NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation, Organization, Going Concern, Recent
Accounting Standards and Earnings (Loss) Per Share
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of
RenovaCare, Inc. and Subsidiary (“RenovaCare” or the “Company”) as of September 30, 2022, and for the three
and nine months ended September 30, 2022 and 2021 have been prepared pursuant to the rules and regulations of the Securities and Exchange
Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures
required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. These Consolidated
Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal
year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the SEC on March 30, 2022.
The accompanying unaudited interim Consolidated Financial Statements have
been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect amounts reported in
the Consolidated Financial Statements and accompanying disclosures. Actual results may differ from those estimates. The accompanying unaudited
interim consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments
(including normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the Company’s
consolidated financial position as of September 30, 2022, results of operations and stockholders’ equity for the three and nine
months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. The Company did not record
an income tax provision during the periods presented due to net taxable losses. The results of operations for any interim period are not
necessarily indicative of the results of operations for the entire year.
Organization
RenovaCare, Inc., formerly Janus Resources, is a Nevada corporation. RenovaCare,
Inc. was incorporated under the laws of the State of Utah on July 14, 1983, as Far West Gold, Inc.
The Company 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 September 30, 2022, and 10,000,000 shares of $0.0001 par value
preferred stock, of which none are outstanding.
RenovaCare, Inc., through its wholly owned subsidiary, RenovaCare Sciences
Corp. is a development-stage 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.
On July 12, 2013, the Company completed the acquisition of its flagship
technologies (collectively, the “CellMistTM System”). The CellMist™
System is a cell isolation procedure that enzymatically renders stem cells from the patient’s own skin or other tissues. The resulting
stem cell suspension is administered topically from the Company’s novel solution sprayer device (the “SkinGunTM”)
as a cell therapy onto wounds including burns to facilitate healing.
Currently, the Company’s
proprietary technologies are the subject of forty-four (44) U.S. and foreign granted or pending patents or patent applications and seventeen
(17) U.S. and foreign trademarks. Of the issued patents, five (5) are U.S. patents and seventeen (17) have issued or are allowed in Australia,
Canada, China, Europe, Germany, France, Italy, Japan, Korea, Netherlands, Spain, Switzerland/Liechtenstein, and the United Kingdom.
The Company has six (6) allowed trademarks in the United States, two (2) European registered trademarks, two (2) United Kingdom trademarks,
two (2) Japan trademarks, and two (2) pending in Canada.
The Company does not have any commercialized products. The Company's activities
have consisted principally of performing research and development activities and raising capital to support such activities. 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 will need to raise additional capital through
partnerships or the sale of its securities to accomplish its business plan. Failing to secure such additional funding before achieving
sustainable revenue and profit from operations poses a significant risk. The Company's ability to fund the development of its cellular
therapies depends on the amount and timing of cash receipts from future financing activities. There can be no assurance as to the availability
or terms upon which such financing and capital might be available.
Going Concern
The Company has not generated any revenue since inception and has sustained
recurring losses and negative cash flows from operations since inception. On September 30,
2022, the Company had $100,738 in cash on hand, current liabilities of $1,710,706 and an accumulated deficit of $38,639,242. The
Company has historically funded its operations through the issuance of convertible notes, the sale of common stock and issuance of warrants.
The Company evaluated whether there are any conditions and events, considered
in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year beyond the filing of this
Quarterly Report on Form 10-Q. Based on such evaluation and the Company’s current plans, which are subject to change, management
believes that the Company’s existing cash as of September 30, 2022 is insufficient to satisfy its operating cash needs for the year
after the filing of this Quarterly Report on Form 10-Q.
The Company is responsible to bear the costs to defend itself and its
directors and officers, pursuant to the indemnification clause in the Company’s bylaws, against various Lawsuits (as each of
those terms are defined in “Note 8. Commitments and Contingencies—Legal Proceedings” below) currently consisting
of a civil action filed by the SEC and two class actions and four derivative actions. See “Note 8. Commitments and
Contingencies—Legal Proceedings.” The legal costs to defend the Company against the Lawsuits have been material. During
the three and nine months ended September 30, 2022, the Company recognized $1,413,185
and $3,469,527,
respectively, in legal costs related to the Lawsuits and received $1,524,674
of reimbursements from our directors and officer’s (the “D&O Policy”) insurance policy. The D&O
Policy coverage is exhausted as of September 30, 2022. To assist the Company in paying the costs to defend against the Lawsuits,
Kalen Capital Corporation, an Alberta Canada corporation (“Kalen Capital”) which is wholly-owned by the Mr.
Harmel S. Rayat (“Mr. Rayat”), the Company’s President, Chief Executive Officer and Chairman, 1) loaned the
Company $800,000
on March 18, 2022, as evidenced by the Unsecured Note (as defined in “Note 3. Related Party Convertible Promissory Note”
below), and 2) advanced, on behalf of the Company to its legal counsel, $750,000
on August 3, 2022. Due to the nature and early stage of the Lawsuits, the Company is unable to estimate the total costs to defend itself or the
potential costs to the Company if it is not successful in its defense.
The Company has experienced and continues to experience negative cash flows
from operations, as well as an ongoing requirement for substantial additional capital investment. The future of the Company will depend
on its ability to successfully raise capital from external sources. As noted above, management believes that the Company’s existing
cash as of September 30, 2022, are insufficient to satisfy its operating cash needs for the year after the filing of this Quarterly Report
on Form 10-Q. If the Company is unable to maintain sufficient financial resources, its business, financial condition, and results of operations
will be materially and adversely affected. This could affect future development and business activities and potential future product development
and/or other future ventures. There can be no assurance that the Company will be able to obtain the needed financing on acceptable terms
or at all. Additionally, equity or convertible debt financings will likely have a dilutive effect on the holdings of the Company’s
existing stockholders. Debt financing may involve agreements that include covenants limiting or restricting the Company’s ability
to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, and may be secured by
all or a portion of the Company’s assets.
Accounting Pronouncements
The Company evaluates all Accounting Standards Updates (ASUs) issued by
the Financial Accounting Standards Board (FASB) for consideration of their applicability. ASUs not included in the Company’s disclosures
were assessed and determined to be either not applicable or are not expected to have a material impact on its Consolidated Financial Statements.
New Accounting Pronouncements Not Yet Adopted
None.
Accounting Pronouncements Recently Adopted
In August 2020, the FASB issued ASU 2020-06, “Debt-Debt with Conversion
and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40),” to address
the complexity in accounting for certain financial instruments with characteristics of liabilities and equity. Amongst other provisions,
the amendments in this ASU significantly changed the guidance on the issuer’s accounting for convertible instruments and the guidance
on the derivative scope exception for contracts in an entity’s own equity such that fewer conversion features will require separate
recognition, and fewer freestanding instruments, like warrants, will require liability treatment. For smaller reporting companies, ASU
2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption
is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted the new standard on January 1, 2022,
with no impact to its financial statements.
Earnings (Loss) Per Share
The Company presents both basic and diluted earnings per share ("EPS").
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 or stock options 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 three and nine months ended September 30, 2022, and 2021:
Schedule of computation of basic and diluted net loss per share | |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended | |
Nine Months Ended |
| |
September 30, | |
September 30, |
| |
2022 | |
2021 | |
2022 | |
2021 |
Basic and Diluted EPS Computation | |
| | | |
| | | |
| | | |
| | |
Numerator: | |
| | | |
| | | |
| | | |
| | |
Loss available to common stockholders' | |
$ | (400,439 | ) | |
$ | (1,698,285 | ) | |
$ | (4,399,338 | ) | |
$ | (3,127,488 | ) |
Denominator: | |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding | |
| 87,352,364 | | |
| 87,352,364 | | |
| 87,352,364 | | |
| 87,352,364 | |
Basic and diluted EPS | |
$ | (0.00 | ) | |
$ | (0.02 | ) | |
$ | (0.05 | ) | |
$ | (0.04 | ) |
| |
| | | |
| | | |
| | | |
| | |
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 | |
| 3,074,999 | | |
| 3,139,999 | | |
| 3,074,999 | | |
| 3,139,999 | |
Warrants | |
| 11,245,000 | | |
| 11,712,496 | | |
| 11,245,000 | | |
| 11,712,496 | |
Total shares not included in the computation of diluted losses per share | |
| 14,319,999 | | |
| 14,852,495 | | |
| 14,319,999 | | |
| 14,852,495 | |
Note 2. Assets – Intellectual Property
On July 12, 2013,
the Company, together with its wholly owned subsidiary, RenovaCare Sciences, Inc., entered into an Asset Purchase Agreement, pursuant
to which RenovaCare Sciences purchased all the 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 for a total of $152,854 as of December 31, 2021.
During the nine months ended September 30, 2022, the Company recorded an
impairment of the full carrying value of the intangible asset of $152,854 based on its assessment that its ability to realize the value
of the intangible asset has been placed into doubt due to the significant decline in the Company’s market capitalization decreasing
cash resources, ongoing Lawsuits which continue to strain the Company’s resources, cancellation of the Strategic Agreement (as defined
below under Note 8. Commitments and Contingencies) with StemCell Systems and significant additional capital required to complete development
which is dependent on additional financing.
Note 3. Prepaid Expenses
Prepaid expenses and other current assets consist of the following:
Schedule of prepaid expenses and other current assets | |
| | | |
| | |
| |
September 30, | |
December 31, |
| |
2022 | |
2021 |
Prepaid stock options for services | |
| - | | |
| 87,001 | |
Prepaid professional fees | |
| 847,500 | | |
| 100,930 | |
Prepaid research and development expense | |
| 104,636 | | |
| 289,746 | |
Other prepaid costs | |
| 2,500 | | |
| 13,964 | |
Refunds due | |
| - | | |
| 41,804 | |
Total prepaid expenses | |
$ | 954,636 | | |
$ | 533,445 | |
Note 4. Related Party Convertible Promissory Note
On March 18, 2022, the Company issued
an Unsecured Convertible Promissory Note (the “Unsecured Note”) to Kalen Capital. Pursuant to the terms of the Unsecured
Note, Kalen Capital loaned the Company $800,000 at an annual interest rate of 1% per year, compounded daily. The Note, including any interest
due thereon, may be prepaid at any time without penalty. The Unsecured Note, and any balance thereunder, is due by June 30, 2024, and
automatically converts into securities of the Company upon receipt of an equity financing from third-party(s) of not less than ten million
dollars ($10,000,000) at a conversion price equal to 80% of the price paid in such a financing. Also, after June 23, 2023, Kalen Capital
may convert all or any portion of the balance into shares of common stock at a conversion price of $0.45 per share, representing a fifty
50% percent premium to the closing price of the Company’s common stock on March 17, 2022. There is no commitment from Kalen Capital
for any additional funding.
During the three and nine months ended September 30, 2022, the Company
recognized $2,053 and $4,367, respectively, of interest expense.
Note 5. Current Liabilities
Current liabilities consist of the following:
Schedule of current liabilities | |
| | | |
| | |
| |
September 30,
2022 | |
December 31,
2021 |
Legal fees and related | |
$ | 286,259 | | |
$ | 869,950 | |
Officer compensation | |
| - | | |
| 55,040 | |
Consultants | |
| 13,250 | | |
| 117,943 | |
Trade payables | |
| 538,731 | | |
| 231,815 | |
Related party payables | |
| 872,466 | | |
| - | |
Total | |
$ | 1,710,706 | | |
$ | 1,274,748 | |
Note 6. Equity
Common Stock
At September 30, 2022, the Company had 500,000,000 authorized shares of
common stock with a par value of $0.00001 per share and 87,352,364 shares of common stock outstanding.
Warrants
The Company has issued warrants to purchase common stock at various exercise
prices in connection with loan agreements and private placements. The following table summarizes information about warrants outstanding
at September 30, 2022 and December 31, 2021:
Schedule of warrants
outstanding | |
| | | |
| | | |
| | | |
| |
| |
Shares of Common Stock Issuable from
Warrants Outstanding as of | |
Weighted | |
|
| |
| September
30, | | |
| December
31, | | |
| Average | | |
| |
Description | |
| 2022 | | |
| 2021 | | |
| Exercise
Price | | |
Expiration | |
Series F | |
| - | | |
| 7,246 | | |
$ | 3.45 | | |
February 23, 2022 | |
Series G | |
| - | | |
| 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 | |
| 11,245,000 | | |
| 11,712,496 | | |
| | | |
| |
No warrants were exercised during the three and nine months ended September
30, 2022.
Stock Options
The following table summarizes stock option activity for the nine months
ended September 30, 2022:
Schedule of stock option activity | |
| | | |
| | | |
| | | |
| | |
| |
Number of Options | |
Weighted
Average
Exercise Price
($) | |
Weighted
Average
Remaining
Contractual Term | |
Aggregate
Intrinsic Value
($) |
Outstanding at December 31, 2021 | |
| 3,139,999 | | |
| 2.17 | | |
| | | |
| | |
Granted | |
| - | | |
| - | | |
| | | |
| | |
Forfeited | |
| (115,000 | ) | |
| 2.23 | | |
| | | |
| | |
Outstanding at September 30, 2022 | |
| 3,024,999 | | |
| 2.17 | | |
| 3.84 | | |
| - | |
Vested and exercisable at September 30, 2022 | |
| 2,674,999 | | |
| 2.03 | | |
| 3.79 years | | |
| - | |
The following table sets forth the share-based compensation cost resulting
from stock option grants, including those previously granted and vesting over time, that were recorded in the Company’s Statements
of Operations for the three and nine months ended September 30, 2022 and 2021:
Schedule of consolidated statement of operations | |
| | | |
| | | |
| | | |
| | |
| |
Three Months Ended
September 30, | |
Nine Months Ended
September 30, |
| |
2022 | |
2021 | |
2022 | |
2021 |
Research and development | |
$ | 289,997 | | |
$ | 224,000 | | |
$ | 724,997 | | |
$ | 731,438 | |
General and administrative | |
| - | | |
| 44,000 | | |
| 5,500 | | |
| (1,138,601 | ) |
Total | |
$ | 289,997 | | |
$ | 268,000 | | |
$ | 730,497 | | |
$ | (407,163 | ) |
Note 7. Leases
In February 2020, the Company entered into a two-year lease for office
premises located at 4 Becker Farm Road, Suite 105, Roseland, New Jersey (the “Premises”). Monthly base rent in year
one of the lease is $4,356 and $4,459 in year 2 of the lease. The term (and payment of the monthly rent) commenced upon completion of
the landlord’s work on August 1, 2020. The Company vacated the premises in May of 2021 and relocated its corporate offices to 9375
E. Shea Blvd., Suite 107-A, Scottsdale, AZ 85260.
In July 2022, Premises lease expired and was not renewed. The Company sold
all office funiture for proceeds of $5,000 and disposed of assets, including office furnishings, leasehold improvements and equipment
with a gross carrying cost of $42,223 and accumulated depreciation totaling $17,597 resulting in a $19,626 loss on the dosposal of assets.
As of September 30, 2022, the Company has not entered
into any leases which have not yet commenced which would entitle the Company to significant rights or create additional obligations.
The Company does not have any finance leases.
Supplemental lease information:
Schedule of supplemental lease information | |
| | | |
| | |
| |
As of
September 30, | |
As of
December 31, |
| |
2022 | |
2021 |
Operating lease right-of-use asset | |
$ | - | | |
$ | 28,630 | |
| |
| | | |
| | |
Current maturities of operating lease | |
$ | - | | |
$ | 30,497 | |
Current maturities of operating lease in accounts payable | |
| - | | |
| - | |
Total operating lease liabilities | |
$ | - | | |
$ | 30,497 | |
Note 8. Commitments and Contingencies
Stem Cell Systems (SCS)
In connection with the Company’s anticipated future regulatory filings,
the Company has engaged StemCell Systems GmbH (“StemCell Systems”) to provide it with medical device prototypes and
related design documents and data under various agreements. On July 1, 2020, the Company and StemCell Systems entered into a Strategic
R&D Agreement (the “Strategic Agreement”) having an initial term of three years with successive one-year extensions
unless earlier terminated. The Strategic Agreement includes a $39,000 monthly fee to be paid to StemCell Systems along with any additional
expenses incurred. The Company, StemCell Systems and certain affiliates of StemCell Systems entered into a Rights of First Refusal and
Corporate Opportunities Agreement (the “ROFR Agreement”). Pursuant to the ROFR Agreement, (i) in the event a StemCell
Systems stockholder receives an offer from a third party to acquire the StemCell Systems stockholders ownership interest, the Company
shall have ten business days to purchase such ownership, and (ii) if during the terms of the Strategic Agreement, any StemCell Systems
inventions, with respect to skin, burns and wounds, designs, inventions and among other things, whether or not patentable, copyrightable
or otherwise legally protectable are discovered by StemCell Systems, the Company shall have the first option to negotiate mutually agreeable
terms for the Company’s acquisition or licensing of the StemCell Systems inventions.
On April 28, 2022, the Company provided StemCell Systems with notice of
termination of the Strategic Agreement.
Pursuant to the terms of the Strategic Agreement, upon cancelation, the
Company recognized a termination fee equal to 12 months of the base monthly fee and totaling $372,000. Pursuant
to the Strategic Agreement, the Company incurred expenses of $0 and $142,000 during the three months ended September 30, 2022
and 2021, respectively; and $545,000 and $391,000 during the nine months ended September 30,
2022 and 2021, respectively. As of September 30, 2022, included in the Company’s accounts
payable balance is approximately $503,000 due to StemCell Systems.
Legal Proceedings
SEC Civil Complaint
On May 28, 2021, the SEC filed a civil complaint (the “SEC Action”),
in the United States District Court for the Southern District of New York, naming the Company and Harmel S. Rayat, the Company’s
current President, Chief Executive Officer, Chief Financial Officer and Sole Director as defendants (the “Defendants”).
The SEC Action alleges among other things that Mr. Rayat and the Company with violated the antifraud provisions of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and alleges that Mr. Rayat aided and abetted the violations of those provisions
by the Company. The SEC Action also alleges that the Company violated the reporting provisions of Exchange Act Section 15(d) and Rules
15d-11 and 12b-20 thereunder. The SEC seeks, among other relief, permanent injunctions and civil penalties against the Defendants, and
officer-and-director and penny stock bars against Mr. Rayat. On August 31, 2021, the Defendants filed an answer to the Complaint. On September
21, 2021, the SEC filed a motion to strike Defendants equitable affirmative defenses which motion was granted by the court on October
18, 2021. The Company continues to defend itself and the named individuals against the allegations set forth in the SEC Action. Due to
the nature and early stage of the SEC Action, the Company is unable to estimate the total costs to defend itself or the potential costs
to the Company in the event that it is not successful in its defense.
Class Action Complaints
On July 16, 2021, Gabrielle A. Boller filed a class action lawsuit in the
U.S. District Court for the District of New Jersey (the “Boller Lawsuit”), against the Company and certain past and
current officers and members of the Company’s board of directors (collectively, the “Boller Defendants”). The
Boller Lawsuit alleges, among other things, that in connection with the facts and circumstances underlying the allegations in the SEC
Action, the Boller Defendants engaged in fraudulent conduct and made false and misleading statements of material fact or omitted to state
material facts necessary to make the statements made not misleading. The plaintiff seeks a determination that the Boller Lawsuit is a
proper class action, compensatory damages in favor of the plaintiff and other class members, reasonable costs and expenses incurred in
the Boller Lawsuit, including counsel fees and expert fees, and such other relief as the Court may deem proper.
The Company disputes the plaintiffs’ claims in the Boller Lawsuit
and intends to defend these matters vigorously. To that end, the Company has engaged counsel to defend the Boller Defendants. Given the
uncertainty of litigation, the preliminary stage of these cases, the legal standards that must be met for, among other things, class certification
and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss that may result from these actions.
On July 21, 2021, Michael Solakian, filed a class action lawsuit in the
U.S. District Court for the District of New Jersey (the “Solakian Lawsuit”), against the Company and certain past and
current officers and members of the Company’s board of directors (collectively, the “Solakian Defendants”). The
Solakian Lawsuit alleges, among other things, that in connection with the facts and circumstances underlying the allegations in the SEC
Action, the Solakian Defendants engaged in fraudulent conduct and made false and misleading statements of material fact or omitted to
state material facts necessary to make the statements made not misleading. The plaintiff seeks a determination that the Solakian Lawsuit
is a proper class action, compensatory damages in favor of the plaintiff and other class members, reasonable costs and expenses incurred
in the Solakian Lawsuit, including counsel fees and expert fees, and such other relief as the Court may deem proper.
The Company disputes the plaintiffs’ claims in the Solakian Lawsuit
and intends to defend these matters vigorously. To that end, the Company has engaged counsel to defend the Solakian Defendants. Given
the uncertainty of litigation, the preliminary stage of these cases, the legal standards that must be met for, among other things, class
certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss that may result from
these actions.
Shareholder Derivative Complaints
On December 20, 2021, Melvin Emberland (“Emberland”), derivatively
and on behalf of nominal defendant RenovaCare, Inc. filed a lawsuit (the “Emberland Lawsuit”) in the United States
District Court for the District of New Jersey against the Company and certain of its current and former executive officers (the “Emberland
Defendants”). In the complaint, Emberland’s allegations, relating to the facts and circumstances underlying the allegations
in the SEC Action include, but are not limited to (i) breach of fiduciary duties by the individual Emberland Defendants, (ii) unjust enrichment
and (iii) violation of Section 10(b) and 21D of the Securities Exchange Act of 1934. Emberland did not quantify any alleged damages in
his complaint but, in addition to attorneys’ fees and costs, Emberland seeks (i) a declaration that the Emberland Defendants have
breached and/or aided and abetted the breach of their fiduciary duties to the Company, (ii) a determination awarding to the Company restitution
from the Meyer Defendants, and each of them, and ordering disgorgement of all profits, benefits and other compensation obtained by the
Emberland Defendants, (iii) a directive to the Company and the Emberland Defendants to take all necessary actions to reform and improve
the Company’s corporate governance and internal procedures to comply with applicable laws, and (iv) Plaintiff is seeking, among
other things, restitution from the individual Emberland Defendants and disgorgement of profits, benefits and other compensation obtained
by such Emberland Defendants, costs and disbursements of the action including reasonable attorney’s fees, accountants’ and
expert fees and expenses, an order directing the taking of certain corporate actions relating to its board of directors and corporate
governance.
The Company disputes Emberland’s claims and intends to defend these
matters vigorously. To that end, the Company has engaged counsel to defend the Emberland Defendants. Given the uncertainty of litigation,
the preliminary stage of the Emberland Lawsuit, the legal standards that must be met for success on the merits, the Company cannot estimate
the reasonably possible loss or range of loss that may result from these actions.
On January 6, 2022, Zoser Vargas (“Vargas”), derivatively
and on behalf of nominal defendant RenovaCare, Inc. filed a lawsuit (the “Vargas Lawsuit”) in the United States District
Court for the District of New Jersey against the Company and certain of its current and former executive officers (the “Vargas
Defendants”). In the complaint Vargas’ allegations relating to the facts and circumstances underlying the allegations
in the SEC Action include but are not limited to, (i) breach of fiduciary duties, (ii) waste of corporate assets, (iii) violation of law,
and (iii) unjust enrichment. Vargas did not quantify any alleged damages in his complaint but, in addition to attorneys’ fees and
costs, Vargas seeks, in addition to other things, (i) against the Vargas Defendants and in favor of the Company the amount of damages
sustained by the Company as a result of the Vargas Defendants’ breaches of fiduciary duties, waste of corporate assets and unjust
enrichment, (ii) directive for the Company to take all necessary actions to improve its corporate governance and internal procedures to
comply with applicable law and (iii) awarding to the Company restitution from the Vargas Defendants, and each of them, and ordering disgorgement
of all profits, benefits and other compensation obtained by the Vargas Defendants.
The Company disputes Vargas’ claims and intends to defend these matters
vigorously. To that end, the Company has engaged counsel to defend the Vargas Defendants. Given the uncertainty of litigation, the preliminary
stage of these cases, the legal standards that must be met for success on the merits, the Company cannot estimate the reasonably possible
loss or range of loss that may result from these actions.
On January 28, 2022, Aviva Meyer (“Meyer”), derivatively
and on behalf of nominal defendant RenovaCare, Inc. filed a lawsuit (the “Meyer Lawsuit”) in the United States District
Court for the District of New Jersey against the Company and certain of its current and former executive officers (the “Meyer
Defendants”). In the complaint Meyer’s allegations relating to the facts and circumstances underlying the allegations
in the SEC Action include but are not limited to, (i) breach of fiduciary duties, (ii) waste of corporate assets, (iii) violation of law,
and (iii) unjust enrichment. Meyer did not quantify any alleged damages in his complaint but, in addition to attorneys’ fees and
costs, Meyer seeks, in addition to other things, (i) against the Meyer Defendants and in favor of the Company the amount of damages sustained
by the Company as a result of the Meyer Defendants’ breaches of fiduciary duties, waste of corporate assets and unjust enrichment,
(ii) directive for the Company to take all necessary actions to improve its corporate governance and internal procedures to comply with
applicable law and (iii) awarding to the Company restitution from the Meyer Defendants, and each of them, and ordering disgorgement of
all profits, benefits and other compensation obtained by the Meyer Defendants.
The Company disputes Meyer’s claims and intends to defend these matters
vigorously. To that end, the Company has engaged counsel to defend the Meyer Defendants Given the uncertainty of litigation, the preliminary
stage of these cases, the legal standards that must be met for success on the merits, the Company cannot estimate the reasonably possible
loss or range of loss that may result from these actions.
On March 28, 2022, Peter Rigsby (“Rigsby”), derivatively
and on behalf of nominal defendant RenovaCare, Inc. filed a lawsuit (the “Rigsby Lawsuit”) in the Eight Judicial District
Court of the State of Nevada in and for Clark County, against the Company and certain of its current and former executive officers (the
“Rigsby Defendants”). In the complaint Rigsby’s allegations relating to the facts and circumstances underlying
the allegations in the SEC Action include but are not limited to, (i) breach of fiduciary duties, (ii) waste of corporate assets, (iii)
violation of law, and (iii) unjust enrichment. Rigsby did not quantify any alleged damages in his complaint but, in addition to attorneys’
fees and costs, Rigsby seeks, in addition to other things, (i) against the Rigsby Defendants and in favor of the Company the amount of
damages sustained by the Company as a result of the Rigsby Defendants’ breaches of fiduciary duties, waste of corporate assets and
unjust enrichment, (ii) directive for the Company to take all necessary actions to improve its corporate governance and internal procedures
to comply with applicable law and (iii) awarding to the Company restitution from the Rigsby Defendants, and each of them, and ordering
disgorgement of all profits, benefits and other compensation obtained by the Rigsby Defendants.
On May 19, 2022, Helen Medrano (“Medrano”), derivatively
and on behalf of nominal defendant RenovaCare, Inc. filed a lawsuit (the “Medrano Lawsuit”) in the Superior Court of
Arizona against the Company and certain of its current and former executive officers (the “Medrano Defendants”). In
the complaint Medrano’s allegations relating to the facts and circumstances underlying the allegations in the SEC Action include
but are not limited to, (i) breach of fiduciary duties, (ii) conspiracy, aiding and abetting, (iii) violation of law, and (iii) unjust
enrichment. Medrano did not quantify any alleged damages in her complaint but, in addition to attorneys’ fees and costs, Medrano
seeks, in addition to other things, (i) against the Medrano Defendants and in favor of the Company the amount of damages sustained by
the Company as a result of the Medrano Defendants’ breaches of fiduciary duties, waste of corporate assets and unjust enrichment,
(ii) directive for the Company to take all necessary actions to improve its corporate governance and internal procedures to comply with
applicable law and (iii) awarding to the Company restitution from the Medrano Defendants, and each of them, and ordering disgorgement
of all profits by the Medrano Defendants.
The Company believes that the claims asserted in the SEC Action,
the Boller Lawsuit, the Solakian Lawsuit, the Emberland Lawsuit, the Vargas Lawsuit, the Meyer Lawsuit, the Rigsby Lawsuit, and the Medrano
Lawsuit (collectively, the “Lawsuits”) are without merit and intends to vigorously defend each Lawsuit.
Note 9. Related Party Transactions
During the three and nine months ended September 30, 2022, Kalen
Capital made payments related to the Lawsuits totaling $835,779
and $872,466,
respectively. Of the total $872,466, payments made to the Company’s legal counsel
totaled $825,000 and payments made for travel and lodging costs totaled $47,466. No reimbursements have been made as of the date of this
quarterly report.
Note 10. Subsequent Events
Management has reviewed material events subsequent of the period ended
September 30, 2022 and prior to the filing of financial statements in accordance with FASB ASC 855 “Subsequent Events.”