtain reasonable assurance about whether the consolidated 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.
| 13 |
Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/S/ PETERSON SULLIVAN LLPs/ Marcumllp
Marcumllp
We have served as the Company'sCompany’s auditor since 2006.
Seattle, Washington
March 13, 20182018.
Melville, NY
May 14, 2020
RENOVACARE, INC AS OF DECEMBER 31, 2017 AND 2016 December 31, 2017 2016 ASSETS Current assets Cash and cash equivalents Prepaid expenses Total current assets Equipment, net of accumulated depreciation of $370 and $53, respectively Intangible assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable Accounts payable - related parties Contract payable Interest payable to related parties Convertible promissory note payable to related party, net of discount of $534,519 Total current liabilities Interest payable to related parties Convertible promissory notes payable to related party, net of discount of $58,438 Total liabilities 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, 76,145,418 and 70,069,693 shares issued and outstanding at December 31, 2017 and 2016, respectively Additional paid-in capital Retained deficit Total stockholders' equity Total liabilities and stockholders' equity $ 2,906,237 $ 418,031 750 31,535 2,906,987 449,566 581 898 152,854 152,854 $ 3,060,422 $ 603,318 $ 107,336 $ - 61,333 33,290 100,000 150,000 - 15,220 - 165,481 268,669 363,991 90,678 - 1,036,562 - 1,395,909 363,991 - - 762 702 16,404,673 11,290,209 (14,740,922 ) (11,051,584 ) 1,664,513 239,327 $ 3,060,422 $ 603,318
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2019 AND 2018
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 12,185,248 | $ | 15,397,524 | ||||
| Prepaid expenses | 102,500 | 168,707 | ||||||
| Total current assets | 12,287,748 | 15,566,231 | ||||||
| Equipment, net of accumulated depreciation of $951 and $687, respectively | – | 264 | ||||||
| Intangible assets | 152,854 | 152,854 | ||||||
| Total assets | $ | 12,440,602 | $ | 15,719,349 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 169,044 | $ | 222,163 | ||||
| Accounts payable - related parties | 111,696 | 3,000 | ||||||
| Interest payable to related parties | – | 167,497 | ||||||
| Total current liabilities | 280,740 | 392,660 | ||||||
| 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 and 87,175,522 shares issued and outstanding at December 31, 2019 and 2018, respectively | 874 | 872 | ||||||
| Additional paid-in capital | 32,378,833 | 32,187,580 | ||||||
| Retained deficit | (20,219,845 | ) | (16,861,763 | ) | ||||
| Total stockholders' equity | 12,159,862 | 15,326,689 | ||||||
| Total liabilities and stockholders' equity | $ | 12,440,602 | $ | 15,719,349 | ||||
(The accompanying notes are an integral part of these consolidated financial statements)
RENOVACARE, INC. Years Ended December 31, 2017 2016 Revenue Operating expense Research and development General and administrative Total operating expense Loss from operations Other income (expense) Interest income Interest expense Accretion of debt discount Total other income (expense) Net loss Basic and Diluted Loss per Common Share Weighted average number of common shares outstanding - basic and diluted $ - $ - 574,091 309,503 2,121,732 1,588,719 2,695,823 1,898,222 (2,695,823 ) (1,898,222 ) 3,136 1,034 (77,284 ) (15,220 ) (919,367 ) (165,481 ) (993,515 ) (179,667 ) $ (3,689,338 ) $ (2,077,889 ) $ (0.05 ) $ (0.03 ) 74,386,340 69,772,485
RENOVACARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(The accompanying notes are an integral part of these consolidated financial statements)
RENOVACARE, INC. FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 Common Stock Additional Paid-in Retained Total Stockholders' Shares Amount Balance, December 31, 2015 Issuance of common stock from the exercise of warrants Issuance of common stock from the exercise of stock options Stock based compensation due to common stock purchase options Reversal of stock based compensation due to forfeiture of stock options Discount on convertible promissory note due to detachable warrants and beneficial conversion feature Net loss for the year ended December 31, 2016 Balance, December 31, 2016 Issuance of common stock from the exercise of warrants Issuance of common stock from the exercise of stock options October 2017 Private Placement units issued July 2017 Private Placement units issued Stock based compensation due to common stock purchase options Discount on convertible promissory note due to detachable warrants and beneficial conversion feature Net loss for the year ended December 31, 2017 Balance, December 31, 2017 Capital Deficit Equity 67,781,934 $ 678 $ 9,197,970 $ (8,973,695 ) $ 224,953 - 2,273,913 24 1,109,977 - 1,110,001 13,846 - - - - - - 296,123 - 296,123 - - (13,861 ) - (13,861 ) - - 700,000 - 700,000 - - - (2,077,889 ) (2,077,889 ) 70,069,693 702 11,290,209 (11,051,584 ) 239,327 4,592,895 46 344,578 - 344,624 102,580 1 (1 ) - - 920,000 9 2,299,991 - 2,300,000 460,250 4 1,122,606 1,122,610 - - 904,004 - 904,004 - - 443,286 - 443,286 - - - (3,689,338 ) (3,689,338 ) 76,145,418 $ 762 $ 16,404,673 $ (14,740,922 ) $ 1,664,513
(The accompanying notes are an integral part of these consolidated financial statements)
RENOVACARE, INC. Years Ended December 31, 2017 2016 Cash flows from operating activities Net loss Adjustments to reconcile net loss to net cash flows from operating activities Depreciation Stock based compensation expense Accretion of debt discount Changes in operating assets and liabilities: Decrease (increase) in prepaid expenses Increase (decrease) in accounts payable Increase (decrease) in accounts payable - related parties Increase (decrease) in interest payable - related parties Increase (decrease) in contract payable Net cash flows from operating activities Cash flows from investing activity Purchase of equipment Net cash flows from investing activity Cash flows from financing activities Proceeds from exercise of warrants and issuance of common stock Proceeds from the issuance of convertible promissory notes Payments of convertible promissory notes Net cash flows from financing activities Increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosure of cash flow information: Interest paid in cash Income taxes paid in cash Supplemental disclosure of non-cash transactions: Discount on convertible promissory note due to detachable warrants and beneficial conversion feature $ (3,689,338 ) $ (2,077,889 ) 317 53 904,004 282,262 919,367 165,481 30,785 (21,242 ) 107,336 (71,563 ) 28,043 3,195 75,458 15,220 (50,000 ) (84,125 ) (1,674,028 ) (1,788,608 ) - (951 ) - (951 ) 3,767,234 1,110,001 445,000 700,000 (50,000 ) - 4,162,234 1,810,001 2,488,206 20,442 418,031 397,589 $ 2,906,237 $ 418,031 $ 1,825 $ - $ - $ - $ 443,286 $ 700,000
| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Revenue | $ | – | $ | – | ||||
| Operating expenses | ||||||||
| Research and development | 745,945 | 368,954 | ||||||
| General and administrative | 2,944,377 | 1,639,068 | ||||||
| Total operating expenses | 3,690,322 | 2,008,022 | ||||||
| Loss from operations | (3,690,322 | ) | (2,008,022 | ) | ||||
| Other income (expense) | ||||||||
| Interest income | 332,240 | 22,450 | ||||||
| Interest expense | – | (76,831 | ) | |||||
| Accretion of debt discount | – | (58,438 | ) | |||||
| Total other income (expense) | 332,240 | (112,819 | ) | |||||
| Net loss | $ | (3,358,082 | ) | $ | (2,120,841 | ) | ||
| Basic and Diluted Loss per Common Share | $ | (0.04 | ) | $ | (0.03 | ) | ||
| Weighted average number of common shares outstanding - basic and diluted | 87,237,053 | 77,748,437 | ||||||
(The accompanying notes are an integral part of these consolidated financial statements)
RENOVACARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
| Common Stock | Additional Paid | Retained | Total Stockholders' | |||||||||||||||||
| Shares | Amount | -in Capital | Deficit | Equity | ||||||||||||||||
| Balance, December 31, 2017 | 76,145,418 | $ | 762 | $ | 16,404,673 | $ | (14,740,922 | ) | $ | 1,664,513 | ||||||||||
| Issuance of common stock from the exercise of warrants | 569,797 | 6 | 109,994 | – | 110,000 | |||||||||||||||
| Issuance of common stock from the exercise of stock options | 125,307 | 1 | (1 | ) | – | – | ||||||||||||||
| November 2018 Private Placement units issued | 9,605,000 | 96 | 14,407,404 | – | 14,407,500 | |||||||||||||||
| November 2018 Private Placement units issued for deb conversion | 730,000 | 7 | 1,094,993 | – | 1,095,000 | |||||||||||||||
| Stock based compensation | – | – | 170,517 | – | 170,517 | |||||||||||||||
| Net loss for the year ended December 31, 2018 | – | – | – | (2,120,841 | ) | (2,120,841 | ) | |||||||||||||
| Balance, December 31, 2018 | 87,175,522 | 872 | 32,187,580 | (16,861,763 | ) | 15,326,689 | ||||||||||||||
| Issuance of common stock from the cashless exercise of warrants | 176,842 | 2 | (2 | ) | – | – | ||||||||||||||
| Stock based compensation | – | – | 191,255 | – | 191,255 | |||||||||||||||
| Net loss for the year ended December 31, 2019 | – | – | – | (3,358,082 | ) | (3,358,082 | ) | |||||||||||||
| Balance, December 31, 2019 | 87,352,364 | $ | 874 | $ | 32,378,833 | $ | (20,219,845 | ) | $ | 12,158,862 | ||||||||||
(The accompanying notes are an integral part of these consolidated financial statements)
RENOVACARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended December 31, | ||||||||
| 2019 | 2018 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (3,358,082 | ) | $ | (2,120,841 | ) | ||
| Adjustments to reconcile net loss to net cash flows from operating activities | ||||||||
| Depreciation expense | 264 | 317 | ||||||
| Stock based compensation expense | 191,255 | 170,517 | ||||||
| Accretion of debt discount | – | 58,438 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in prepaid expenses | 66,207 | (167,957 | ) | |||||
| (Decrease) increase in accounts payable | (53,119 | ) | 114,827 | |||||
| Increase (decrease) in accounts payable - related parties | (108,696 | ) | (58,333 | ) | ||||
| (Decrease) increase in interest payable - related parties | (167,497 | ) | 76,819 | |||||
| (Decrease) in contract payable | – | (100,000 | ) | |||||
| Net cash flows used in operating activities | (3,212,276 | ) | (2,026,213 | ) | ||||
| Cash flows from investing activity | ||||||||
| Net cash flows from investing activity | – | – | ||||||
| Cash flows from financing activities | ||||||||
| Proceeds from exercise of warrants and issuance of common stock | – | 14,517,500 | ||||||
| Net cash flows from financing activities | – | 14,517,500 | ||||||
| (Decrease) Increase in cash and cash equivalents | (3,212,276 | ) | 12,491,287 | |||||
| Cash and cash equivalents at beginning of period | 15,397,524 | 2,906,237 | ||||||
| Cash and cash equivalents at end of period | $ | 12,185,248 | $ | 15,397,524 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest paid in cash | $ | 167,497 | $ | 1,825 | ||||
| Income taxes paid in cash | $ | – | $ | – | ||||
| Supplemental disclosure of non-cash transactions: | ||||||||
| Debt conversion | $ | – | $ | 1,095,000 | ||||
(The accompanying notes are an integral part of these consolidated financial statements)
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RENOVACARE, INC. AND SUBSIDIARY
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) a solution sprayer device (thethe “SkinGunTM”) for delivering the cells to the treatment area. The Company has filed additional patent applications related to the CellMistTM Solution and SkinGunTM technologies.
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, 2016,2019, the Company had approximately $418,031$12,185,248 of cash on hand. On March 9, 2017, the Company completed the sale of three convertible promissory notes and warrants and received $445,000. On June 28, 2017, the Company received $344,624 upon the exercise of 114,493 Series F Warrants. On July 21, 2017, the Company completed a private placement, whereby the Company received proceeds of $1,122,610 from the sale of common stock and warrants. On October 16, 2017, the Company completed a private placement, whereby the Company received proceeds of $2,300,000 from the sale of common stock and warrants. 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, and note maturity date extensions, it currently has sufficient cash to meet its funding requirements over the next yeartwelve months following the issuance of this Annual Report on Form 10-K. However, the Company has experienced and these events alleviatecontinues 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 conditionsnext 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 initially indicated substantial doubt about the Company’s ability to continue as a going concern.such financing and capital might be available.
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America, which contemplates continuation of the Company as a going concern, which is dependent upon the Company’s ability to establish itself as a profitable business.
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.Sciences Corp. All significant intercompany transactions and balances have been eliminated. RenovaCare Sciences was incorporated under the laws of the State of Nevada on June 12, 2013.
ApplicableNew Accounting GuidanceStandards
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 July 2017,February 2016, the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. Management is currently assessing the impact the adoption of ASU 2017-11 will have on the Company’s Consolidated Financial Statements.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for public business entities for reporting periods for which financial statements have not yet been issued. Management is currently assessing the impact the adoption of ASU 2017-09 will have on the Company’s Consolidated Financial Statements.
In February 2016, the 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 will currentlydid not have noan impact on its consolidated financial statements.
In November 2015,December 2019, the FASB issued ASU No. 2015-17,2019-12, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” (“Simplifying the Accounting for Income Taxes,” which is intended to simplify various aspects related to accounting for income taxes. ASU 2015-17”). The standard requires that deferred tax assets2019-12 removes certain exceptions to the general principles in Topic 740 and liabilities be classified as noncurrent onalso clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the balance sheet rather than being separated into current and noncurrent.Company beginning in fiscal 2021. The Company adoptedis currently assessing the guidance under ASU 2015-17 with no material impact that this pronouncement will have on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, to clarify the principles used to recognize revenue for all entities. In March 2016, the FASB issued ASU 2016-08 to further clarify the implementation guidance on principal versus agent considerations. The guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company has determined that the adoption of ASU 2014-09 will currently have no impact 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 accounting principles generally accepted in the United States of AmericaUS 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.
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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 accounts payable, and contractaccounts 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 and accrued interest due to the complex terms. Management is of the opinion that theThe 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.
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:
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Estimated Useful Lives | ||||
| 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 CellMistTMSystem is not impaired.
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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.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, 20172019 and 2016:2018:
| 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 | ||||||
Years Ended December 31, 2017 2016 Basic and Diluted EPS Computation Numerator: Loss available to common stockholders' Denominator: Weighted average number of common shares outstanding Basic and diluted EPS 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 Warrants Convertible debt Total shares not included in the computation of diluted losses per share $ (3,689,338 ) $ (2,077,889 ) 74,386,340 69,772,485 $ (0.05 ) $ (0.03 ) 545,000 385,000 3,609,158 7,280,503 619,266 464,428 4,773,424 8,129,931
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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 9.8. 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, 20172019 and 2016.2018.
Note 4. Contract Payable
On June 9, 2014, the Company, together with its wholly owned subsidiary, RenovaCare Sciences, entered into an amended asset purchase agreement (the “Amended APA”) with Dr. Jörg Gerlach, MD, PhD, pursuant to which RenovaCare Sciences purchased all of Dr. Gerlach's rights, title and interest in the CellMist™ System. The Amended APA provided for cash payments of $300,000 as partial consideration for the purchase which are payable as follows: (a) $100,000 on December 31, 2014; (b) $50,000 on December 31, 2015; (c) $50,000 on December 31, 2016; and (d) $100,000 on December 31, 2017. At December 31, 2017, $100,000 of the amount payable to Dr. Gerlach was recorded as current liabilities in the accompanying consolidated balance sheet and was paid on January 24, 2018.
See also “Note 9. Related Party Transactions.”
Note 5.4. Debt
As of December 31, 2017 and 2016, the Company had the following outstanding debt balances:
Issue Maturity Debt Interest Date Date Principal Discount Balance Payable As of December 31, 2017: February 2017 Note as amended 2/23/2017 12/31/2019 September 2016 Note as amended 9/9/2016 12/31/2019 As of December 31, 2016: September 2016 Note as amended 9/9/2016 12/31/2019 $ 395,000 $ (58,438 ) $ 336,562 $ 24,074 700,000 - 700,000 66,604 $ 1,095,000 $ (58,438 ) $ 1,036,562 $ 90,678 $ 700,000 $ (534,519 ) $ 165,481 $ 15,220
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. Except forOn November 26, 2018, KCC and the extensionCompany 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 maturityCompany’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 February NoteWarrants 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 not otherwise amended and continuespaid off in full forceon July 22 and effect.24, 2019. The Company does not have any debt on its balance sheet as of December 31, 2019.
During the year ended December 31, 2017,2019 and 2018, the Company recognized $25,899$0 and $27,151 of interest expense and $384,848$0 and $58,438 of accretion related to the debt discount. The remaining debt discount, of $58,438 will be amortized over the next quarter through March 31, 2018.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, 2017.2018. 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. Except for the extension of the maturity date, the Note was not otherwise amended and continues in full force and effect. 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”).
| 24 |
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 Loan Agreement provides KCC with registration rights for all of the shares issuable upon conversion of the Note and exercise of the Series E Warrant, beginning on the first anniversary of the Loan Agreement.
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, 20172019 and 2016,2018, the Company recognized $51,385$0 and $15,220,$49,680, respectively, of interest expense and $534,519 and $165,481, respectively,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 6.5. Common Stock and Warrants
Common Stock
At December 31, 2017,2019, the Company had 500,000,000 authorized shares of common stock with a par value of $0.00001 per share, 76,145,41887,352,364 shares of common stock outstanding and 19,338,57217,440,765 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 7.6. Stock Options” for further discussion.
During the year ended December 31, 2017,2019, the Company had the following common stock related transactions:
During the year ended December 31, 2018, the Company had the following common stock related transactions:
| On February | ||
| On February | ||
| On |
| • | ||
| ||
| 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 | ||
| 25 |
| · | On February 22, 2018, Joseph Sierchio, a member of the Company’s board of directors 1) exercised options to | |
| · | 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, |
Warrants
The following table summarizes information about warrants outstanding at December 31, 20172019 and 2016:2018:
|
| Shares of Common Stock Issuable |
|
| Weighted Average |
|
| ||||||||
| December 31, |
|
| December 31, |
|
| Exercise |
|
|
| |||||
Description |
| 2017 |
|
| 2016 |
|
| Price |
|
| Expiration | ||||
Series A |
|
| 720,000 |
|
|
| 960,000 |
|
| $ | 0.35 |
|
| July 12, 2019 | |
Series B |
|
| - |
|
|
| 1,326,087 |
|
| $ | 0.46 |
|
| November 29, 2018 | |
Series C |
|
| - |
|
|
| 3,500,000 |
|
| $ | 0.49 |
|
| November 29, 2018 | |
Series D |
|
| 910,000 |
|
|
| 910,000 |
|
| $ | 1.10 |
|
| June 5, 2020 | |
Series E |
|
| 584,416 |
|
|
| 584,416 |
|
| $ | 1.54 |
|
| September 8, 2021 | |
Series F |
|
| 14,492 |
|
|
| - |
|
| $ | 3.45 |
|
| February 23, 2022 & March 9, 2022 | |
Series G |
|
| 460,250 |
|
|
| - |
|
| $ | 2.68 |
|
| July 21, 2022 | |
Series H |
|
| 920,000 |
|
|
| - |
|
| $ | 2.75 |
|
| October 16, 2022 | |
Total |
|
| 3,609,158 |
|
|
| 7,280,503 |
|
|
|
|
|
|
| |
| 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 Series B Warrant with an exercise price of $0.46 to purchase 3,500,000up to 480,000 shares of common stock was issued on November 29, 2013 to KCC in connection with the 11/29 Financing. On February 2, 2016, KCC exercised a portion of its Series B Warrant for 2,173,913 shares of the Company’s common stock resulting in proceeds of $1,000,000. On March 1, 2017, KCC exercised, in full, on a cashless basis and the remaining 1,326,087Company issued him 457,480 shares of common stock. On August 26, 2019, Dr. Gerlach exercised a Series B WarrantsA Warrant to purchase up to 240,000 shares, on a cashless basis, resulting in the issuance of 1,181,194176,842 shares of common stock.
A Series C Warrant with an exercise price of $0.49, to purchase 3,500,000 shares of common stock was issued on November 29, 2013 to KCC in connection with a financing. On March 1, 2017, KCC exercised, in full, on a cashless basis, the 3,500,000 Series C Warrants resulting in the issuance of 3,092,637 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
| 26 |
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 5.4. 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 5.4. 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 6.5. Common Stock and Warrants”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 7.6. 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, 2017,2019, there were 19,338,57217,440,765 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 $100,000. Options granted pursuant to the 2013 Plan are exercisable no later than ten years after the date of grant.
The exercise price per share of common stock for options granted under the 2013 Plan will be the fair market value of the Company's common stock on the date of grant, using the closing price of the Company's common stock on the last trading day prior to the date of grant, except for incentive stock options granted to a holder of ten percent or more of the Company's common stock, for whom the exercise price per share will not be less than 110% of the fair market value. No option can be granted under the 2013 Plan after June 20, 2023. The Company adopted ASU 2016-09 effective January 1, 2017 with no effect on retained deficit or other components of equity as of the beginning of the period.
| 27 |
Stock Option Activity
The following table summarizes stock option activity for the period ended December 31, 2017:2019:
|
| Number of Options |
|
| Weighted Average Exercise Price ($) |
|
| Weighted Average Remaining Contractual Term |
| Aggregate Intrinsic Value ($) |
| |||
Outstanding at December 31, 2015 |
|
| 257,500 |
|
|
| 1.07 |
|
|
|
|
|
| |
Grants |
|
| 187,500 |
|
|
| 1.92 |
|
|
|
|
|
| |
Forfeitures |
|
| (40,000 | ) |
|
| 1.65 |
|
|
|
|
|
| |
Exercises |
|
| (20,000 | ) |
|
| 0.80 |
|
|
|
|
|
| |
Outstanding at December 31, 2016 |
|
| 385,000 |
|
|
| 1.42 |
|
|
|
|
|
| |
Grants |
|
| 310,000 |
|
|
| 4.20 |
|
|
|
|
|
| |
Exercises |
|
| (150,000 | ) |
|
| 1.12 |
|
|
|
|
|
| |
Outstanding at December 31, 2017 |
|
| 545,000 |
|
|
| 3.09 |
|
| 8.61 years |
|
| 972,325 |
|
Exercisable at December 31, 2017 |
|
| 390,000 |
|
|
| 2.80 |
|
| 8.47 years |
|
| 805,475 |
|
Available for grant at December 31, 2017 |
|
| 19,338,572 |
|
|
|
|
|
|
|
|
|
|
|
| Number of Options | Weighted Average Exercise Price ($) | 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 310,0002,000,000 stock options granted during the year ended December 31, 2017 with2019 to CEO, Alan L. Rubino. During the year ended December 31, 2019, there were no options exercised on a weighted-average grant date fair value of $3.38. There were 187,500 stockcashless basis. Non-employee options grantedare re-measured each reporting period and adjusted to reflect the re-measurement. Final re-measurement was done during the year ended December 31, 2016 with a weighted-average grant date fair value of $1.41. During2019 when the year ended December 31, 2017, there were 150,000 options exercised on a cashless basis resulting in the issuance of 102,582 shares of common stock, with an aggregate intrinsic value of $397,100. During the year ended December 31, 2016, there were 20,000 options exercised on a cashless basis resulting in the issuance of 13,846 shares of common stock, with an aggregate intrinsic value of $36,000.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, |
| Years Ended December 31, | ||||||||||||
|
| 2017 |
|
| 2016 |
| 2019 | 2018 | ||||||||
Risk-free interest rate |
| 1.93% - 2.39 | % |
| 1.23%-1.41 | % | 1.65 | % | 2.97 | % | ||||||
Expected life in years |
| 5.5 – 10.0 |
| 5.5 |
| 3.33 | 5.5 | |||||||||
Weighted Avg. Expected Volatility |
| 98% - 106 | % |
| 92 | % | 102 | % | 108 | % | ||||||
Expected dividend yield |
| 0 |
| 0 |
| 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, 20172019 and 2016,2018, the Company recognized $904,004$191,255 and $282,262,$170,517, respectively, in share-based compensation. As of December 31, 2017,2019, the Company had approximately $165,000 of$2,236,541 unrecognized compensation cost related to unvested stock options which is expected to be recognized over a period of 1.0 years.amortized through 2022. Stock-based compensation has been included in the Consolidated Statementconsolidated statement of Operationsoperations as follows:
|
| Years Ended December 31, |
| Years Ended December 31, | ||||||||||||
|
| 2017 |
| 2016 |
| 2019 | 2018 | |||||||||
Research and development |
| $ | 100,630 |
| $ | - |
| $ | – | $ | 27,967 | |||||
General and administrative |
|
| 803,374 |
|
|
| 282,262 |
| 191,255 | 142,550 | ||||||
Total |
| $ | 904,004 |
|
| $ | 282,262 |
| $ | 191,255 | $ | 170,517 | ||||
The following table summarizes information about stock options outstanding and exercisable at December 31, 2017:2019:
|
|
| Stock Options Outstanding |
| Stock Options Exercisable |
| Stock Options Outstanding | Stock Options Exercisable | ||||||||||||||||||||||||||||||||||||||||||
Range of Exercise Prices | 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 |
| 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 | ||||||||||||||||||||||||||||||
| 0.80 |
| 10,000 |
| 6.62 |
| 0.80 |
| 10,000 |
| 6.62 |
| 0.80 |
| ||||||||||||||||||||||||||||||||||||
| 1.05 |
| 55,000 |
| 6.25 |
| 1.05 |
| 35,000 |
| 6.25 |
| 1.05 |
| ||||||||||||||||||||||||||||||||||||
| 1.25 |
| 7,500 |
| 7.46 |
| 1.25 |
| 7,500 |
| 7.46 |
| 1.25 |
| ||||||||||||||||||||||||||||||||||||
| 1.34 |
| 7,500 |
| 7.50 |
| 1.34 |
| 7,500 |
| 7.50 |
| 1.34 |
| ||||||||||||||||||||||||||||||||||||
| 1.65 |
| 10,000 |
| 7.84 |
| 1.65 |
| 10,000 |
| 7.84 |
| 1.65 |
| ||||||||||||||||||||||||||||||||||||
| 1.70 |
| 7,500 |
| 7.79 |
| 1.70 |
| 7,500 |
| 7.79 |
| 1.70 |
| ||||||||||||||||||||||||||||||||||||
| 1.91 |
| 130,000 |
| 8.21 |
| 1.91 |
| 130,000 |
| 8.21 |
| 1.91 |
| ||||||||||||||||||||||||||||||||||||
| 2.28 |
| 7,500 |
| 8.55 |
| 2.28 |
| 7,500 |
| 8.55 |
| 2.28 |
| ||||||||||||||||||||||||||||||||||||
| 4.20 |
|
| 310,000 |
|
|
| 9.36 |
|
|
| 4.20 |
|
|
| 175,000 |
|
|
| 9.36 |
|
|
| 4.20 |
| |||||||||||||||||||||||||
| 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 | Total |
|
| 545,000 |
|
|
| 8.61 |
|
| $ | 3.09 |
|
|
| 390,000 |
|
|
| 8.47 |
|
| $ | 2.80 |
| 2,317,500 | 5.68 | $ | 2.54 | 317,500 | 4.42 | $ | 3.41 | |||||||||||||||||
Note 8.7. 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, 20172019 and 20162018 was $9,600$0 and $9,500,$6,400, respectively.
On August 1, 2013, the The Company and Vector Asset Management, Inc. (“Vector”)has subsequently entered into a Consulting Agreement whereby Vector will assist the Company with identifying subject matter experts in the medical device and biotechnology industries and to assist the Company with its ongoing research, development and eventual commercialization of its Regeneration Technology (collectively, the “Services”). On May 1, 2016, Vector and the Company entered into an amendment to the consulting agreement. Pursuant to the amendment, the term of the agreement terminates only upon written notice, and the monthly consulting fee, in consideration of the Services, was increased to $6,800 from $5,000. No other changes were made to the agreement.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 $219,806$314,189 and $184,517 in$80,229 during the years ended December 31, 20172019 and 2016,2018, respectively. Dr. Gerlach, from whom the Company purchased the “SkinGunTM and the technology on which the CellMistTM System technologies,technology is based, is a principal of StemCell Systems.
On August 1, 2017,June 3, 2019, the Company andentered into a Charitable Gift Agreement with the University of Pittsburgh entered into(“University”), pursuant to which the Company committed to provide a Corporate Research Agreement wherebycharitable donation to the University in the agreement amount of Pittsburgh$250,000 (the “Grant”). The Company will perform academic research relatedpay 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 Company’s technologies in exchange for $171,595 with $42,899 due on August 1, 2017; $42,899 due on November 1, 2017; $42,899 due on February 1, 2018 and $42,898 due on May 31, 2018. Asterms of December 31, 2017,the Grant, the Company had paid one advance and $42,899will recognize the related expense upon payment. Dr. Gerlach, from whom the Company purchased the SkinGunTM technology, is recorded as accounts payable ina professor at the accompanying consolidated balance sheets as of December 31, 2017.University.
See also “Note 9.8. Related Party Transactions.”
Note 9.8. 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 one of the Company’s directors, iswas a partner, providescontinued to provide counsel to the Company.Company through July 31, 2019, following which Mr. Sierchio iscommenced providing, through Sierchio Law LLP, general corporate counsel services to the Company’s primary attorney.Company. During the years ended December 31, 20172019 and 2016,2018, the Company recognized $277,933$384,021 and $168,775$577,718 of fees for legal services billed by firms associated with Mr. Sierchio.Satterlee. At December 31, 20172019 and 2016,2018, accounts payable to Satterlee amounted to $0 and $171,828, respectively. During 2019, the Company owed Satterlee $30,000 and $11,750 which is included in accounts payable. Mr.recognized $72,917 for legal services billed by Sierchio continuesLaw, LLP. At December 31, 2019, there were no amounts due to serve as a director of the Company.Sierchio Law, LLP.
In connection with the Company’s anticipated FDA and other regulatory filings, the Company engaged StemCell Systems to provide it withundertake engineering work, perform preclinical testing and performance measurements, manufacture prototypes, and related documents.generate documentation. Pursuant to this engagement the Company incurred expenses of $219,806$314,189 and $184,517$80,229 in during the years ended December 31, 20172019 and 2016,2018, 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, 20172019 and 2016,2018, the Company recognized expenses related to Dr. Gerlach services of $38,540$0 and $42,480,$7,020, respectively. Accounts payable to Dr. Gerlach amounted to $17,640$0 and $18,540$0 at December 31, 20172019 and 2016,2018, 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., Mr. Bhogal is an individual owning in excess of 5% of our issued and outstanding shares of common stock. (“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 as amended,(“ECA”) whereby VAM will cause Mr. Bhogal, receivedand 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 $81,600 and $74,400 during$120,000 per year. During the yearsyear ended December 31, 20172019 and 2016 in connection with the consulting agreement.
On September 25, 2014,2018, the Company entered into a Charitable Grant Agreement with the Universityrecognized expenses of Pittsburgh, pursuant to which the Company committed to provide a charitable donation to the University of Pittsburgh in the aggregate amount of $75,000. The Company paid the Grant in eight quarterly installments of $9,375, with the final payment made on July 22, 2016. Dr. Gerlach, from whom the Company purchased the CellMistTM System technologies, is a professor at the University of Pittsburgh.
On February 2, 2016, KCC exercised a portion of its Series B Warrant$120,850 and $103,467, respectively for 2,173,913 shares of the Company’s common stock at an exercise price of $0.46 per share resulting in proceeds of $1,000,000.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 5.4. Debt” for further discussion.
On January 10, 2017, Dr. Gerlach exercised a Series A Warrant to purchase up to 240,000 shares, on a cashless basis, resulting in the issuance of 204,571 shares of common stock.
On February 2, 2017, Kenneth Kirkland, a member of the Company’s board of directors, exercised options to purchase up to 40,000 shares, on a cashless basis, resulting in the issuance of 29,642 shares of common stock.
On February 10, 2017, Joseph Sierchio, a member of the Company’s board of directors, exercised options to purchase up to 70,000 shares, on a cashless basis, resulting in the issuance of 38,642 shares of common stock.
On February 17, 2017, Thomas Bold, the Company’s President, CEO and Interim Chief Financial Officer exercised options to purchase up to 40,000 shares, on a cashless basis, resulting in the issuance of 34,296 shares of common stock.
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.
March 1, 2017, KCC exercised 1,326,087 Series B Warrants and 3,092,637 Series C Warrants, on a cashless basis, resulting in the issuance of 4,273,831 shares of common stock.
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.
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 6.5. Common Stock and Warrants” for further discussion.
On August 1, 2017, the Company and the University of Pittsburgh entered into a Corporate Research Agreement whereby the University of Pittsburgh will perform academic research related to the Company’s technologies in exchange for $171,595.February 12, 2018, Dr. Gerlach from whomexercised a Series A Warrant to purchase up to 480,000 shares, on a cashless basis, resulting in the Company purchased the CellMistTM System technologies, is a professor at the University.issuance of 457,480 shares of common stock.
On October 16, 2017,February 22, 2018, Kenneth Kirkland, a member of the Company entered intoCompany’s board of directors, exercised options to purchase up to 50,000 shares, on a cashless basis, resulting in the October 2017 Private Placement with Joseph Sierchio for the saleissuance of 10,00041,033 shares of common stock at a price of $2.50 per share for $25,000 in aggregate proceeds. Additionally,stock.
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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 concurrent private placement, received oneSeries 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 for each share of stock purchased for no additional consideration. Each Series H Warrant has an exercise price of $2.75 per share through October 16, 2022. The warrants may be exercisedto purchase up to 10,000 shares, on a cashless basis. See “Note 6. Common Stockbasis, 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 Warrants” for further discussion.Chairman and CEO.
Note 10.9. 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.
On December 22, 2017, the President of the United States signed into law H.R. 1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Cuts and Jobs Act”). ASC Topic 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment. The Tax Cuts and Jobs Act made significant changes to existing U.S. tax law, including, but not limited to, a permanent reduction to the U.S. federal corporate income tax rate from 35% to 21%, imposition of a one-time tax on deferred foreign income (“Repatriation Transition Tax”), adoption of a participation exemption system with respect to the taxation of future dividends received from foreign corporations, and repeal of the corporate alternative minimum tax system. Other significant changes in the Tax Cuts and Jobs Act include taxing payments made to foreign related parties that are deemed to be excessive, imposing a minimum tax on certain foreign earnings, requiring (beginning after December 31, 2021) the capitalization and subsequent amortization of certain research and development related expenses, and placing additional limits on the use of net operating losses and the deductibility of certain executive compensation. The reduction of the Company’s deferred tax assets resulting from the Tax Cuts and Jobs Act’s reduction in the U.S. federal corporate income tax rate from 35% to 21% amounted to $1,831,000 during 2017.
There is no current or deferred tax expense for 20172019 and 2016,2018, 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:
|
| 2017 |
|
| 2016 |
| ||
Deferred tax assets: |
|
|
|
|
|
| ||
Net operating loss and contribution carryforwards |
| $ | 2,480,000 |
|
| $ | 3,217,000 |
|
Intangible asset |
|
| 85,000 |
|
|
| 158,000 |
|
Capital loss carryforward |
|
| 146,000 |
|
|
| 236,000 |
|
Stock-based compensation |
|
| 247,000 |
|
|
| 139,000 |
|
|
|
| 2,958,000 |
|
|
| 3,750,000 |
|
Valuation allowance |
|
| (2,958,000 | ) |
|
| (3,750,000 | ) |
Net deferred tax assets |
| $ | - |
|
| $ | - |
|
| 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 2017 decrease2019 increase in the valuation allowance was $792,000$711,000 compared to an increase of $974,000$403,000 in 2016.2018.
The Company has available net operating loss and contribution carryforwards of approximately $11,810,000$18,277,000 for tax purposes to offset future taxable income which $11,592,000 incurred prior to 2018 expire commencing 2018 through to the year 2037.2037 while $6,685,000 incurred subsequent do not expire. The capital loss carryforward expiresexpired 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 20152016 through 20172019 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:
|
| 2017 |
|
| 2016 |
| 2019 | 2018 | ||||||||
Statutory federal income tax rate |
| 34 | % |
| 34 | % | 21 | % | 21 | % | ||||||
Permanent differences and other |
| (5 | )% |
| 13 | % | 0 | % | (2 | %) | ||||||
Deferred tax impact from tax rate change |
| (50) | % |
| ||||||||||||
Valuation allowance |
| 21 | % |
| (47 | )% | (21 | )% | (19 | %) | ||||||
|
| 0 | % |
| 0 | % | ||||||||||
| Total | 0 | % | 0 | % | ||||||||||||
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Note 11.10. Subsequent Events
Management has reviewed material events subsequent of the period ended December 31, 20172019 and prior to the filing of financial statements in accordance with FASB ASC 855 “Subsequent Events”.Events.”
On January 26, 2018,2 2020, 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 3, 2018, Thomas Bold, the Company’s President, CEO and Interim Chief Financial Officer exercised optionsgranted Alan L. Rubino, an option to purchase up to 60,000 shares, on a cashless basis, resulting in the issuance of 44,083620,571 shares of the Company’s common stock.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.
On
The Company has entered into a two-year lease dated February 11, 2018,18, 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 consultant exercised options to purchase up to 40,000 shares,result of the COVID-19 pandemic discussed below. The lease terminates on a cashless basis, resultingthe last day of the calendar month immediately preceding the calendar month in which the issuancesecond anniversary of 17,480 shares of common stock.the commencement date occurs.
On February 12, 2018, Dr. Gerlach exercised a Series A WarrantThe Company already has been impacted by the measures taken by government officials to purchase upcontain 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 480,000 shares,prevent the further spread of COVID-19 in their respective states. Construction was stopped on a cashless basis, resultingthe Company’s new offices in the issuance of 457,480 shares of common stock.New Jersey due to Federal and State restrictions.
On February 13, 2018, a Series D WarrantHowever, it is not possible at this time to purchase 100,000 sharesfully assess the impact of common stock with an exercise price of $1.10 per share was exercised resulting in $110,000the 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.
On February 22, 2018, Kenneth Kirkland, a Company, Director, 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 Company Director, 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;if at all; (iii) delay regulatory submissions and 3) 2) 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 January 25, 2018,approvals; (iv) delay, limit or preclude the Company paidfrom securing clinical study sites; (v) delay, limit or preclude the UniversityCompany 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 Pittsburgh $85,798 pursuantany one or more of such events may affect the Company’s ability to the Corporate Research Agreement dated August 1, 2017.continue on its pathway to commercialization of its technology or products.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
UnderAs of the end of the period covered by this Annual Report on Form 10-K, we performed an evaluation under the supervision of and with the participation of our management, including our ChiefPrincipal Executive Officer and ChiefPrincipal Financial Officer, we conducted an evaluation of the effectiveness of the design and operationeffectiveness of our disclosure controls and procedures as(as defined in Rules 13a-15(e) andor 15d-15(e) under the Securities Exchange Act of 1934 as amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Acting Principal Financial Officer concluded, as of the end of the period covered by this annual report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2017,Annual Report that our disclosure controls and procedures were not effective suchdue to material weaknesses in internal control over financial reporting as discussed and defined in Management’s Report on Internal Control over Financial Reporting referred to below.
Our management has concluded that our consolidated financial statements for the information required to be disclosedperiods covered by and included in ourthis Annual Report are prepared in accordance with accounting principles generally accepted in the United States Securities(“GAAP”) and Exchange Commission (the “SEC”) reports is recorded, processed, summarizedfairly present, in all material respects, our financial position, results of operations and reported withincash flows for each of the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.presented herein.
Based
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Evaluation of and Report on Internal Control over Financial Reporting
Our senior management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the evaluation, management, after evaluatingExchange Act as a process designed by, or under the effectivenesssupervision of, our “disclosure controlsprincipal executive and procedures” (as defined in Exchange Act Rules 13a-15(e)principal financial officers, or persons performing similar functions, and 15d-15(e)), have concluded that, aseffected by our Board of December 31, 2017, our disclosure controlsDirectors, senior management and procedures were effective in providingother personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.GAAP.
EvaluationBecause of and Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequateits inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We continue to review our internal control over financial reporting. Management,reporting and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
Under the supervision and with the participation of ourmanagement, including the Chief Executive Officer and ChiefActing Principal Financial Officer, has evaluatedwe conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that our internal control over financial reporting was not effective at December 31, 2019 because of the material weaknesses described below.
As of our fiscal year ended December 31, 2019 and based on the COSO criteria, management identified control deficiencies that constituted material weaknesses. A “material weakness”, as defined by COSO, is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is more than a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management identified the following material weaknesses in our internal control over financial reporting as of December 31, 2017, based2019:
Because of the Company’s limited resources, there are limited controls over information processing.
There is inadequate segregation of duties consistent with control objectives. Our Company’s management is comprised of a very small number of individuals resulting in a situation where limitations of segregation of duties exist. In order to remedy this situation, we would need to hire additional staff to provide greater segregation of duties. In addition, management has conclude that there are ineffective monitoring controls related to the financial close and reporting process, including management’s risk assessment process and its identification, evaluation, and timely remediation of control deficiencies.
Accordingly, as a result of identifying the above material weakness we have concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on the criteria established in Internal Control – Integrated Framework (2013) issueda timely basis by the Committee of Sponsoring Organizations.Company’s internal controls.
BasedManagement believes that the material weaknesses set forth above were the result of the scale of our operations and are intrinsic to our small size.
Management believes these weaknesses did not have a material effect on this evaluation, management concluded that,our financial results and intends to take remedial actions as of December 31, 2017,we further develop our internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.technology.
Changes in Internal Control over Financial Reporting
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the permanent exemption from section 404(b) of the Sarbanes-Oxley Act of 2002 for non-accelerated filers.
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There were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), or in factors that could materially affect internal controls, during the quarteryear ended December 31, 2016,2019, or subsequent to the date that management completed their evaluation, that materially affected, or are reasonably likely to materially affect, our internal control over financing reporting.
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table and text set forth the names and ages of all of all of the persons serving as our directors, and executive officers, of our company as of March 6, 2018.May 13, 2020. All of the directors will serve until the next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. There are no family relationships betweenExecutive officers, subject in each case to the terms and conditions of their respective employment or among the directors, executive officers or persons nominated or charged by our company to become directors or executive officers. Executive officersconsulting agreements, serve at the discretion of the Board, and are appointed to serve by the Board.
Name | Age | Position | Director / Officer Since | |||||
|
| 65 |
| Chief Executive Officer and | November 15, 2019 | |||
| Harmel S. Rayat | 59 | Chairman of the Board | March 2018 | |||||
| Kenneth Kirkland | 78 | Director | August 2013 | |||||
| Steve Yan-Klassen | 51 | Chief Financial Officer |
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Set forth below are the names of all persons currently serving as our directors and executive officers and serving as such as at May 1,3 2020, all positions and offices with us held by each person, the period during which each has served as such, the principal occupations and employment of such persons during at least the last five years, and other director positions held currently or during the last five years:
Alan L. Rubino. Mr. Rubino was appointed Chief Executive Officer of the Company, effective November 15, 2019. Mr. Rubino has over 37 years of experience in the biopharmaceutical industry. Most recently, Mr. Rubino served as the President and Chief Executive Officer of Emisphere Technologies, Inc. from September 2012 to November 2019. While at Emisphere, Mr. Rubino helped to position Emisphere among the leading global oral drug delivery firms. Emisphere’s turnaround was enhanced by a new four molecule collaboration with Novo Nordisk and anchored by the recent FDA approval of Novo Nordisk’s Rybelsus which incorporated Emisphere’s carrier technology to introduce the first-ever oral GLP-1 therapeutic for the treatment of diabetes. Mr. Rubino has previously served as the Chief Executive Officer and President of New American Therapeutics, Inc. from October 2010 to July 2012, Chief Executive Officer and President of Akrimax Pharmaceuticals from February 2008 to September 2010, and President and Chief Operating Officer of the Pharmos Corporation. Mr. Rubino’s distinguished career includes a successful 24 years with Hoffmann-La Roche, Genentech (a subsidiary of Roche), which is one of the world’s top 10 biopharmaceutical companies. Mr. Rubino led eight large revenue business units (over $1 billion in revenues) and launched the first biologic, Roferon-A (alfa-interferon 2a). Based upon Mr. Rubino extensive experience in the biopharmaceutical industry, he was appointed a director and President and Chief Executive Officer on November 15, 2019.
Harmel S. Rayat. Since the 1990s, Mr. Rayat has provided both strategic capital and managerial guidance to a number of entities in various industries, including advertising, biotechnology, news distribution, alternative energy and commercial real estate. Mr. Rayat was invited to join the Board due to his experience in finance, marketing, management and technology start-ups generally and was appointed a director and President and Chief Executive Officer in March 2018. Mr. Rayat resigned as President and Chief Executive Officer on November 15, 2019 and continues to serve as Chairman. Mr. Rayat is the President and sole stockholder of KCC, which beneficially owns approximately 75.44% of our issued and outstanding stock. Mr. Rayat is also a director and Chairman of SolarWindow Technologies, Inc.
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Dr. Kenneth Kirkland. From August 1998 through July 2010, Dr. Kirkland worked as an Executive Director at Iowa State University and most recently served as the University's Executive Director of the Research Foundation and Director of the Office of Intellectual Property and Technology Transfer. While there, he was successful in increasing the licensing of the University's technologies to companies to achieve number one ranking among U.S. universities in the number of licenses executed. Dr. Kirkland also spearheaded successful litigation against infringers of the Research Foundation's intellectual property resulting in total settlements of $20 million. Dr. Kirkland completed his undergraduate studies in the U.K., and obtained his M.S. and Ph.D. degrees in Agronomic Crop Science from Oregon State University. Dr. Kirkland was invited to join the Board due to his extensive experience in licensing intellectual property. Kirkland was appointed a director in August 2013.
Stephen Yan-Klassen. Mr. Yan-Klassen is a Chartered Professional Accountant (“CPA”), a Certified Management Accountant (“CMA”). Mr. Yan-Klassen was a senior manager at Wolrige Mahon Collins Barrow LLP and at BDO Canada LLP, and a practicing CPA at Amisano Hanson Chartered Accountants. Mr. Yan-Klassen’s public company accounting experience includes over fifteen years of auditing financial statements for SEC, Canadian Securities Exchange and TSX Venture Exchange reporting issuers. Areas of expertise include companies with operations in technology, energy, manufacturing and mining in North and South America, Africa, and Southeast Asia. Mr. Yan-Klassen was appointed our Chief Financial Officer on October 22, of 2018.
Jatinder S. Bhogal.Mr. Jay (Jatinder) S. Bhogal, President & CEO of Vector Asset Management, brings 20 years of experience helping finance and build companies in diversified industries, including: online media, health services, medical devices, drug discovery, vaccine production, renewable energy, and others. Numerous breakthrough technologies supported by Mr. Bhogal have grown from inception to achieve $300 million-plus market capitalization. As a private investor, director, and executive, Mr. Bhogal has incubated and directed ventures and projects in collaboration with leading research institutions and government agencies. Mr. Bhogal is also the Chief Operating Officer of RenovaCare, Inc.
The following table and text set forth the names and ages of all of all of the persons who served as our directors and executive officers during some portion of 2018 and 2019 and who resigned prior to April 30, 2020, followed by a description of all positions and offices with us held by each person, the period during which each served as such, the principal occupations and employment of such persons during at least the last five years, and other director positions held currently or during the last five years.
| Name | Age | Position | Director / Officer Since | |||||
| Thomas Bold | 58 | President and Chief Executive Officer and Director | December 2013—March 2018 | |||||
| Joseph Sierchio | 70 | Director | August 2010--June 2018 | |||||
| Patsy Trisler | 71 | VP-Regulatory and Clinical Affairs (NE) | April 2014 –March 2020 | |||||
Thomas Bold. Since 2013 Mr. Bold also has been serving as a Business Consultant and Economic Advisor for StemCell Systems, GmbH. In this position he serves as a member of the steering committee of a multinational research project sponsored by the European Commission. From 2004 through 2012 Mr. Bold served as the CEO of StemCell Systems GmbH, a Berlin-based biomedical company engaged in the development and commercialization of advanced cell culture bioreactors. During his time in this position Mr. Bold managed several national and international research and development projects for the company. Mr. Bold has more than 15 years of professional business experience in the field of medical biotechnology device manufacturing, stem cell culture technology platform development and regenerative medicine research project management and product development. Mr. Bold has co-founded several start-up companies in Germany and specializes in structuring and management of new ventures and organizations. He initiated and managed successful business/R&D collaborations between many company and university partners and has been involved in successful patent application processes and IP portfolio management. Mr. Bold has assisted companies in securing millions of dollars of funding from local and national German research organizations and the European Commission and managed national and international life science R&D projects for Hybrid Organ GmbH, StemCell Systems GmbH and the Charité Medical Faculty of the Berlin Universities, Germany. He initiated and managed several skin therapy project consortia on wound dressing development, skin cell isolation technologies and skin cell spray deposition devices. Mr. Bold received his Bachelor's degree in Business Management from the University of Cologne, Germany and his Diplom-Kaufmann (Masters') degree in Business Management, Economic Journalism and American Economy from the Freie Universität Berlin. Mr. Bold was appointed President and Chief Executive Officer of RenovaCare in December 2013. From April 2016 to October 22, 2018, he also served as our interim Chief Financial Officer. On March 30, 2019, Mr. Bold resigned his position as the Company’s President and as a member of the Board of Directors. Pursuant to an at will consulting agreement Mr. Bold continues to provide consulting services to us on a limited part-time basis.
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Patsy Trisler, JD, RAC. For over 20 years Ms. Trisler has provided strategic regulatory guidance and clinical compliance consulting services to medical device companies, including advising on non-clinical and clinical testing requirements for a variety of product types; preparing FDA submissions; facilitating FDA meetings; training on compliance with GCPs & FDA regulatory requirements. Ms. Trisler has been a regulatory consultant since 1991 and has held senior level positions where she provided consulting services for pharmaceutical, biotechnology and medical device clients and was most recently an independent consultant for a number of clients within the medical products industry. Prior to that Ms. Trisler served for nearly seven years at the FDA as a scientific reviewer and special assistant to the Director of the Office of Device Evaluation in developing medical device policies and guidances. She began her career as a biologist in a molecular biology laboratory at the National Cancer Institute (NCI). Ms. Trisler received her B.S. in biology and psychology from American University in Washington, DC, and her juris doctorate from the Potomac School of Law/Antioch Law School in Washington, DC. Ms. Trisler is regulatory affairs certified (RAC) and a member of several professional groups including the Association of Clinical Research Professionals (ACRP) and Regulatory Affairs Professional Society (RAPS). Ms. Trisler was appointed to serve as our Vice-President, Regulatory & Clinical Affairs due to her extensive regulatory guidance and clinical compliance experience. On March 25, 2020, Ms. Trisler resigned her position as the Company’s Vice-President, Regulatory & Clinical Affairs. Pursuant to an at will consulting agreement Ms. Trisler continues to provide consulting services to us on a limited part-time basis.
Joseph Sierchio.Mr. Sierchio earned his J.D. at Cornell University Law School in 1974, and a B.A., with Highest Distinction in Economics from Rutgers College at Rutgers University in 1971. Mr. Sierchio has been engaged inis the practiceprincipal of law asSierchio Law, LLP, and provides General Corporate Counsel services to us. Prior to establishing Sierchio Law, LLP, Mr. Sierchio was a member ofpartner at Satterlee Stephens LLP (now “Duane Morris LLP”), our legal counsel sincefrom September 2016.2016 until August 2019. Prior to that, Mr. Sierchio was engaged in the practice of law as a member of Sierchio & Partners, LLP from May 2007 through September 2016.LLP. Since 1975, Mr. Sierchio has continuously practiced corporate and securities law in New York City, representing domestic and foreign corporations, investors, brokerage firms, entrepreneurs, and public and private companies in the U.S., Canada, United Kingdom, Germany, Italy, Switzerland, Australia, and Hong Kong. Mr. Sierchio is admitted in all New York state courts and federal courts in the Eastern, Northern, and Southern Districts of the State of New York as well as the federal Court of Appeals for the Second Circuit. Mr. Sierchio is also a director of SolarWindow Technologies Inc., which is engaged in the research and development of renewable energy technology. Mr. Sierchio was invited to join the Board due to his experience representing corporations (public and private) and individuals in numerous and various organizational, compliance, administrative, governance, finance (equity and debt private and public offerings), regulatory and legal matters.
Dr. Kenneth Kirkland. From August 1998 through July 2010, Dr. Kirkland worked as an Executive Director at Iowa State University and most recently Mr. Sierchio served as the University's Executive Directora director of the Research Foundation and Director of the Office of Intellectual Property and Technology Transfer. While there, he was successful in increasing the licensing of the University's technologies to companies to achieve number one ranking among U.S. universities in the number of licenses executed. Dr. Kirkland also spearheaded successful litigation against infringers of the Research Foundation's intellectual property resulting in total settlements of $20 million. Dr. Kirkland completedCompany from October 2010 until his undergraduate studies in the U.K., and obtained his M.S. and Ph.D. degrees in Agronomic Crop Science from Oregon State University. Dr. Kirkland was invited to join the Board due to his extensive experience in licensing intellectual property.resignation on June 22, 2018.
Certain Relationships
There are no family relationships between or among the directors, executive officers (or persons nominated or between any ofcharged by our company to become directors or executive officers) non-executive officers significant employees and directors.consultants.
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Consideration of Director Nominees
Director Qualifications
We believe that our Board, to the extent that our limited resources permit, should encompass a diverse range of talent, skill and expertise sufficient to provide sound and prudent guidance with respect to our operations and interests. Each director also is expected to: exhibit high standards of integrity, commitment and independence of thought and judgment; use his or her skills and experiences to provide independent oversight to our business; participate in a constructive and collegial manner; be willing to devote sufficient time to carrying out their duties and responsibilities effectively; devote the time and effort necessary to learn our business; and, represent the long-term interests of all shareholders.
The Board has determined that the Board as a whole must have the right diversity, mix of characteristics and skills for the optimal functioning of the Board in its oversight of our affairs. The Board believes it should be comprised of persons with skills in areas such as: finance; real estate; banking; strategic planning; human resources and diversity; leadership of business organizations; and legal matters. The Board may also consider in its assessment of the Board’s diversity, in its broadest sense, reflecting, but not limited to, age, geography, gender and ethnicity.
In addition to the targeted skill areas, the Board looks for a strong record of achievement in key knowledge areas that it believes are critical for directors to add value to the Board, including:
| Strategy—knowledge of our business model, the formulation of corporate strategies, knowledge of key | ||
| Leadership—skills in coaching and working with senior executives and the ability to assist the Chief Executive | ||
| Organizational Issues—understanding of strategy implementation, change management processes, group | ||
| Relationships—understanding how to interact with investors, accountants, attorneys, management companies, | ||
| Functional—understanding of finance matters, financial statements and auditing procedures, technical expertise, | ||
| Ethics—the ability to identify and raise key ethical issues concerning our activities and those of senior |
Board of Directors Meetings, Committees of the Board of Directors, and Annual Meeting Attendance
During the fiscal year ended December 31, 2017, the Board held a total of eleven (11) meetings, inclusive of actions by written consent. All members of the Board attended 100% of all meetings of the Board. We do not maintain a policy regarding director attendance at annual meetings and we did not have an annual meeting during the fiscal year ended December 31, 2017.
We do not currently have any standing committees of the Board. The full Board is responsible for performing the functions of: (i) the Audit Committee, (ii) the Compensation Committee and (iii) the Nominating Committee.
Our Bylaws provide that the number of Directors shall be fixed from time to time by the Board, but in no event shall be less than the minimum required by law. The Board should be large enough to maintain our required expertise but not too large so as not to function efficiently. Director nominees are recommended, reviewed and approved by the entire Board. The Board believes that this process is appropriate due to the relatively small number of directors on the Board and the opportunity to benefit from a variety of opinions and perspectives in determining director nominees by involving the full Board.
While the Board is solely responsible for the selection and nomination of directors, the Board may consider nominees recommended by stockholders as it deems appropriate. The Board evaluates each potential nominee in the same manner regardless of the source of the potential nominee's recommendation. Although we do not have a policy regarding diversity, the Board does take into consideration the value of diversity among Board members in background, experience, education and perspective in considering potential nominees for recommendation to the Board for selection. Stockholders who wish to recommend a nominee should send nominations to our President and Chief Executive Officer, Thomas Bold, Pittsburgh Life Sciences Greenhouse, 2425 Sidney Street, Pittsburgh, PA 15203,Alan L. Rubino, 4 Becker Farm Road, Suite 195, Roseland, New Jersey 07068, and include all information relating to such person that is required to be disclosed in solicitations of proxies for the election of directors. The recommendation must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve if elected.
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Directors’ and Officers’ Liability Insurance
We currently maintain directors’ and officers’ liability insurance coverage.
Legal Proceedings
None of or directors or officers are involved in any legal proceedings as described in Regulation S-K (§229.401(f)).
During the past five years none of our directors, executive officers, promoters or control persons has been:
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Compliance with Section 16(a) of the Exchange Act
Because we do not have a class of equity securities registered pursuant to section 12 of the Exchange Act we are not required to make the disclosures required by Item 405 of Regulation S-K.
Code of Ethics
We have adopted a Code of Ethics that applies to all of our officers, directors and employees, including our Chief Executive Officer and Chief Financial Officer, which complies with the requirements of the Sarbanes-Oxley Act of 2002 and applicable FINRA listing standards. Accordingly, the Code of Ethics is designed to deter wrongdoing, and to promote, among other things, honest and ethical conduct, full, timely, accurate and clear public disclosures, compliance with all applicable laws, rules and regulations, the prompt internal reporting of violations of the Code of Ethics, and accountability. Our Code of Ethics is available on our website at http://www.renovacareinc.com. To access our Code of Ethics, click on “Investors”, and then click on “Investor Briefcase” and then click on “Code of Ethics”.
A copy of our Code of Ethics may be obtained at no charge by sending a written request to our President and Chief Executive Officer, Thomas Bold, Pittsburgh Life Sciences Greenhouse, 2425 Sidney Street Pittsburgh, PA 15203.Alan L. Rubino, 4 Becker Farm Road, Suite 105, Roseland, New Jersey 07068.
Corporate Governance
We have adopted Corporate Governance Principles applicable to our Board. Our Corporate Governance Principles are available on our website at http://www.renovacareinc.com. To access our Corporate Governance Principles, click on “Investors”,“Investors,” and then click on “Investor Briefcase” and then click on “Corporate Governance Principles”.Principles.”
Board Leadership Structure
We currently have three executive officers and two directors. Our Board has reviewed our current Board leadership structure in light of the composition of the Board, our size, the nature of our business, the regulatory framework under which we operate, our stockholder base, our peer group and other relevant factors, and has determined that this structure is currently the most appropriate Board leadership structure for our company. Nevertheless, the Board intends to carefully evaluate from time to time to determine what the Board believes is best for us and our stockholders.
Board Role in Risk Oversight
Risk is inherent in every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including strategic risks, enterprise risks, financial risks, and regulatory risks. While our management is responsible for day to day management of various risks we face, the Board, as a whole, is responsible for evaluating our exposure to risk and to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed. The Board reviews and discusses policies with respect to risk assessment and risk management. The Board also has oversight responsibility with respect to the integrity of our financial reporting process and systems of internal control regarding finance and accounting, as well as its financial statements.
Director Independence
Our securities are not listed on a U.S. securities exchange and, therefore, are not subject to the corporate governance requirements of any such exchange, including those related to the independence of directors. However, at this time, after considering all of the relevant facts and circumstances, the Board has determined that Dr. Kirkland is independent from our management and qualifies as an “Independent Director” under the standards of independence under the applicable FINRA listing standards. This means that, in the judgment of the Board, Dr. Kirkland (1) is not an officer or employee of the Company or its subsidiaries, or (2) has not had any direct or indirect relationship with the Company that would interfere with the exercise of his independent judgment in carrying out the responsibilities of a director. Upon our listing on any national securities exchange or any inter-dealer quotation system, we will elect such independent directors as is necessary under the rules of any such securities exchange.
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Communications with the Board of Directors
Stockholders who wish to communicate with the Board may do so by addressing their correspondence to the Board at RenovaCare, Inc. Pittsburgh Life Sciences Greenhouse, 2425 Sidney Street Pittsburgh, PA 15203.4 Becker Farm Road, Suite 105, Roseland, New Jersey 07068, Attention: Board of Directors. The Board has approved a process pursuant to which the CEO reviews and forwards correspondence to the appropriate director or group of directors for response.
ITEM 11. EXECUTIVE COMPENSATION
As noted in Item 10 above, we do not have a compensation committee. Our Board is responsible for establishing the compensation and benefits for our executive officers. The Board reviews the performance and total compensation package for our executive officers, and considers the modification of existing compensation and the adoption of new compensation plans. The board has not retained any compensation consultants.
The goals of our executive compensation program are to attract, motivate and retain individuals with the skills and qualities necessary to support and develop our business within the framework of our small size and available resources. We designed our executive compensation program to achieve the following objectives:
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• attract and retain executives experienced in developing and delivering products such as our own;
• motivate and reward executives whose experience and skills are critical to our success; reward performance; and
• align the interests of our executive officers and stockholders by motivating executive officers to increase stockholder value.
The following table and descriptive materials set forth information concerning compensation earned for services rendered to us by: the President &and Chief Executive Officer (“CEO”); the Chief Financial Officer (“CFO); and the three other most highly-compensated executive officers other than the CEO and CFO who were serving as our executive officers during the last two fiscal years (“Named Executive Officers”).
Name and principal position |
| Year December 31, |
| Salary/ consulting fee ($) |
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| Bonus ($) |
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| Stock awards ($) |
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| Option awards ($) |
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| All other compensation ($) |
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| Total ($) |
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Thomas Bold(1) |
| 2017 |
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| 100,000 |
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| - |
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| - |
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| 248,700 |
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| - |
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| 348,700 |
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President, CEO and Interim CFO |
| 2016 |
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| 100,000 |
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| - |
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| - |
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| 83,796 |
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| - |
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| 183,796 |
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Rhonda B. Rosen(2) |
| 2016 |
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| 30,100 |
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| - |
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| - |
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| 27,932 |
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| - |
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| 58,032 |
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Former CFO |
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Patsy Trisler(3) |
| 2017 |
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| 60,000 |
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| - |
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| - |
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| - |
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| - |
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| 60,000 |
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VP – Clinical & Regulatory Affairs |
| 2016 |
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| 60,000 |
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| - |
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| - |
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| - |
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| - |
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| 60,000 |
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| Name and principal position | Year December 31, | Salary/ consulting fee ($) | Bonus ($) | Stock awards ($) | Option awards ($) | All other compensation ($) | Total ($) | |||||||||||||||||||||
| Alan L. Rubino(1) | 2019 | 51,250 | 190,443 | – | – | 241,693 | ||||||||||||||||||||||
| President and CEO | 2018 | – | – | – | – | – | – | |||||||||||||||||||||
| Harmel S. Rayat(2) | 2019 | 1 | – | – | – | – | 1 | |||||||||||||||||||||
| Chairman of the Board | 2018 | 1 | – | – | – | – | 1 | |||||||||||||||||||||
| Jatinder Bhogal(3) | 2019 | $ | 120,850 | – | – | – | – | 120,850 | ||||||||||||||||||||
| Chief Operating Officer | 2018 | 103,467 | – | – | – | – | 103,467 | |||||||||||||||||||||
| Stephen Yan-Klassen(4) | 2019 | 23,000 | – | – | – | – | 23,000 | |||||||||||||||||||||
| 2018 | 5,000 | – | – | – | – | 5,000 | ||||||||||||||||||||||
| Thomas Bold(5) | 2019 | 43,000 | – | – | – | – | 43,000 | |||||||||||||||||||||
| former President and interim CFO | 2018 | 100,000 | – | – | – | – | 100,000 | |||||||||||||||||||||
| Patsy Trisler(6) | 2019 | 60,000 | – | – | – | – | 60,000 | |||||||||||||||||||||
| VP – Clinical & Regulatory | 2018 | 60,000 | – | – | – | – | 60,000 | |||||||||||||||||||||
__________
(1)On November 15, 2019, the Company appointed Mr. Alan L. Rubino as Chief Executive Officer. Pursuant to the terms of an Employment Agreement between Mr. Rubino and the Company dated November 15, 2019, Mr Rubino receives an annual salary of $410,000 payable in 24 equal payments. He is also eligible for a performance bonus equal to up to 50% of his base salary. In addition, Mr. Rubino was granted an option to purchase up to 2,000,000 shares of the Company’s common stock (the “ALR Option”).
The ALR Option vests and is exercisable as follows:
| · | 667,800 vest, and are exercisable commencing on, November 20, 2020 at price of $1.98 per share (the closing price of the Company’s common stock as quoted on the OTCQB Pinks on November 15, 2019 (the date of grant); |
| · | 667,800 vest, and are exercisable commencing on, November 15, 2021 at price of $2.48 per share; and |
| · | 664,400 vest, and are exercisable commencing on, November 15, 2022 at a price of $3.23 per share. |
(2)Mr. Rayat was appointed a director and President and Chief Executive Officer in March 2018. Mr. Rayat resigned as President and Chief Executive Officer on November 15, 2019. Mr. Rayat receives one ($1) dollar per year in compensation for his services.
(3) On June 11, 2018, the Company appointed Mr. Jatinder S. Bhogal as Chief Operating Officer. 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 at that time, 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 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.
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(4) On October 22, 2018, the Company appointed Mr. Stephen Yan-Klassen as Chief Financial Officer. The Company does not have a written agreement with Mr. Yan-Klassen pursuant to which he serves as our Chief Financial Officer. As compensation for his services Mr. Yan-Klassen receives annual compensation in the amount of $30,000 Canadian.
(5) On December 1, 2013, wethe Company appointed Mr. Bold as our President & CEO. On October 8, 2016, Mr. Bold assumed the role of Chief Financial Officer commensurate with the resignation of Rhonda Rosen.Officer. On December 1, 2013 we entered into the Consulting Agreement with Mr. Bold. Pursuant to the terms of the Consulting Agreement, Mr. Bold is expectedagreed to serve as our President and CEO on a part-time basis and will receivein consideration of an annual fee of $100,000, payable in 12 equal installments, which isfee was prorated for any partial months during the term of the Consulting Agreement. In addition to Mr. Bold’s fee, he was issued a stock option to purchase up to 40,000 shares of common stock at an exercise price of $0.75 per share, the closing price of our common stock as quoted on the OTCQB on November 29, 2013, a stock option to purchase up to 60,000 shares of common stock at an exercise price of $1.91 per share, the closing price on March 15, 2016, and a stock option to purchase up to 75,000 shares of common stock at an exercise price of $4.20 per share, the closing price on May 11, 2017. The options have all vested and may be exercised on a “cashless basis” using the formula contained therein and vesttherein. On March 30, 2019 Mr. Bold resigned as follows: (a) 20,000 vestedPresident, but will continue to provide consulting services on December 1, 2014; (b) 20,000 vested on December 1, 2015; (c) 60,000 vested on March 16, 2016; (d) 37,500 vested on May 11, 2017; and (e) 37,500 vest on May 11, 2018.a limited basis (not expected to exceed 10 hours per month).
(2) On October 1, 2013, we appointed Ms. Rosen to serve as our CFO on a part-time basis, for which she was paid a monthly fee of $3,900. On August 14, 2014, we granted to Ms. Rosen an option to purchase 10,000 shares of common stock at an exercise price of $0.80 per share, the closing price of our common stock as quoted on the OTCQB on August 13, 2014, and a stock option to purchase up to 20,000 shares of common stock at an exercise price of $1.91 per share, the closing price on March 15, 2016. The options may be exercised on a “cashless basis” using the formula contained therein and vest as follows: (a) 5,000 vested on the grant date; (b) 5,000 vested on August 14, 2015, and (c) 20,000 vested on March 16, 2016. On September 9, 2016, we terminated the at-will executive services agreement with Ms. Rosen.
(3)(6) On April 1, 2014, wethe Company appointed Ms. Patsy Trisler as our Vice President – Clinical & Regulatory Affairs and entered into an at-will consulting agreement with Ms. Trisler pursuant to which we granted Ms. Trisler an option to purchase up to 50,000 shares of the Company’s common stock at a price of $1.05 per share, the closing price of the Company’s common stock as quoted on the OTCQB on April 1, 2014.2014 and receives an annual fee of $60,000, payable in 12 equal installments. The options which have all vested may be exercised on a “cashless basis” using the formula contained therein and, subjecttherein. Ms. Trisler resigned her position as Vice President – Clinical & Regulatory Affairs on March 25, 2020; however, she will continue to Ms. Trisler’s continued service, the options vest(ed)provide consulting services as follows, 10,000 on: (a) April 1, 2015; (b) April 1, 2016; (c) April 1, 2017; (d) April 1, 2018; and (e) April 1, 2019.to legacy matters on an as needed basis.
Outstanding Equity Awards at Fiscal-Year End
The following table sets forth information regarding equity awards that have been previously awarded to each of the Named Executives and which remained outstanding as of December 31, 2017.2019. All of the outstanding options were granted pursuant to our 2013 Long-Term Incentive Plan (the “2013 Plan”) described below and which was approved by our stockholders on November 15, 2013. No options were issued outside of the 2013 Plan.
Option Awards | |||||||||||||||
Name |
| Number of securities underlying unexercised options exercisable |
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| Number of securities underlying unexercised options unexercisable |
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| Option Exercise Price ($) |
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| Option Expiration Date | ||||
Thomas Bold |
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| 60,000 |
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| - |
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| 1.91 |
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| March 15, 2026 | |
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| 37,500 |
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| 37,500 |
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| 4.20 |
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| May 11, 2028 | |
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Rhonda B. Rosen |
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| 10,000 |
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| - |
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| 0.80 |
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| October 8, 2018 | |
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| 20,000 |
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| - |
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| 1.91 |
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| October 8, 2018 | |
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Patsy Trisler |
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| 30,000 |
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| 20,000 |
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| 1.05 |
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| March 31, 2025 | |
| Option Awards | ||||||||||||||
| Name | Number of securities underlying unexercised options exercisable | Number of securities underlying unexercised options unexercisable | Option Exercise Price ($) | Option Expiration Date | ||||||||||
| Alan L. Rubino | – | 667,800 | 1.98 | November 14, 2025 | ||||||||||
| – | 667,800 | 2.48 | November 14, 2025 | |||||||||||
| – | 664,400 | 3.23 | November 14, 2025 | |||||||||||
| Thomas Bold (former President) | 60,000 | – | 1.91 | March 15, 2026 | ||||||||||
| 75,000 | – | 4.20 | May 11, 2028 | |||||||||||
| Patsy Trisler | 50,000 | – | 1.05 | March 31, 2025 | ||||||||||
Long-Term Incentive Plans
On June 20, 2013, our Board adopted our 2013 Long-Term Incentive Plan and on November 15, 2013, a stockholder owning a majority of our 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 our common stock are reserved for issuance to our 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 Incentive Plan are limited to non-qualified stock options. As of December 31, 2017,2019, there were 19,338,57217,440,765 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.
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers, except that our directors and executive officers may receive stock options at the discretion of our Board. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our Board.
Employment and Consulting Contracts
We maintainThe Company has entered into the following employment and consulting agreements all but one of which reflect at will engagement of the named individuals by the Company.
Alan L. Rubino
On November 15, 2019 the Company entered into an “at-will” consultingemployment agreement with Mr. Thomas Bold, ourRubino (the “ALR Employment Agreement”) pursuant to which Mr. Rubino was appointed (i) the Company’s President CEO and Interim CFO. Our entireChief Executive Officer and (ii) a member of the Company’s Board. In addition to certain specified benefits, Mr. Rubino receives a base salary of $410,000 and is eligible to receive an annual target bonus equal up to 50% of his base salary, based on the achievement of Company performance goals established by the Board sets the current year compensation levelsor its Compensation Committee, if any. The Company also agreed to grant Mr. Rubino a total of each Named Executive Officer.2,620,571 options of which 2,000,000 were granted on November 15, 2019 (the “2019 Option”) and 620,571 were granted on January 2, 2020 (the “2020 Option”).
WeThe 2019 Option vests and is exercisable as follows:
| · | 667,800 vest, and are exercisable commencing on, November 20, 2020 at price of $1.98 per share (the closing price of the Company’s common stock as quoted on the OTCQB Pinks on November 15, 2019 (the date of grant); |
| · | 667,800 vest, and are exercisable commencing on, November 15, 2021 at price of $2.48 per share; and |
| · | 664,400 vest, and are exercisable commencing on, November 15, 2022 at a price of $3.23 per share. |
The 2020 Option vests and is exercisable as to the underlying 620,571 on November 16, 2023 at a price of $3.23 per share.
The 2019 Option and the 2020 Option are subject to the further terms and conditions set forth in the Option Agreement dated November 15, 2019 and January 2, 2020, respectively.
| 42 |
The ALR Employment Agreement has a three (3) year term. However, the ALR Employment Agreement, subject to its terms, may be terminated by the Company at any time for or without “cause”, and by Mr. Rubino for good reason or no reason.
Upon termination of the ALR Employment Agreement by the Company for cause or Mr. Rubino for no reason, Mr. Rubino shall be entitled to receive: (i) his Base Salary payable through the date of such termination; (ii) reimbursement for reasonable business expenses necessarily incurred by him in the ordinary course of his duties and in accordance with the Company’s policies; (iii) a prorated portion of the annual bonus the Executive would have received but for his termination prior to the bonus payment date, which prorated portion shall be paid on the bonus payment date; (iv) a prorated portion of benefits under any Company compensative or incentive plan that he would have received but for his termination; and (v) provided his spouse timely elects to continue family health insurance benefits under the federal law known as COBRA, the Company shall pay the cost of such health insurance coverage at the same rate the Company contributed for family health insurance coverage prior to his termination of employment with the Company until the earlier of twelve (12) months or the loss of COBRA entitlement (collectively (the “Accrued Benefits”).
Upon termination of the ALR Employment Agreement by the Company without cause or Mr. Rubino for good reason, Mr. Rubino shall be entitled to receive, in addition to the Accrued Benefits, and subject to delivery of a general release acceptable to the Company, his base salary in effect at termination, for twelve (12) months, payable in accordance with the normal payroll practices of the Company.
In the event that, within twelve (12) months following a Change of Control , either: (i) Mr. Rubino’s employment is terminated without cause, or (ii) he terminates his employment for good reason, then he shall be entitled to receive (i) the Accrued Rights, and (ii) subject to delivering to the Company the general release (A) his Base Salary in effect at termination, for eighteen (18) months, payable in a lump sum within thirty (30) days; and (B) the vesting in full of the stock 2019 Option and the 2020 Option, regardless of date or condition of vesting.
As defined in the ALR Employment Agreement, “Change of Control” means (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), other than any individual, entity or group which, as of the date of this Agreement, beneficially owns more than ten percent (10%) of the then outstanding shares of common stock of the Company (the “Common Stock”), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of fifty percent (50%) or more of the then outstanding Common Stock;provided,however, that any acquisition by the Company or its subsidiaries, or any employee benefit plan (or related trust) of the Company or its subsidiaries of fifty percent (50%) or more of outstanding Common Stock shall not constitute a Change of Control, andprovided,further, that any acquisition by an entity with respect to which, following such acquisition, more than fifty percent (50%) of the then outstanding equity interests of such entity, is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners of the outstanding Common Stock immediately prior to such acquisition of the outstanding Common Stock, shall not constitute a Change in Control; or (ii) the consummation of (A) a reorganization, merger or consolidation (any of the foregoing, a “Merger”), in each case, with respect to which all or substantially all of the individuals and entities who were the beneficial owners of the outstanding Common Stock immediately prior to such Merger do not, following such Merger, beneficially own, directly or indirectly, more than fifty percent (50%) of the then outstanding shares of common stock of the corporation resulting from Merger, or (iii) the sale or other disposition of all or substantially all of the assets of the Company, excluding (a) a sale or other disposition of assets to a subsidiary of the Company; and (b) a sale or other disposition of assets to any individual, entity or group which, as of the date of this Agreement, beneficially owns more than ten percent (10%) of the then outstanding Common Stock.
Simultaneously with the with the execution and delivery of the ALR Employment Agreement, Mr. Rubino and the Company entered into an Employee Invention, Non-Disclosure, Non-Competition and Non-Solicitation Agreement pursuant to which Mr. Rubino, among other things, assigned, to the extent lawfully permitted, all of his right, title and interest in and to all any and all inventions, discoveries, trade secrets and improvements, whether or not patentable and whether or not they are made, conceived or reduced to practice during working hours or using the Company’s data or facilities, which I develop, make, conceive or reduce to practice during my employment by the Company, either solely or jointly with others (collectively, the and any and all related patents, patent applications, copyrights, copyright applications, trademarks, trademark applications and trade names in the United States and elsewhere.
| 43 |
Jatinder S. Bhogal
On June 11, 2018, the Company appointed Mr. Jatinder S. Bhogal as Chief Operating Officer. 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 at will 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.
Thomas Bold
On December 1, 2013, the Company appointed Mr. Bold as our President & CEO. On October 8, 2016, Mr. Bold assumed the role of Chief Financial Officer. On December 1, 2013 we entered into an at will Consulting Agreement with Mr. Bold (the “Bold Consulting Agreement”). Pursuant to the terms of the Bold Consulting Agreement, Mr. Bold agreed to serve as our President and CEO on a part-time basis in consideration of an annual fee of $100,000, payable in 12 equal installments, which fee was prorated for any partial months during the term of the Bold Consulting Agreement. In addition to Mr. Bold’s fee, he was issued a stock option to purchase up to 40,000 shares of common stock at an exercise price of $0.75 per share, the closing price of our common stock as quoted on the OTCQB on November 29, 2013, a stock option to purchase up to 60,000 shares of common stock at an exercise price of $1.91 per share, the closing price on March 15, 2016, and a stock option to purchase up to 75,000 shares of common stock at an exercise price of $4.20 per share, the closing price on May 11, 2017. The options have all vested and may be exercised on a “cashless basis” using the formula contained therein.
On March 30, 2019, Mr. Thomas Bold and the Company entered into a termination agreement (the “Bold Termination Agreement”) pursuant to which Mr. Bold resigned his position as (i) the Company’s President and (ii) a member of the Company’s Board of Directors. The Bold Termination Agreement terminated the Bold Consulting Agreement. The Company and Mr. Bold entered into a new consulting agreement on March 30, 2019 pursuant to which Mr. Bold will provide up to ten (10) hours of consulting services to the Company and will be compensated for such services at the rate of $200 per hour. This consulting agreement may be terminated by either party at will, with or without cause.
Patsy Trisler
On April 1, 2014, the Company and Patsy Trisler entered into an at-will consulting agreement (the “Trisler Consulting Agreement”) pursuant to which Ms. Trisler was appointed our Vice President – Clinical & Regulatory Affairs. Pursuant to the terms of the Trisler Consulting Agreement, received an annual fee of $60,000, paid in 12 equal monthly installments, and (ii) was granted an option to purchase up to 50,000 shares of the Company’s common stock at a price of $1.05 per share, the closing price of the Company’s common stock as quoted on the OTCQB on April 1, 2014. The option is now fully vested and may be exercised on a “cashless basis” using the formula contained therein. Ms. Trisler resigned her position as Vice President – Clinical & Regulatory Affairs on March 25, 2020; however, the Trisler Consulting Agreement remains in effect and it is contemplated that Ms. Trisler will continue to provide consulting services as to legacy matters on an as needed basis and that she will be compensated for such services, which are not expect to exceed five (5) hours in any month, at the rate of $250 per hour.
Except as noted above, we have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control, where the value of such compensation exceeds $60,000 per executive officer.
Change of Control Agreements
There are no understandings or agreements known by management at this time which would result in a change in control. We do not have any change of control or severance agreements with any of its executive officers or directors. In the event of the termination of employment of the Named Executive Officers any and all unexercised stock options shall expire and no longer be exercisable after a specified time following the date of the termination.
Compensation of Directors
Our Board determines the non-employee directors’ compensation for serving on the Board and its committees. In establishing director compensation, the Board is guided by the following goals:
| compensation should consist of a combination of cash and equity awards that are designed to fairly pay the directors for work required for a company of our size and scope; |
| compensation should align the directors’ interests with the long-term interests of stockholders; and |
| compensation should assist with attracting and retaining qualified directors. |
We reimburse our directors for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our Board. We do not pay director compensation to directors who are also employees. All non-employee directors are paid a director’s fee. Our Board may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director. Effective as of August 1, 2013, we agreed to pay non-employee directors an annual fee of $6,000 for their services, paid quarterly. Directors are entitled to participate in, and have been issued options under, our 2013 Long-Term Stock Incentive Plan.
The following table reports all compensation we paid to non-employee directors during the last two fiscal years.
Name |
|
| Fees earned or paid in cash (1) ($) |
|
| Option awards Aggregate Grant Date Fair Value ($)(2) |
|
| Total ($) |
| ||||
Joseph Sierchio(3) |
| 2017 |
|
| 6,000 |
|
|
| 248,700 |
|
|
| 254,700 |
|
|
| 2016 |
|
| 6,000 |
|
|
| 69,830 |
|
|
| 75,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth Kirkland |
| 2017 |
|
| 6,000 |
|
|
| 248,700 |
|
|
| 254,700 |
|
|
| 2016 |
|
| 6,000 |
|
|
| 69,830 |
|
|
| 75,830 |
|
_______________
Name | Fees earned or paid in cash (1) ($) | Option awards Aggregate Grant Date Fair Value ($)(2) | All Other Compensation ($) | Total ($) | ||||||||||||||||
| Harmel S. Rayat(3) | 2019 | – | – | – | – | |||||||||||||||
| 2018 | – | – | – | – | ||||||||||||||||
| Joseph Sierchio(4) | 2019 | – | – | – | – | |||||||||||||||
| 2018 | 3,000 | – | – | 3,000 | ||||||||||||||||
| Kenneth Kirkland | 2019 | – | – | – | – | |||||||||||||||
| 2018 | 6,000 | – | – | 6,000 | ||||||||||||||||
(1)The amounts in this column represent the quarterly compensation.
(2)The amounts in this column represent the total fair value assigned to options granted in 20172019 and 20162018 to Messrs. Kirkland and Sierchio.
(3) Mr. Rayat receives $1.00 per year as compensation for his service to the Company.
(4) The amounts set forth in this table do not include fees paid to legal firms associated with Mr. Sierchio.
| 45 |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
Name and Address of Beneficial Owner (1) |
| Number of shares Beneficially Owned (2) |
|
| % of Class Owned (2) |
| ||
Directors and Officers |
|
|
|
|
|
| ||
Thomas Bold (3) |
|
| 125,879 |
|
| * |
| |
Patsy Trisler (4) |
|
| 30,000 |
|
| * |
| |
Kenneth Kirkland (5) |
|
| 108,175 |
|
| * |
| |
Joseph Sierchio (6) |
|
| 647,516 |
|
| * |
| |
All Directors and Officers as a Group (4 people) |
|
| 911,570 |
|
|
| 1.18 |
|
|
|
|
|
|
|
|
|
|
5% Shareholders |
|
|
|
|
|
|
|
|
Kalen Capital Corporation (7) The Kalen Capital Building 688 West Hastings St. Suite 700 Vancouver, BC V6B 1P1 |
|
| 51,869,248 |
|
|
| 65.44 |
|
Jatinder Singh Bhogal (8) 1962 Knox Road Vancouver, BC V6T1S6 |
|
| 5,038,061 |
|
|
| 6.56 |
|
_____________
The following table sets forth certain information as of May 13, 2020 with respect to the beneficial ownership of the Company’s common stock by its executive officers, directors, all persons known by the Company to be the beneficial owners of more than 5% of its outstanding shares and by all officers and directors as a group.
| Name and Address of Beneficial Owner (1) | Number of shares Beneficially Owned (2) | % of Class Owned (2) | ||||||
| Directors and Officers | ||||||||
| Alan L. Rubino, President and Chief Executive Officer | -- | -- | ||||||
| Harmel S. Rayat, Chairman of the Board(3) | 53,872,037 | 75.44 | ||||||
| Kenneth Kirkland (4) | 145,675 | * | ||||||
| Steve Yan-Klassen | – | – | ||||||
| Jatinder S. Bhogal(5) | 5,029,425 | 5.96 | ||||||
| All Directors and Officers as a Group (5people) | ||||||||
| 5% Shareholders | ||||||||
| Kalen Capital Corporation (3) The Kalen Capital Building 688 West Hastings St. Suite 700 Vancouver, BC V6B 1P1 | ||||||||
* less than 1%
(1)Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock and except as indicated the address of each beneficial owner is Pittsburgh Life Sciences Greenhouse, 2425 Sidney Street Pittsburgh, PA 15203.9375 East Shea Blvd., Suite 107-A, Scottsdale, AZ 85260.
(2) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Beneficial ownership is calculated based on 76,840,522 shares of common stock issued and outstanding on a fully diluted basis as of February 23, 2018. Under Rule 13d-3(d) of the Exchange Act, shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but are not deemed outstanding for the purpose of calculating the percentage owned by each other person listed.
(3) Consists of 5,000 shares of common stock and a Series D Warrant to purchase 5,000 shares of common stock purchased by Mr. Bold in a private placement we conducted in 2015; 78,379 shares received upon the cashless exercise of 100,000 options and vested options to purchase up to 37,500 shares of common stock. Does not include 37,500 shares issuable upon exercise of issued warrants scheduled to vest on May 11, 2018.
(4) Ms. Trisler was appointed as our Vice President – Clinical & Regulatory Affairs on April 1, 2014; as part of her appointment she was granted a stock option to purchase up to 50,000 shares of common stock. The option vests in five equal installments of 10,000 on April 1, 2015-2019, subject to her continued service with the Company.
(5) Consists of 70,675 shares issued upon the cashless exercise of options and vested options to purchase 37,500 shares of common stock. Does not include 37,500 shares issuable upon exercise of issued warrants scheduled to vest on May 11, 2018.
(6) Includes (a) 550,000 shares of common stock owned by Mr. Sierchio; (b) 75,199 shares of common stock issued upon the cashless exercise of vested stock options; (c) 10,000 shares of common stock purchased pursuant to the October 2017 private placement; (d) 4,899 shares of common stock issued upon the cashless exercise of a Series F Warrant; and (e) 7,418 shares of common stock issued upon the cashless exercise of a Series H Warrant. Does not include 37,500 shares issuable upon exercise of issued warrants scheduled to vest on May 11, 2018.
(7)Kalen Capital Corporation is a private Alberta corporation wholly owned by Mr. Harmel Rayat. In such capacity, Mr. Rayat may be deemed to have beneficial ownership of these shares. Consists of (a) 49,449,037 shares of common stock; (b) a Series D Warrant to purchase up to 800,000 shares of common stock at an exercise price of $1.10 per share through June 5, 2020; (c) a Series E Warrant to purchase up to 584,416 shares of common stock at an exercise price of the lesser of $1.54, or a 20% discount to the average closing price of our common stock for the five days prior to the date on which the Series E Warrant is exercised, through September 9, 2021; (d) a Series G Warrant to purchase up to 410,000 shares of common stock at an exercise price of $2.68 per share through July 21, 2022; (e) 122,845a Series I Warrant to purchase up to 10,335,000 shares issuable upon conversion of the February 2017 Loan Agreement (assuming the February Loan Agreement was converted as of February 23, 2018,common stock at a conversionan exercise price of $3.45); and (f) 502,950 shares issuable upon conversion of the note issued pursuant to the Loan Agreement (assuming the Loan Agreement was converted as of February 23, 2018, at a conversion price of $1.54). As of the date of this report we have not received a notice of conversion from Kalen Capital Corporation for the Loan Agreement or the February 2017 Loan Agreement.$2.00 per share through November 26, 2025 Each of KCC’s warrants may be exercised on a cashless basis.basis other than the Series I Warrant. For tax purposes, a portion of the debt and equity securities of owned by KCC have been assigned to Kalen Capital Holdings, LLC, its wholly owned subsidiary.
(8)(4) Consists of 70,675 shares issued upon the cashless exercise of options and vested options to purchase 75,000 shares of common stock.
(5) Includes (a) 2,529,425 shares of common stock held by Boston Financial Group, Ltd., and (b) 2,508,6362,500,000 shares of common stock held by 1420527 Alberta Ltd., Mr. Bhogal is the sole principal of each entity and in such capacity, Mr. Bhogal may be deemed to have beneficial ownership of these shares. Does not include 30,800 shares of stock owned by Mr. Bhogal’s wife, of which he disclaims beneficial ownership. Mr. Bhogal is the President and sole shareholder of Vector Asset Management, Inc., which provides us with consulting services.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Our proposed business raises potential conflicts of interests between certain of our officers and directors and us. Certain of our directors may become directors of other biotechnology companies and, to the extent that such other companies may participate in ventures in which we may participate, our directors may have a conflict of interest in negotiating and concluding terms regarding the extent of such participation. In the event that such a conflict of interest arises at a meeting of our directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In appropriate cases, we will establish a special committee of independent directors to review a matter in which several directors, or management, may have a conflict.
In determining whether we will acquire a new technology or participate in a research and development program, the directors will primarily consider the potential benefits to us, the degree of risk to which we may be exposed and its financial position at that time. Other than as indicated, we have no other procedures or mechanisms to deal with conflicts of interest. We are not aware of the existence of any conflict of interest as described herein.
Transactions with Related Persons
We do not have a formal written policy for the review and approval of transactions with related parties. However, our Code of Ethics and Corporate Governance Principles require actual or potential conflict of interest to be reported to the Board. Our employees are expected to disclose personal interests that may conflict with ours and they may not engage in personal activities that conflict with their responsibilities and obligations to us. Periodically, we inquire as to whether or not any of our directors have entered into any transactions, arrangements or relationships that constitute related party transactions. If any actual or potential conflict of interest is reported, our entire Board and outside legal counsel review the transaction and relationship disclosed and the Board makes a formal determination regarding each director's independence. If the transaction is deemed to present a conflict of interest, the Board will determine the appropriate action to be taken.
Review, Approval or Ratification of Transactions with Related Persons
Our unwritten policy with regard to transactions with related persons is that all material transactions are to be reviewed by the entire Board for any possible conflicts of interest. In the event of a potential conflict of interest, the Board will generally evaluate the transaction in terms of the following standards: (i) the benefits to us; (ii) the impact on a director's independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer; (iii) the availability of other sources for comparable products or services; (iv) the terms and conditions of the transaction; and (v) the terms available to unrelated parties or the employees generally. The Board will then document its findings and conclusion in written minutes.
Transactions with Related Persons
The Board is responsible for review, approval, or ratification of “related-person transactions” involving the Company and related persons. Under SEC rules (Section 404 (a) of Regulation S-K), a related person is a director, officer, nominee for director, or 10% stockholder of the company since the beginning of the previous fiscal year, and their immediate family members. We are required to report any transaction or series of transactions in which we or a subsidiary is a participant, the amount involved exceeds $120,000, and a related person has a direct or indirect material interest.
The Board has determined that, barring additional facts or circumstances, a related person does not have a direct or indirect material interest in the following categories of transactions:
|
| |
|
| |
|
| |
|
| |
|
|
The Board reviews transactions involving related persons who are not included in one of the above categories and makes a determination whether the related person has a material interest in a transaction and may approve, ratify, rescind, or take other action with respect to the transaction in its discretion. The Board reviews all material facts related to the transaction and takes into account, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances; the extent of the related person's interest in the transaction; and, if applicable, the availability of other sources of comparable products or services.
The following are related party transactions for the fiscal years ended December 31, 20172019 and 2016:2018:
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.
| 47 |
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 one of the Company’s directors, iswas a partner, providescontinued to provide counsel to the Company.Company through July 31, 2019, following which Mr. Sierchio iscommenced providing, through Sierchio Law LLP, general corporate counsel services to the Company’s primary attorney.Company. During the years ended December 31, 20172019 and 2016,2018, the Company recognized $277,933$384,021 and $168,775$577,718 of fees for legal services billed by firms associated with Mr. Sierchio.Satterlee. At December 31, 20172019 and 2016,2018, accounts payable to Satterlee amounted to $0 and $171,828, respectively. During 2019, the Company owed Satterlee $30,000 and $11,750 which is included in accounts payable. Mr.recognized $72,917 for legal services billed by Sierchio continuesLaw, LLP. At December 31, 2019, there were no amounts due to serve as a director of the Company.Sierchio Law, LLP.
In connection with the Company’s anticipated FDA and other regulatory filings, the Company engaged StemCell Systems to provide it with prototypes and related documents. Pursuant to this engagement the Company incurred expenses of $219,806$314,189 and $184,517$80,229 in during the years ended December 31, 20172019 and 2017,2018, respectively. Dr. Gerlach, from whom the Company purchased the CellMistTM System technologies, is a principal of 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 July 21, 2017,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 $120,850 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 July 2017 Private PlacementLoan Agreement with KCC forwhereby KCC loaned the saleCompany $700,000 at an interest rate of 410,000 units at7%. 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 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 GE Warrant to purchase one (1) shareup to 584,416 shares of the Company’s common stock at an exercise price of $2.68 per share through July 21, 2022. The warrants may be exercised on a cashless basis.stock. See “Note 6. Common Stock and Warrants” in the notes to the consolidated financial statements included in this Form 10-K4. 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. The February 2017 Note can be converted into shares of the Company’s common stock at conversion rate equal to the lesser of: (i) $3.45; 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, 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 5.5, Debt” in the notes to the consolidated financial statements included in this Form 10-K for further discussion.
On September 9, 2016,July 21, 2017, the Company entered into the Loan AgreementJuly 2017 Private Placement with KCC whereby KCC loanedfor the Company $700,000sale of 410,000 units at an interest ratea price of 7%. The Note was amended on January 29, 2018$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 extend the maturity date to December 31, 2019. Aspurchase one (1) share of September 9, 2017, the Note, can be converted into shares of the Company’s common stock at conversion rate equal to the lesser of: (i) $1.54; or (ii) a 20% discount to the average closingan exercise price of the Company’s common stock for the five days prior to the date$2.68 per share through July 21, 2022. The warrants may be exercised on which KCC elects to convert the Note, subject to a floor price of $1.23. 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.cashless basis. See “Note 5. Debt” in the notes to the consolidated financial statements included in this Form 10-KCommon Stock and Warrants” for further discussion.
On February 2, 2016, KCC12, 2018, Dr. Gerlach exercised a portionSeries A Warrant to purchase up to 480,000 shares, on a cashless basis, resulting in the issuance of its Series B Warrant for 2,173,913457,480 shares of our common stock at an exercise price of $0.46 per share and rendered $1,000,000 as payment.stock.
For related party transactions that do not exceed $120,000 please see “Note 9. Related Party Transactions”
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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 notesissuance 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 consolidated financial statements includedissuance 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 this Form 10-Kthe 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 further discussion.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.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
INDEPENDENT PUBLIC ACCOUNTANTS
Peterson SullivanThe Board has appointed Marcum LLP (“Peterson Sullivan”Marcum”) currently serves as ourthe company’s independent registered public accounting firm to audit our financial statements for the fiscal year endedending December 31, 2017. To2019. Marcum has served as the knowledge of management, neither such firm nor any of its members has any direct or material indirect financial interest in us or any connection with us in any capacity otherwise than as independent accountants.company’s registered public accountant since October 2018.
Our Board, in its discretion, may direct the appointment of different public accountants at any time during the year, if the Board believes that a change would be in the best interests of the stockholders. The Board has considered the audit fees, audit-related fees, tax fees and other fees paid to Peterson Sullivan,out independent registered public accounting firm, as disclosed below, and has determined that the payment of such fees is compatible with maintaining the independence of the accountants.
We do not currently have an audit committee.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table presents aggregate fees for professional services rendered by Peterson Sullivanour auditors during the years ended December 31, 20172019 and 2016:2018:
| Year Ended | ||||||||||||||||
|
| Year Ended December 31, |
| December 31, | ||||||||||||
|
| 2017 |
|
| 2016 |
| 2019 | 2018 | ||||||||
Audit fees |
| $ | 37,382 |
| $ | 40,420 |
| $ | 78,000 | $ | 58,500 | |||||
Audit-related fees |
| 18,292 |
| 3,444 |
| - | 23,600 | |||||||||
Tax fees |
|
| 4,200 |
|
|
| 6,692 |
| - | 3,200 | ||||||
Total fees |
| $ | 59,874 |
|
| $ | 50,556 |
| $ | 78,000 | $ | 85,300 | ||||
Audit Fees
Audit fees for the years ended December 31, 20172019 and 2016,2018, totaled $37,382$78,000 and $40,420,$58,500, respectively, and consist of the aggregate fees billed by Peterson SullivanMarcum LLP for the audit of the financial statements included in our Annual Report on Form 10-K and review of interim financial statements included in the quarterly reports on Form 10-Q during the years ended December 31, 20172019 and 2016.2018.
Audit-Related Fees
Audit-related fees for the years ended December 31, 20172019 and 2016,2018, totaled $18,292$0 and $3,444,$23,600, respectively, and consist of the aggregate fees billed by BDO (formerly Peterson SullivanSullivan) for discussions and research related to financial reporting inquires and the review and providing of consents for our registration statement on Form S-1, Form S-3 and Form S-8 and amendments thereto that were filed with the SEC.
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Tax Fees
Tax fees for the years ended December 31, 20172019 and 2016,2018, totaled $4,200$0 and $6,692,$3,200, respectively, and consist of the aggregate fees billed by Peterson Sullivan for professional services rendered for tax compliance, tax advice and tax planning.
All Other Fees
There were no fees billed to us for products and services provided by Peterson SullivanMarcum LLP, other than reported under Audit Fees, Audit-Related Fees and Tax Fees for the years ended December 31, 20172019 and 2016.2018.
The Board feels that the services rendered by Peterson Sullivan were compatible with maintaining the principal accountant’s independence.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this Form 10-K.
1. Financial Statements
The following financial statements, notes related thereto and reports of independent auditors are included in Part II, Item 8 of this Form 10-K:
| • | Report of Independent Registered Public Accounting Firm |
| • | Balance Sheets as of December 31, |
| • | Statements of Operations for the years ended December 31, |
| • | Statements of Stockholders’ Equity for the years ended December 31, |
| • | Statements of Cash Flows for the years ended December 31, |
| • | Notes to Financial Statements |
2. Financial Statement Schedules
Financial statement schedules are omitted because they are not required or are not applicable, or the required information is provided in the consolidated financial statements or notes described in Item 15(a)(1) above.
3. Exhibits
The Exhibits listed in the Exhibit Index, which appears immediately following the signature page, are incorporated herein by reference, and are filed as part of this Form 10-K.
Not Applicable
SIGNATURESSIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RENOVACARE, INC. | ||||
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| |||
| Date: May 14, 2020 |
| /s/ Alan L. Rubino | ||
| Name: | Alan L. Rubino | |||
| Title: | Chief Executive Officer, | |||
| Date: May 14, 2020 | By: | /s/ Stephen Yan-Klassen | ||
| Name: | Stephen Yan-Klassen | |||
| Title: | Chief Financial Officer, (Principal | |||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in capacities and on the dates indicated.
Signature | Title | Date | ||
| /s/ |
| May 14, 2020 | ||
| Harmel S. Rayat | ||||
| /s/ Alan L. Rubino | Chief Executive Officer, |
| ||
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| |||
|
|
| ||
| ||||
/s/ Kenneth Kirkland | Director |
| ||
Kenneth Kirkland | ||||
|
|
| ||
|
| Chief Financial Officer | May 14, 2020 | |||
| Stephen Yan-Klassen | (Principal Financial Officer) |
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Exhibit Index
Exhibit # | Description of Exhibit | |
3.1 | ||
3.4 | ||
4.11 | ||
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| 14.1 | Code of Ethics, incorporated by reference and included in the Company’s Form 10-K file on April 15, 2009, SEC file number 000-30156-09750383. | |
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| 31.1 | Certification of the Chief Executive Officer | |
| 31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a).* | |
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | ||
| 32.2 | Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
101.INS | XBRL Instance Document** | |
101.SCH | XBRL Taxonomy Extension - Schema Document** | |
101.CAL | XBRL Taxonomy Extension - Calculation Linkbase Document** | |
101.DEF | XBRL Taxonomy Extension - Definition Linkbase Document** | |
101.LAB | XBRL Taxonomy Extension - Label Linkbase Document** | |
101.PRE | XBRL Taxonomy Extension - Presentation Linkbase Document** |
*Filed
*Filed herewith.
† Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24b-2 of the Securities Exchange Act of 1934, as amended, and the omitted material have been separately filed with the Securities and Exchange Commission.
§ Indicates a management contract or compensatory plan or arrangement.
** Furnished herewith. XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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