RENOVACARE, INC. Discussion and Analysis
The following discussion and analysis is based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in
Overview
We are a development-stage biotechnology and medical device company focusing on the research, development and commercialization of autologous (using a patient's own cells) cellular therapies that can be used for medical and aesthetic applications. The Company does not have any commercialized products. The Company's activities have consisted principally of performing research and development activities, business development efforts, and raising capital to support such activities.
The Company, through its wholly owned subsidiary,
Currently, our proprietary technologies are the subject of forty-four (44)
In
38
Subsequent to year end, the Board decided to stop enrollment of patients into the clinical trial and take other measures to reduce the Company's overhead in an effort to conserve financial resources as it continues to defend against the Lawsuits. The Company hopes to restart the clinical trial at a future date upon the occurrence of a favorable outcome against the Lawsuits and additional financing.
Research, development and commercialization of new technologies generally requires significant financial resources, involves a high degree of risk, and there is no assurance that development activities will result in a commercially viable product. The Company has not generated any revenue and has sustained recurring losses and negative cash flows from operations since inception. The Company expects to incur losses as it continues development of its products and technologies and defends itself against the Lawsuits. The Company will need to raise additional capital through partnerships or the sale of securities to accomplish its business plan. Failing to secure such additional funding poses a significant risk. The Company's ability to meet its financial obligations, including to fund the development of its cellular therapies depends on the amount and timing of cash receipts from future financing activities. There can be no assurance as to the availability or terms upon which such financing and capital might be available.
Components of Our Results of Operations
Revenue
To date we have not generated any product revenues and do not expect to generate any revenue for the foreseeable future. Our ability to generate revenue and become profitable depends upon our ability to obtain marketing approval and successfully commercialization of our CellMistTM System.
Operating Expenses
Research and Development Expenses
Research and development ("R&D") expenses consist primarily of costs incurred for the development of our CellMistTM System and include:
· design, pilot-scale manufacturing and pre-clinical testing of our cell
isolation and SkinGunTM spray devices.
· employee-related expenses associated with our research and development
activities, including salaries, benefits, travel and non-cash
stock-based compensation expenses.
· costs associated with quality management systems including device
verification and validation testing, and regulatory operations and
regulatory compliance.
· expenses incurred under agreements related to our clinical trial.
· other research and development costs including contract consulting fees
and non-cash stock-based compensation to contract research
organizations (CROs) and other third parties.
We do not believe that it is possible at this time to accurately project total expenses required for us to reach commercialization of our CellMistTM System. In the future, we expect that research and development expenses will increase due to our ongoing product development and approval efforts. We expense research and development costs as incurred.
General and Administrative
General and administrative expenses consist primarily of personnel costs, including non-cash stock-based compensation related to directors and employees, professional service costs including legal, accounting, and other consulting fees and other general and administrative expenses including investor relations, insurance, and facilities costs. We expect general and administrative expenses to increase in the future as we hire personnel and incur additional costs to support the expansion of our research and development activities, our operation as a public company and to defend against the Lawsuits.
39 Stock-Based Compensation
Expense associated with equity-based transactions is calculated and expensed in our financial statements as required pursuant to various accounting rules and is non-cash in nature. Stock compensation represents the expense associated with the amortization of our stock options.
Other Income (Expense)
Other income consists of interest income earned on our cash and cash equivalents and the reimbursement of legal fees from our Directors & Officers insurance policy.
Income Taxes
We have yet to generate taxable income. We have historically incurred operating
losses resulting in carry forward tax losses totaling approximately
Results of Operations
Comparison of Years Ended
Research and Development Expenses
Years Ended December 31,
Increase /
2021 2020 (Decrease)
Manufacturing clinical supplies(1) $ 279,711 $ 1,675,935 $ (1,396,224 )
Personnel related(2) 496,173 276,137 220,036
Stock-based compensation(3) 948,938 1,536,168 (587,230 )
Clinical trial(4) 1,060,573 129,650 930,923
Regulatory(5) 35,688 96,688 (61,000 )
All other(5) 383,812 419,347 (35,535 )
$ 3,204,895 $ 4,133,925 $ (929,030 ) (1) Manufacturing clinical supplies decreased due to completion of the
pilot-scale manufacturing and validation testing of the components of the
CellMist™ System and the electronic SkinGun™ spray device to be used in our
clinical trial.
(2) Personnel related expenses increased due to the allocation of Stem Cell
Systems personnel in support of the development of our CellMist™ System.
(3) Stock compensation expense decreased due primarily to the completion of
vesting in 2020 of prior issued stock options in excess of the amounts
recognized in the current year upon the continued vesting of other R&D
related stock option grants.
(4) Clinical trial expenses increased due to the addition of clinical
professionals, clinical site activation costs and costs related to the
preparation of our clinical trials which began in the second quarter of 2021.
We expect clinical trial expenses to decrease moving forward due to the
suspension of patient enrollment resulting from the need to conserve funds.
(5) All other expenses decreased as validation testing for the electronic SkinGun
™ concluded and we transitioned to prototype development of the cell
isolation device at StemCell Systems.
40
General and Administrative
Years Ended December 31,
Increase /
2021 2020 (Decrease)
Personnel related (1) $ 809,406 $ 1,066,773 $ (257,367 )
Stock-based compensation (2) (1,122,101 ) 2,670,084 (3,792,185 )
Professional and consultant fees (3) 2,277,679 1,202,523 1,075,156
All other (4) 239,537 603,793 (364,256 )
$ 2,204,521 $ 5,543,173 $ (3,338,652 ) (1) Personnel related costs decreased due to lower headcount starting mid-year
2021.
(2) Stock compensation expense decreased due to the forfeiture and cancellation
of 2,805,571 stock options as a result of the resignation of the Company's
former Chairman, President and Chief Executive Officer, the Company's former
Chief Financial Officer, and two members of the Company's Board of Directors.
Compensation expense was recorded on these options prior to their full
vesting. As a result, the Company recognized a $1,314,705 reversal of the
prior recognized compensation expense related to the cancelled options. The
G&A expense recognized for options still in their vesting period totaled
$192,604 .
(3) Professional and consultant fees increased primarily due to an
increase in legal fees related to the Lawsuits, $125,000 increase in fees
related to our patents and trademarks, offset by a $229,000 decrease in
accounting and consulting fees. Legal and other costs related specifically to
the Lawsuits totaled $1,094,000 and $1,708,000 during the fourth quarter and
year ended 2021, respectively, and are expected to be mostly offset by
insurance proceeds paid directly from AIG pursuant to our D&O Policy. The
available insurance to defend the Company and its officers and directors is
expected to be depleted in our first quarter of 2022. On March 18, 2022 , our
Chairman loaned the Company $800,000 to be used towards the payment of legal
fees related to the Lawsuits. The Company is obligated, pursuant to its
bylaws, to indemnify its directors and officers. As a result, all legal costs
related to the Lawsuits are recorded to the books of the Company.
(4) All other costs decreased primarily due to the absence of the charitable
contribution to the Office of Research at the University of Pittsburgh which
the Company recognized $125,000 in 2020 in addition to decreases in investor
relations and insurance offset by an increase in rent.
Liquidity and Capital Resources
The Company does not have any commercialized products, has not generated any
meaningful revenue since inception and has sustained recurring losses and
negative cash flows since inception. The Company has incurred operating losses
of
At
41
Off-Balance Sheet Arrangements and Contractual Obligations
As part of our ongoing business, we do not participate in transactions that
generate relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose
entities (SPEs), which would have been established for the purpose of
facilitating off-balance sheet arrangements or other contractually limited
purposes. As of
Critical Accounting Policies
A critical accounting policy is one that is both important to the portrayal of a company's financial condition and results of operations and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our consolidated financial statements are presented in accordance with
accounting principles generally accepted in
? share-based compensation expenses.
We base our estimates, to the extent possible, on historical experience. Historical information is modified as appropriate based on current business factors and various assumptions that we believe are necessary to form a basis for making judgments about the carrying value of assets and liabilities. We evaluate our estimates on an ongoing basis and make changes when necessary. Actual results could differ from our estimates. For a complete discussion of our significant accounting policies and estimates, see "Item 8. Financial Statements and Supplementary Data-Notes to Consolidated Financial Statements-Note (2), Significant Accounting Policies."
© Edgar Online, source
