Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Forward-Looking Statements
You should read the following discussion and analysis of our
financial condition and results of operations together with our financial statements and related notes appearing elsewhere in
this Quarterly Report filed on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements
as a result of many factors.
This discussion and analysis should be read in conjunction with
the accompanying unaudited interim consolidated financial statements and related notes. The discussion and analysis of the financial
condition and results of operations are based upon the unaudited interim consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of any contingent liabilities at the financial statement date
and reported amounts of revenue and expenses during the reporting period. On an on-going basis we review our estimates and assumptions.
The estimates were based on historical experience and other assumptions that we believe to be reasonable under the circumstances.
Actual results are likely to differ from those estimates under different assumptions or conditions, but we do not believe such
differences will materially affect our financial position or results of operations. Critical accounting policies, the policies
us believes are most important to the presentation of its financial statements and require the most difficult, subjective and
complex judgments, are outlined below in "Critical Accounting Policies," and have not changed significantly.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q 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 subsidiaries that is based on management's
exercise of business judgment and assumptions made by and information currently available to management. Although forward-looking
statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be
based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and
uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated
by the forward-looking statements. When used in this document and other documents, releases and reports released by us, the words
"anticipate," "believe," "estimate," "expect," "intend," "the facts suggest"
and words of similar import, are intended to identify any forward-looking statements. You should not place undue reliance on these
forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties
as noted below. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect,
our actual results could differ materially from those anticipated in these forward-looking statements. Actual events, transactions
and results may materially differ from the anticipated events, transactions or results described in such statements. Although
we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize.
Many factors could cause actual results to differ materially from our forward-looking statements and unknown, unidentified or
unpredictable factors could materially and adversely impact our future results. We undertake no obligation and do not intend to
update, revise or otherwise publicly release any revisions to our forward-looking statements to reflect events or circumstances
after the date hereof or to reflect the occurrence of any unanticipated events. Several of these factors include, without limitation:
|
·
|
our ability to meet requisite
regulations or receive regulatory approvals in the United States, and our ability to retain any regulatory approvals that
we may obtain; and the absence of adverse regulatory developments in the United States and abroad;
|
|
·
|
new entrance of competitive products or
further penetration of existing products in our markets;
|
|
·
|
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
us. The reader is cautioned that no statements contained in this Form 10-Q should be construed as a guarantee or assurance of
future performance or results. Actual events or results may differ materially from those discussed in forward-looking statements
as a result of various factors, including, without limitation, the risks described in this report and matters described in this
report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained
in this filing will in fact occur.
Overview
RenovaCare, Inc. (formerly Janus Resources, Inc.) (together
with its wholly owned subsidiary, “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 87,352,364 shares are outstanding as of June 30, 2020, 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 4
Becker Farm Road, Suite 105, Roseland, NJ 07068. Our telephone number is (888) 398-0202.
Description of Business
We are a development-stage company focusing on
the development and commercialization of autologous (using a patient’s own cells) cellular therapies for medical and aesthetic
applications. The Company, through its wholly owned subsidiary, RenovaCare Sciences Corp., owns the CellMist™ System which
is comprised of (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 US patent applications that were granted in November 2016 (Patent No. US 9,505,000), and April 2017 (Patent No. 9,610,430)
and, most recently, in August 2019 (Patent No. 10,376,658). The Company has filed additional patent applications related to the
CellMist™ System and other technologies.
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.
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, and can reduce the size of the donor site
and significantly decrease scarring. Furthermore, we believe the CellMistTM System could enable treatment of other
skin disorders with minimal scarring.
In August 2020, the Company announced that the
US Food and Drug Administration (“FDA”) conditionally approved the Company’s Investigational Device Exemption
(IDE) application to conduct a clinical trial to evaluate the safety and feasibility of autologous stem cells rendered by its
CellMist™ System from donor skin and applied topically with the SkinGun™ spray device for treatment of burn wounds.
The clinical trial protocol is for an open-label single-arm clinical study that will enroll 14 human burn subjects with partial-thickness
second- or- third degree thermal burn wounds. The Company expects to conduct the clinical study at multiple U.S. burn centers.
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 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
our CellMistTM 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, join 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
We 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 is greater than spending
on high-blood pressure management, cholesterol treatments, and back pain therapeutics.
Burns
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 Association Burn 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).
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 180,000 people worldwide die from burn related injuries (see World Health
Organization “Burns: Fact Sheet No. 365,” reviewed 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 128 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 Association Burn 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 http://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
According 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 largest market share and is
expected to have the highest growth projected at a compound annual growth rate of 4.6% to 2024. Major factors driving the growth
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 largest market share in 2019 as these systems are used for critical cases, improve quality of care for
patients, and have the infrastructure and resources to support treatment.
Our Technology
Our CellMist System is comprised of the CellMistTM solution,
a liquid suspension of a patient’s own skin cells, and our proprietary SkinGunTM sprays isolated stem cells and
related skin cells from a small biopsy of the patient's skin. The stem cells are placed into the CellMistTM solution,
which is then filled into a sterile syringe. The sterile syringe is inserted into the SkinGunTM, which then sprays
the stem cell-loaded liquid solution into the wound.
The first phase of gathering the patient's skin cells, creating
a liquid solution, and applying the stem cells takes approximately 1.5–2 hours. Published studies show that within days
following the wound treatment procedure, the skin cells generate a protective 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 other skin replacement technologies. During recovery, the skin
cells grow into fully functional layers of the skin and the regenerated skin leaves minimal 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.
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 CellMistTM System remains an experimental,
unproven methodology and we continue to evaluate its safety and efficacy. There is no guarantee that we will able to develop a
commercially viable product based upon the CellMistTM System and its underlying technology.
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.
Many of our competitors are 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.
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 plan to file
additional patent applications that, if issued, would provide further protection for 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.
Operations
We expect to be engaged in research and development activities
for the foreseeable future.
Results of Operations
Three Months Ended June 30, 2020 Compared with the Three
Months Ended June 30, 2019
Operating Expenses
A summary of our operating expenses for the three months ended
June 30, 2020 and 2019 follows:
|
|
Three Months Ended June 30,
|
|
Increase /
|
|
Percentage
|
|
|
2020
|
|
2019
|
|
(Decrease)
|
|
Change
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
1,347,005
|
|
|
$
|
179,193
|
|
|
$
|
1,167,812
|
|
|
|
652
|
%
|
General and administrative
|
|
|
1,697,476
|
|
|
|
464,335
|
|
|
|
1,233,141
|
|
|
|
266
|
%
|
Total operating expenses
|
|
$
|
3,044,481
|
|
|
$
|
643,528
|
|
|
$
|
2,400,953
|
|
|
|
373
|
%
|
Research and Development
Research and development costs relate to the development of our
CellMistTM System. Our business model is dependent upon our company continuing to conduct a significant amount of research
and development. Our research and development costs consist primarily of expenses incurred under agreements for preclinical support
to our regulatory submissions including manufacturing of our clinical trial supplies, consultants that assist in research and
development activities and employee-related expenses, which include salaries and benefits, and non-cash share-based compensation.
We make payments to consultants based on agreed upon terms that
may include payments in advance of preclinical support. Advance payments for goods and services that will be used in future research
and development activities are expensed when the activity has been performed or when the goods have been received rather than
when the payment is made. Advance payments to be expensed in future research and development activities are capitalized, and were
$150,050 at June 30, 2020 and $0 at December 31, 2019. Research and development expenditures will continue to be significant as
we continue development of our CellMistTM System.
Research and development costs for the three months ended June 30,
2020 increased $1,167,812, or 652%, to $1,347,005, compared with $179,193 for the three months ended June 30, 2019. Research of
development costs increased as a result of a scale up of our manufacturing activities for clinical trial support and employee-related
expenses. Costs related to the scale up of our manufacturing activities for clinical trial support increased approximately $485,000
during the three months ended June 30, 2020 compared to the three months ended June 30, 2019. Employee-related expenses increased
approximately $680,000 during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due
to the additions of the Company’s new Chief Scientific Officer and Chief Medical Officer. Included in the $680,000 increase
is share-based compensation of approximately $632,000 to the Company’s new Chief Scientific Officer pursuant to his employment
agreement.
General and Administrative
General and administrative costs for the three months June 30,
2020 increased $1,233,141 or 266%, to $1,697,476, compared with $464,335 for the three months ended June 30, 2019. General and
administrative costs include employee-related expenses, which include salaries and benefits, and non-cash share-based compensation,
professional fees for legal, accounting and consulting and other general operating expenses. Employee-related expenses increased
approximately $1,012,000, including share-based compensation in the amount of approximately $955,000, during the three months
ended June 30, 2020 compared to the three months ended June 30, 2019. The increase is primarily attributable to the addition of
our new Chief Executive Officer in November 2019 and stock option grants to employees and consultants. Professional fees increased
approximately $165,000 during the three months ended June 30, 2020 compared to the three months ended June 30, 2019 due to increased
costs related to corporate compliance and governance matters. Other general operating expenses increased approximately $61,000
during the three months ended June 30, 2020 compared to the three months ended June 30, 2020 due primarily to increased insurance
costs.
Other Income
Other income relates to interest earned on bank account deposits.
Other income decreased approximately $63,000 to approximately $32,900 for the three months ended June 30, 2020 compared to the
three months ended June 30, 2019 due to due a lower average cash balance during the three months ended June 30, 2020 compared
June 30, 2019 and lower rates being earned on deposits.
Six Months Ended June 30, 2020 Compared with the Six Months
Ended June 30, 2019
|
|
Six Months Ended June 30,
|
|
Increase /
|
|
Percentage
|
|
|
2020
|
|
2019
|
|
(Decrease)
|
|
Change
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
1,539,778
|
|
|
$
|
373,702
|
|
|
$
|
1,166,076
|
|
|
|
312
|
%
|
General and administrative
|
|
|
2,733,042
|
|
|
|
873,797
|
|
|
|
1,859,245
|
|
|
|
213
|
%
|
Total operating expenses
|
|
$
|
4,272,820
|
|
|
$
|
1,247,499
|
|
|
$
|
3,025,231
|
|
|
|
243
|
%
|
Research and Development
Research and development costs relate to the development of our
CellMistTM System. Our business model is dependent upon our company continuing to conduct a significant amount of research
and development. Our research and development costs consist primarily of expenses incurred under agreements for preclinical support
to our regulatory submissions including manufacturing of our clinical trial supplies, consultants that assist in research and
development activities and employee-related expenses, which include salaries and benefits, and non-cash share-based compensation.
We make payments to consultants based on agreed upon terms that
may include payments in advance of preclinical support. Advance payments for goods and services that will be used in future research
and development activities are expensed when the activity has been performed or when the goods have been received rather than
when the payment is made. Advance payments to be expensed in future research and development activities are capitalized, and were
$150,050 at June 30, 2020 and $0 at December 31, 2019. Research and development expenditures will continue to be significant as
we continue development of our CellMistTM System.
Research and development costs for the six months ended June 30,
2020 increased $1,166,076, or 312%, to $1,539,778, compared with $373,702 for the six months ended June 30, 2019. Research of development
costs increased as a result of a scale up of our manufacturing activities for clinical trial support and employee-related expenses.
Costs related to the scale up of our manufacturing activities for clinical trial support increased approximately $442,000 during
the six months ended June 30, 2020 compared to the six months ended June 30, 2019. Employee-related expenses increased approximately
$720,000 during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the additions
of the Company’s new Chief Scientific Officer and Chief Medical Officer. Included in the $720,000 increase is share-based
compensation of approximately $632,000 to the Company’s new Chief Scientific Officer pursuant to his employment agreement.
General and Administrative
General and administrative costs for the six months June 30, 2020
increased $1,859,245 or 213%, to $2,733,042, compared with $873,797 for the six months ended June 30, 2019. General and administrative
costs include employee-related expenses, which include salaries and benefits, and non-cash share-based compensation, professional
fees for legal, accounting and consulting and other general operating expenses. Employee-related expenses increased approximately
$1,648,000, including share-based compensation in the amount of approximately $1,420,000, during the six months ended June 30,
2020 compared to the three months ended June 30, 2019. The increase is primarily attributable to the addition of our new Chief
Executive Officer in November 2019 and stock option grants to employees and consultants. Professional fees increased approximately
$77,000 during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 due to increased costs related
to corporate compliance and governance matters. Other general operating expenses increased approximately $138,000 during the three
months ended June 30, 2020 compared to the three months ended June 30, 2020 due primarily to increased insurance costs and the
charitable gift agreement with the University of Pittsburgh entered into in June 2019.
Other Income
Other income relates to interest earned on bank account deposits.
Other income decreased approximately $94,000 to approximately $86,000 for the six months ended June 30, 2020 compared to the six
months ended June 30, 2019 due to due a lower average cash balance during the six months ended June 30, 2020 compared June 30,
2019 and lower rates being earned on deposits.
Liquidity and Capital Resources
The Company does not have any commercialized products, has not
generated any revenue since inception and has sustained recurring losses and negative cash flows from operations since inception.
The Company has incurred operating losses of $4,272,820 and $1,247,499 for the six months ended June 30, 2020 and 2019, respectively.
For the three months ended June 30, 2020 and 2019 the Company has incurred operating losses of $3,044,181 and $643,528, respectively.
The Company expects to incur losses as it continues development of its products and technologies. The Company has been funded
through the sale of equity securities. As of June 30, 2020, the Company had $10,258,068 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 $1,919,185 during the
six months ended June 30, 2020, compared to net cash used in operating activities of $1,124,942 during the six months ended June
30, 2019. The increase in cash used in operating activities is primarily attributable to our increase in net loss.
Cash used in investing activities was $7,995 compared for the six
months ended June 30, 2020 compared to $0 for the six months ended June 30, 2019. The increase is due to a payment of a security
deposit for our new corporate headquarters located in Roseland, New Jersey.
Fair Value of Financial Instruments and Risks
The carrying value of cash and cash equivalents, prepaid expenses
and accounts payable, approximate their fair value because of the short-term nature of these instruments and their liquidity.
Management is of the opinion that the Company is not exposed to significant interest or credit risks arising from these financial
instruments.
Off-balance Sheet Arrangements and Contractual Obligations
We do not have any off-balance sheet arrangements or contractual
obligations at June 30, 2020, and the subsequent period to through the date of this report, that are likely to have or are reasonably
likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that have not been disclosed in our consolidated financial
statements.
Recently Issued Accounting Standards
See Note 1 to our Consolidated Financial Statements for more
information regarding recent accounting standards and their impact to our consolidated results of operations and financial position.
Related Party Transactions
On June 3, 2019, the Company entered into a Charitable Gift Agreement
with the University of Pittsburgh (the "University"), pursuant to which the Company committed to provide a charitable
donation to the University in the aggregate amount of $250,000. The Company paid the Grant in four installments with the first
payment made in July 2019. During the six months ended June 30, 2020, the Company made the third of four payments totaling $62,500
and made the final payment of $62,500 in July 2020. Dr. Gerlach, from whom the Company purchased the CellMistTM System
and SkinGunTM technology, is a professor at the University.
During the three months ended June 30, 2020, Talia Jevan Properties,
Inc. made a payment of $5,287 to Stephen Yan-Klassen, former CFO , for his salary on behalf of the Company. Talia
Jevan Properties, Inc. is a related party of Harmel Rayat, Chairman of the Board. The total compensation Talia Jevan Properties,
Inc. made to Steve Yan-Klassen during the three and six months ended June 30, 2020 was $5,287 and $10,811, respectively.
On August 1, 2013, the Company entered into a consulting
agreement, as amended on May 1, 2016, with Jatinder Bhogal, an individual owning in excess of 5% of our 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 an amendment dated May 1, 2016, the VAM monthly consulting fee was
increased from $5,000 to $6,800. On June 22, 2018, the Company and VAM entered into an Executive Consulting Agreement (“ECA”)
pursuant to which Mr. Bhogal served as the Company’s Chief Operating Officer. The ECA supersedes the prior consulting agreement.
Pursuant to the ECA, VAM will receive compensation of $120,000 per year. During the three months ended June 30, 2020 and 2019,
the Company recognized expenses of $30,000 and $30,000, respectively, and $60,000 and $60,000 during the six months ended June
30, 2020 and 2019, respectively, for consulting services provided by VAM. Jatinder Bhogal resigned as the Company’s COO
as June 30, 2020.
Kalen Capital Corp (“KCC”) is wholly
owned by Mr. Harmel Rayat, the Chairman of the Board. On April 1, 2020 KCC provided a short-term advance of $50,000 to the Company.
The short-term advance was repaid by the Company to KCC subsequent to June 30, 2020.