RetinalGenix Technologies Inc 10-Q/A for FY2023 Q1
RetinalGenix Technologies Inc. (RTGN)
About this 10-Q/A
RetinalGenix Technologies Inc filed this 10-Q/A on May 30, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $510.64K
- compared with a net loss of $375.2K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Amendment No. 1)
(Mark One)
For
the quarterly period ended
OR
For the transition period from ________________ to ________________
Commission
File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report
Securities registered pursuant to Section 12(b) of the Act: None
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.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
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 | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
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 Exchange Act). Yes ☐
The number of shares of the issuer’s common stock, $0.0001 par value per share, outstanding at May 15, 2023 was .
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
RETINALGENIX TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| March 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Total Current Assets | ||||||||
| Equipment, net of accumulated depreciation
of $ | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | ||||||||
| Due to Sanovas | ||||||||
| Due to related parties | ||||||||
| Shareholders’ notes payable | ||||||||
| Accrued interest payable | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ par value; shares authorized; Series F preferred stock - shares designated, issued and outstanding at December 31, 2022 and March 31, 2023 | ||||||||
| Common stock, $ par value; shares authorized; shares issued and outstanding at December 31, 2022 and March 31, 2023 | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 2 |
RETINALGENIX TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| For The Quarter Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Operating expenses: | ||||||||
| General and administrative expenses | ||||||||
| Research and development | ||||||||
| Stock-based compensation | ||||||||
| Total Operating expenses | ||||||||
| Interest expense | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares outstanding during the period- basic and diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
RETINALGENIX TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2022 AND THREE MONTHS ENDED MARCH 31, 2023
| Common Stock | Preferred Stock Series F | Additional | ||||||||||||||||||||||||||
| Shares | Par Value | Shares | Par Value | Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
| Balance as at December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||
| Stock purchased by investors | - | |||||||||||||||||||||||||||
| Retirement of due to Sanovas through the issuance of shares of common stock to Sanovas Ophthalmology LLC | - | |||||||||||||||||||||||||||
| Exercise of warrants and options | ||||||||||||||||||||||||||||
| Issuance of shares upon acquisition of in process research and development | ||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as at December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as at March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Balance | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
RETINALGENIX TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| For The Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows From (Used In) Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Non-cash items: | ||||||||
| Stock based compensation expense | ||||||||
| Depreciation expense | ||||||||
| Expenses paid by Sanovas on behalf of Company, net | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Increase in accounts payable and accrued liabilities | ||||||||
| Increase in accrued interest | ||||||||
| Total Adjustments | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from common stock sold, net of costs | ||||||||
| Advances from related parties | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
RETINALGENIX TECHNOLOGIES INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE A – HISTORY, BUSINESS PURPOSE, LIQUIDITY AND GOING CONCERN
RetinalGenix Technologies Inc. (the “Company”), a Delaware corporation, was formed in November 2017 by Sanovas Ophthalmology, LLC (“Sanovas Ophthalmology”), a majority owned subsidiary of Sanovas Inc. (“Sanovas”), a privately held research and development incubator. During the year ended December 31, 2022, a substantial portion of the operations of the Company were conducted by Sanovas, who invoices the Company for costs and expenses paid for on behalf of the Company and costs and expenses allocated to the Company for services performed on behalf of the Company.
The Company was formed to develop technologies to diagnose and treat ophthalmic disorders. The Company sublicensed certain technology initially developed by Sanovas from Sanovas Ophthalmology – See Note C. Since 2018, the Company has been developing its screening device and home monitoring and physician alert system.
In October 2021, the Company filed a registration statement on Form S-1 (the “Registration Statement”) with the Securities and Exchange Commission pursuant to which it registered for resale shares of common stock, including shares of common stock issuable upon exercise of outstanding options and warrants. The Company did not raise any cash from the resale of the securities offered by the Registration Statement, and accordingly, the previously deferred offering costs were applied against the proceeds of the shares of common stock sold in 2021 pursuant to the Company’s previous private offering of securities.
On October 8, 2019, the Company entered into an option exchange agreement (the “Option Exchange Agreement”) with Diopsys, Inc. (“Diopsys”) pursuant to which the Company agreed to issue Diopsys an option to purchase up to % of its issued and outstanding shares of common stock and Diopsys granted the Company an option to purchase up to % of the issued and outstanding shares of common stock of Diopsys on the Closing Date (the “Option Exchange”). “Closing Date” means a date that is within 30 days of the date that all of the contingencies set forth in the Option Exchange Agreement are satisfied including, but not limited to, approval of a product by the U.S. Food and Drug Administration. In addition, pursuant to the Option Exchange Agreement, upon the closing of the Option Exchange, the Company agreed to enter into an exclusive distribution agreement with Diopsys pursuant to which Diopsys shall act as the Company’s exclusive distributor of such product. On February 14, 2022, the Company entered into a Termination of Option Exchange Agreement (the “Termination Agreement”) with Diopsys pursuant to which the prior Option Exchange Agreement was terminated effective immediately and of no further force and effect, and neither party has any past, current or future obligations or liabilities to the other (or any other person or entity) with respect to any rights, obligations or any of the transactions contemplated in the Option Exchange Agreement. At the time of such termination, none of the conditions in the Option Exchange Agreement were satisfied and no options thereunder had been issued to either the Company or Diopsys. In addition, the Exclusive Distribution Agreement to be entered into between the Company and Diopsys and referred to in the Option Exchange Agreement has not been negotiated and as of the second quarter of 2022, there are no plans to move forward with Diopsys.
On
December 27, 2021, the Company entered into an exchange agreement (the “Exchange Agreement”) with Sanovas Ophthalmology pursuant
to which the Company exchanged
On
July 5, 2022, the Company entered into Exchange Agreement (the “Exchange Agreement”) with Dr. Lawrence Perich pursuant to
which it acquired all the outstanding shares of DNA/GPS Inc., a pharmacogenetics company based in Tampa, Florida (“DNA/GPS”),
in exchange for the issuance of shares of the Company’s common stock. The acquisition of DNA/GPS combines DNA/GPS’
genetic mapping capabilities with the Company’s retinal imaging capabilities. The combined technology is expected to have the ability
to screen, monitor and provide data to profile trends and create diagnostic markers for systemic and retinal disorders in the cardiovascular,
Alzheimer’s, Parkinson disease. The markers and data analysis are rapid and cost effective, thereby eliminating expensive diagnostic
equipment such as MRI or CT scanning. The results are confidential to the patient and anonymous for any third party without permission
of the patient. The Company accounted for this transaction as an asset acquisition in the quarter ending December 31, 2022. The estimated
fair value of the transaction was $
| 6 |
Liquidity and Going Concern
The
Company has had net losses since inception and has an accumulated deficit of approximately $
Sanovas
has paid a significant portion of the Company’s operating expenses through December 2022, and was owed approximately $ as
of March 31, 2023 by the Company. The Company also issued shares of its common stock to offset amounts due to Sanovas for payment of
expenses on behalf of the Company of $
As of the date of this report, the Company does not have adequate resources to fund its operations through May 2024 without considering any potential future milestone payments that it may receive under any new collaborations that it may enter into in the future or any future capital raising transactions. The Company will need to raise additional funding to complete the development of its products and commence the market launch, assuming regulatory approval is obtained. The Company does not know whether additional financing will be available when needed, whether it will be available on favorable terms, or if it will be available at all. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the preparation of the accompanying financial statements is as follows:
1. Basis of Presentation
The Company’s financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). As of December 31, 2022, there have been no material changes in the Company’s significant accounting policies from those that were disclosed in the Annual Report for the year ended December 31, 2022 (the “2022 Annual Report”).
2. Cash Equivalents
For purpose of the statements of cash flows, the Company considers all short-term investments purchased with a maturity of three months or less to be cash equivalents.
3. Use of Estimates
In preparing the Company’s financial statements in conformity with US GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
4. Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. 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 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.
The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740-10 Income Taxes. ASC Topic 740-10 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on the recognition, measurement, and classification of amounts relating to uncertain tax positions, accounting for and disclosure of interest and penalties, accounting in interim periods and disclosures. The application of that guidance did not result in the recognition of any unrecognized tax benefits at March 31, 2023 or December 31, 2022. The Company’s policy is to expense any penalties and interest associated with this topic. At March 31, 2023 and December 31, 2022, there were no amounts accrued for penalties and interest.
| 7 |
The Company computes net income (loss) per share in accordance with ASC 260, Earnings Per Share (“EPS”). Under the provisions of ASC 260, basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted-average number of common and common equivalent shares outstanding during the period. However, common shares that are considered anti-dilutive are excluded from the computation of diluted EPS. Since the Company had a loss during the three months ended March 31, 2023 and 2022, the basic and diluted net loss per share is the same.
Potentially dilutive securities not included in the computation of loss per share for the three months ended March 31, 2023, include stock options to purchase shares of common stock, pre-funded warrants to purchase shares of common stock, and warrants to purchase shares of common stock. Potentially dilutive securities not included in the computation of loss per share for the three months ended March 31, 2022 stock options to purchase shares of common stock, pre-funded warrant to purchase shares of common stock and warrants to purchase shares of common stock. The shares of common stock potentially issuable to Diopsys upon the resolution of specified contingencies and exercise of stock options are also excluded from the loss per share calculation for the three months ended March 31, 2022.
6. Stock-based compensation:
The Company recognizes expense for stock-based compensation in accordance with ASC Topic 718, Stock-Based Compensation. For stock-based awards, the Company calculates the fair value of the award on the date of grant using the Black Scholes option-pricing model. The expense is recognized over the service period for awards expected to vest. The estimate of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period the estimates are revised. Stock options granted to non-employee consultants are revalued at the end of each reporting period until vested and the changes in their fair value are recorded as adjustments to expense over the related vesting period.
7. Research and Development costs:
Research and development costs are expensed as incurred. Costs incurred in obtaining technology licenses outside of business combinations are charged to research and development expense as acquired in-process research and development if the technology licensed has not reached technological feasibility and has no alternative future use.
8. Property and Equipment:
Property
and equipment are stated at cost, net of accumulated depreciation using the straight-line method over their estimated useful lives (
The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
9. Recent Accounting Pronouncements:
The following pronouncement may have an impact on the accounting policies of the Company:
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The FASB issued ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”), ASU No. 2018-11 “Leases (Topic 842) Targeted Improvements” (“ASU 2018-11”) in July 2018, and ASU No. 2018-20 “Leases (Topic 842) - Narrow Scope Improvements for Lessors” (“ASU 2018-20”) in December 2018. ASU 2018-10 and ASU 2018-20 provide certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Pursuant to ASU 2019-10 the effective date for ASC 842 was deferred an additional year. The Company expects to recognize operating lease right-of-use assets and lease liabilities on the balance sheet upon adoption of this ASU when it obtains a lease. The Company is currently evaluating these ASUs and their impact on its financial statements, but does not expect it will have a material effect on the consolidated financial statements.
| 8 |
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether the implementation of such proposed standards would be material to the financial statements of the Company.
NOTE C - RELATED PARTY TRANSACTIONS
Sanovas
The Company is related to Sanovas through common ownership and management. Sanovas Opthalmology is a majority owned subsidiary of Sanovas and Jerry Katzman, the Company’s Chief Executive Officer, is also a director of Sanovas Ophthalmology and in such capacity has the right to vote and dispose of the securities held by such entity.
Commencing in 2019, Sanovas began paying expenses on behalf of the Company, and began allocating a portion of expenses and infrastructure costs to the Company and other entities where Sanovas was performing shared services. Included in such allocated costs is approximately $ and $ in costs related to an officer of the Company in the three months ending March 31, 2023 and 2022, respectively.
The following summarizes the transactions between the Company and Sanovas for the three months ended March 31, 2023 and 2022:
SCHEDULE OF RELATED PARTY TRANSACTIONS
| Three months Ended | ||||||||
| March 31, | March 31, | |||||||
| 2023 | 2022 | |||||||
| Balance due to (from) Sanovas – beginning of period | $ | $ | ||||||
| Costs paid by Sanovas on the Company’s behalf | ||||||||
| Costs of Sanovas allocated to the Company | ||||||||
| Proceeds from (repayment of) costs charged by Sanovas to the Company, net | ||||||||
| Balance due to Sanovas - end of period | $ | $ | ||||||
The
Company issued and shares of its common stock to offset amounts due to Sanovas for payment of expenses on behalf of the
Company of $
Sublicense
On June 24, 2021, the Company entered into a sublicense agreement (“Sublicense Agreement”) with Sanovas Ophthalmology pursuant to which Sanovas Ophthalmology granted the Company an exclusive worldwide (“Territory”) license to certain intellectual property licensed to Sanovas Ophthalmology by Sanovas Intellectual Property LLC relating to certain technologies for eye and ocular visualization and monitoring (“Licensed IP”) for uses related to the screening, examination, diagnosis, prevention and/or treatment of any eye disease, medical condition or disorder, or any disease, medical condition or disorder affecting the eye. Pursuant to the Sublicense Agreement, commencing on the date of the first commercial sale of a Licensed Product (as defined in the Sublicense Agreement), in each country in the Territory and continuing on a country by country basis until the expiration or termination of the last Valid Claim (as defined in the Sublicense Agreement) of a licensed patent in such country (the “Royalty End Date”), the Company is obligated to pay Sanovas Ophthalmology a royalty equal to a mid-single digit percentage of any Net Sales (as defined in the Sublicense Agreement) of any Licensed Product. The Sublicense Agreement continues until the Royalty End Date, unless earlier terminated pursuant to its terms. The Sublicense Agreement may be terminated by either party if the other party materially breaches the Sublicense Agreement in a manner that cannot be cured, or materially breaches the Sublicense Agreement in a manner that can be cured and such breach remains uncured for more than 30 days after the receipt by the breaching party of notice specifying the breach. Furthermore, the Company may terminate the Sublicense Agreement at any time upon 90 days written notice to Sanovas Ophthalmology. No royalties have been paid through December 31, 2022 under this Sublicense Agreement.
| 9 |
Due to affiliates
From time to time, an officer of the Company, a shareholder of the Company and affiliates of Sanovas advances funds or paid expenses on behalf of the Company. There is no formal notes or repayment plan for such advances. At March 31, 2023 and December 31, 2022, the Company had received an aggregate of $ and $ pursuant to such advances, respectively.
Shareholders’ notes payable – See Note G
NOTE D - COMMON AND PREFERRED STOCK
Pursuant to the Company’s Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”), filed with the Delaware Secretary of State on January 8, 2018, the Company is authorized to issue shares of preferred stock and shares of common stock each with a par value of $ per share. The Company has designated shares of preferred stock as Series F preferred stock.
Pursuant to the terms of an employment agreement dated January 1, 2012 (the “Effective Date”) by and between Sanovas and Lawrence Gerrans, the then President and Chief Executive Officer of Sanovas (the “Original Employment Agreement”), in consideration for Mr. Gerrans’ services, Mr. Gerrans was to receive, among other consideration, the following equity securities: (i) shares of restricted common stock of each of the wholly-owned subsidiaries of Sanovas, as of the Effective Date (the “Affiliate Subsidiaries”), representing % of the total equity capital of each such subsidiary issued and outstanding as of the date of grant; and (ii) shares of Series F preferred stock of Sanovas and each of the Affiliate Subsidiaries. The Company was incorporated in Delaware on November 17, 2017, subsequent to the Effective Date, and as such these shares were never issued by the Company because the Company was not an Affiliate Subsidiary of Sanovas. Thereafter, in May 2015, Mr. Gerrans’ Original Employment Agreement was amended and restated with an effective date of January 1, 2012 (the “Amended and Restated Employment Agreement”), the same as the Effective Date of the Original Employment Agreement. Pursuant to the Amended and Restated Employment Agreement, in consideration for Mr. Gerrans’ services, Mr. Gerrans was to receive, among other consideration, the following equity securities: (i) % of the total equity capital of each of Sanovas’ Affiliate Subsidiaries as of the Effective Date or thereafter formed (collectively, the “New Subsidiaries”); and (ii) shares of Series F preferred stock of Sanovas, each of the Affiliate Subsidiaries and each of the New Subsidiaries, including the Company. Subsequently, pursuant to a board resolution dated December 1, 2017 approved by Lawrence Gerrans, the Company’s then Chief Executive Officer, President and sole director, in 2018 the Company issued shares of its common stock to Sanovas Ophthalmology LLC, and issued shares of its Series F preferred stock to Halo Management LLC (“Halo”), an entity owned by Mr. Gerrans, for certain enumerated consideration that was purported to have been provided. Thereafter, and in part based upon the evidence and testimony presented, and verdict and conviction rendered, in the Criminal Action (discussed below), including, but not limited to, the fact that Mr. Gerrans misled and coerced the board of Sanovas regarding the terms and need for approval of the Amended and Restated Employment Agreement, the Company’s board of directors, acting in concert with the board of directors of Sanovas, carried out an investigation with respect to actions taken by Mr. Gerrans and have determined that Halo did not provide the Company with valid consideration for the Series F preferred stock, and the Company disputes whether any of the shares of the Company issued to Halo were validly issued.
In January 2020, a jury in the United States District Court for the Northern District of California found Mr. Gerrans guilty, in a criminal proceeding (the “Criminal Action”), on 12 felony counts of wire fraud, money laundering, perjury, contempt of court, witness tampering, and obstruction of justice in connection with his activities as an officer and director of Sanovas. Thereafter, in November 2020, Sanovas commenced an action in the Court of Chancery of the State of Delaware (the “Delaware Action”) against Halo and Mr. Gerrans seeking an order declaring that any rights that Halo and/or Mr. Gerrans may have with respect to any equity securities in Sanovas and each of its affiliated subsidiaries (including, but not limited to, the Company) are void or voidable and may be cancelled. The Delaware Action is currently still pending.
On November 21, 2021, the Company’s Board of Directors resolved to rescind the shares of Series F preferred stock purported to be issued to Halo Management Group LLC for lack of contract consideration. The Company is aware that the management/ownership of Halo Management Group LLC may dispute this decision however, the Company is prepared to defend its decision in this case. In addition, the Company reserves the right to void the shares and adjust its filings accordingly if necessary.
Common Stock
During 2019, the Company commenced a private offering of its shares of common stock at a purchase price of $ per share. For the three months ended March 31, 2022, the Company sold an aggregate of shares of its common stock, and the offering was concluded.
The common stockholders, voting as a separate class, are entitled to elect one member of the Board of Directors.
| 10 |
Preferred Stock
As of December 31, 2022 and March 31, 2023, there were shares of preferred stock designated as Series F preferred stock, none of which were outstanding.
The rights and privileges of the Series F preferred stock are summarized as follows:
Voting Privileges and Protective Features:
Each
holder of outstanding shares of Series F preferred stock is entitled to cast the number of votes equal to the number of whole shares
of common stock into which the Series F preferred stock held by such holder are convertible as of the record date for determining stockholders
entitled to vote on such matter. The holders of record of a majority of outstanding Series F preferred stock shall be entitled to elect
two of the members of the Board of Directors of the Company.
For so long as at least shares of Series F preferred stock remain outstanding, the vote or written consent of the holders of the majority of the outstanding shares of Series F preferred stock is necessary for the Company to conduct certain corporate actions, including, but not limited to, merger, consolidation or dissolution of the Company; certain amendments to the Certificate of Incorporation or bylaws of the Company; authorization or issuance of shares of any additional class or series of capital stock unless the same ranks on parity or junior to the Series F preferred stock with respect to voting rights.
Redemption:
The Series F preferred stock does not have redemption features.
Dividends:
There
are
Conversion:
Each
share of Series F preferred stock is convertible, at the option of the holder, at any time and from time to time into shares of common
stock at a conversion rate as is determined by dividing the Series F Original Issue Price by the Series F Conversion Price. “Series
F Original Issue Price” initially means $ and “Series F Conversion Price” initially means $
All
of the outstanding shares of Series F preferred stock will automatically convert into shares of the Company’s common stock upon
the consummation of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933,
as amended, resulting in gross proceeds of at least $
The Company has reserved shares of common stock for issuance to employees or consultants from the RetinalGenix Technologies Inc. 2017 Equity Incentive Plan (the “Plan”). The Company may grant stock options, restricted stock or other types of equity incentive instruments under the Plan.
In November 2019, the Company issued stock options to purchase up to shares of common stock at an exercise price of $ per share to members of the Company’s medical advisory board and consultants pursuant to the Plan. The options vest over a period and were unexercised at March 31, 2023. The estimated aggregate fair value of the stock options at the date of grant was determined to be $ using a Black Scholes model.
In the year ended December 31, 2021, the Company issued stock options to purchase up to shares of common stock at an exercise price of $ per share to members of the Company’s medical advisory board and consultants pursuant to the Plan. The options vested immediately. The estimated aggregate fair value of the stock options at the date of grant was determined to be approximately $ using a Black Scholes model.
In August 2022, the Company issued stock options to purchase up to shares of common stock at an exercise price of $ per share to members of the Company’s medical advisory board and consultants pursuant to the Plan. The options vest over a period. The estimated aggregate fair value of the stock options at the date of grant was determined to be $ using a Black Scholes model.
| 11 |
The Company recognized $ and $ of stock-based compensation expense during the three years ended March 31, 2023 and 2022, respectively, related to stock options which is included in the accompanying statements of operations. As of March 31, 2023, there was approximately $ of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of approximately years.
At March 31, 2023, there were shares available to be issued under the Plan. The following table summarizes stock option activity of the Plan through March 31, 2023:
| Options Issued | Weighted-Average Exercise Price | |||||||
| Options outstanding – December 31, 2021 | $ | | ||||||
| Granted | ||||||||
| Canceled | ||||||||
| Exercised | ( | ) | ||||||
| Options outstanding – December 31, 2022 | ||||||||
| Granted | ||||||||
| Canceled | ||||||||
| Exercised | ||||||||
| Options outstanding – March 31, 2023 | $ | |||||||
SCHEDULE OF STOCK OPTIONS OUTSTANDING AND EXERCISABLE
| Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life | Number Exercisable at December 31, 2022 | Number Exercisable at March 31, 2023 | ||||||||||||
| $ | Years | |||||||||||||||
SCHEDULE OF STOCK OPTIONS FAIR VALUE ASSUMPTIONS
| Risk-free interest rates | % | |||
| Expected life in years | ||||
| Expected volatility | % | |||
| Expected dividend yield | % | |||
| Fair value common stock | $ |
The risk-free interest rate assumption is determined using the yield currently available on U.S. Treasury zero-coupon issues with a remaining term commensurate with the expected term of the award. Management has estimated expected volatility based on similar comparable industry sector averages. Expected life of the option represents the period of time options are expected to be outstanding. The estimate for dividend yield is % because the Company has not historically paid, and does not intend to pay a dividend on its common stock in the foreseeable future.
NOTE F - WARRANTS
In
2021, the Company finalized the issuance of warrants to purchase
SCHEDULE OF WARRANTS FAIR VALUE ASSUMPTIONS
| Risk-free interest rates | % | |||
| Expected life in years | ||||
| Expected volatility | % | |||
| Expected dividend yield | % | |||
| Fair value common stock | $ |
| 12 |
The risk-free interest rate assumption is determined using the yield currently available on U.S. Treasury zero-coupon issues with a remaining term commensurate with the expected term of the award. Management has estimated expected volatility based on similar comparable industry sector averages. Expected life of the option represents the period of time options are expected to be outstanding. The estimate for dividend yield is % because the Company has not historically paid, and does not intend to pay, a dividend on its common stock in the foreseeable future. The Company recognized stock-based compensation expense of approximately $ and $ in the three months ended March 31, 2022 and 2023, respectively. At March 31, 2023, there is remaining compensation expense to be recognized.
The following table summarizes warrant activity through March 31, 2023:
SCHEDULE OF WARRANTS ACTIVITY
| Warrants Issued | Weighted-Average Exercise Price | |||||||
| Warrants outstanding – December 31, 2021 | $ | | ||||||
| Granted | ||||||||
| Canceled | ( | ) | ||||||
| Exercised | ( | ) | ||||||
| Warrants outstanding – December 31, 2022 | ||||||||
| Granted | ||||||||
| Canceled | ||||||||
| Exercised | ||||||||
| Warrants outstanding – March 31, 2023 | $ | |||||||
Additional information regarding the warrants outstanding as of March 31, 2023 is as follows:
SCHEDULE OF WARRANTS OUTSTANDING
| Exercise Price | Number Outstanding | Weighted Average Remaining Contractual Life | Number Exercisable | |||||||||||
| $ | Years | |||||||||||||
| $ | Years | |||||||||||||
Pre-funded Warrant
On
December 27, 2021, the Company entered into an exchange agreement with Sanovas Ophthalmology (the “Exchange Agreement”) pursuant
to which it exchanged shares of common stock (the “Exchange Securities”) held by Sanovas Ophthalmology for a pre-funded
warrant (the “Pre-funded Warrant”) to purchase up to an aggregate of
NOTE G – SHAREHOLDERS’ NOTES PAYABLE
During
2021, the Company borrowed an aggregate of $
NOTE H – CONTINGENCY
The Company received a claim against it relating to a former indirect vendor. The Company believes the claim is without merit and intends to vigorously defend itself. The Company does not believe the claim would have a material impact on the financial condition of the Company.
NOTE I - SUBSEQUENT EVENTS
Subsequent events were reviewed through May 19, 2023, the date these financial statements were available for issuance.
| 13 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
We are an ophthalmic research and development company focused on developing technologies to screen, monitor, diagnose and treat ophthalmic, optical, and sight-threatening disorders. Our mission is to prevent vision loss and blindness due to diabetic retinopathy and maculopathy through two devices: (1) Retinal Imaging Screening Device, a portable, retinal imaging system providing a 200-degree field of view without requiring pupil dilation; and (2) RetinalCamTM, a home monitoring and imaging device offering real-time communication and alerting system for physicians available 24/7.
To date, we have devoted substantially all of our resources to organizing, business planning, raising capital, designing and developing product candidates, and securing manufacturing and sales/distribution partners. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily through the private placement of common stock.
We anticipate that we will need an additional $12,000,000 to (i) complete product design and testing for RetinalGenixTM and RetinalCamTM and submit RetinalGenixTM for FDA clearance (we anticipate that the RetinalCamTM will not require FDA clearance); (ii) complete the development and expansion of the software tools around the recently acquired DNA/GPS’ genetic mapping technology; and (iii) build the infrastructure for our sustained growth. We intend to obtain such funds through the sales of our equity and debt securities and/or through potential strategic partnerships; however, no assurance can be provided that funds will be available to us on acceptable terms, if at all.
We do not expect to generate any revenues from product sales unless and until we successfully complete development of RetinalCamTM, and we do not expect to generate any revenues from product sales unless and until we successfully obtain regulatory clearance for RetinalGenixTM. In addition, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations, compliance and other expenses.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through public or private equity offerings, debt financings, strategic partnerships, collaborations and licensing arrangements or other capital sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed, on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates.
We have been issuing shares of our common stock pursuant to a private placement raising approximately $3.0 million from the sale of 3,010,000 shares of common stock from 2019 through December 31, 2021. An additional 60,500 shares were sold in January 2022 pursuant to this private placement. In October 2021, the registration statement on Form S-1 (the “Registration Statement”) that we filed with the Securities and exchange Commission (the “SEC”) pursuant to which we registered for resale shares of common stock, including shares of common stock issuable upon exercise of outstanding options and warrants was declared effective. No funds were raised by the Company pursuant to the Registration Statement.
| 14 |
Because of the numerous risks and uncertainties we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
On July 5, 2022, we entered into an Exchange Agreement (the “Exchange Agreement”) with Dr. Lawrence Perich pursuant to which we acquired all the outstanding shares of DNA/GPS Inc., a pharmacogenetics company based in Tampa, Florida (“DNA/GPS”), in exchange for the issuance of 2,000,000 shares of our common stock. The acquisition of DNA/GPS combines DNA/GPS’ genetic mapping capabilities with our retinal imaging capabilities. The combined technology is expected to have the ability to provide diagnoses of systemic and retinal diseases. We accounted for this transaction as an asset acquisition in the quarter ending September 30, 2022, and recorded the estimated purchase consideration and related expenses as in process research and development in the accompanying consolidated statement of operations.
Basis of presentation:
These accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) including all pronouncements of the SEC applicable to annual financial statements.
Components of Results of Operations
Revenue
We have not generated any revenue since our inception.
Research and Development Expenses
Research and development expenses include personnel costs associated with research and development activities, including third-party contractors to perform research, product and prototype development, and testing of materials. Research and development expenses are charged to operations as incurred.
We accrue for costs incurred by external service providers based on our estimates of services performed and costs incurred. These estimates include the level of services performed by third parties and other indicators of the services completed.
We cannot determine with certainty the duration and costs of future clinical trials and product development or if, when or to what extent we will generate revenue from the commercialization and sale of any product candidate for which we obtain marketing clearance. We may never succeed in obtaining marketing approval for any product candidate. The duration, costs and timing of product development will depend on a variety of factors, including:
| ● | the scope, rate of progress, expense and results of product development, as well as of any future clinical trials of other product candidates and other research and development activities that we may conduct; | |
| ● | the actual probability of success for our product candidates, including their safety and efficacy, early clinical data, competition, manufacturing capability and commercial viability; | |
| ● | significant and changing government regulation and regulatory guidance; | |
| ● | the timing and receipt of any marketing approvals; and | |
| ● | the expense of filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights. |
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate.
Administrative Expenses
Administrative expenses consist primarily of compensation and consulting related expenses. Administrative expenses also include professional fees and other corporate expenses, including legal fees relating to corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses, marketing activities and other operating costs that are not specifically attributable to research activities.
| 15 |
We expect that our administrative expenses will increase in the future as we increase our personnel headcount to support our continued research activities and development of our product candidates. We also expect increased expenses associated with being a public company, including costs related to accounting, audit, legal, regulatory and tax-related services associated with compliance with SEC requirements; director and officer insurance costs; and investor and public relations costs.
Interest Expense
Interest expense is the coupon interest rate charged on loans from stockholders.
Results of Operations
Comparison of the quarter ended March 31, 2023 and 2022
The following table sets forth key components of our results of operations for the three months ended March 31, 2023 and 2022.
| For The Three Months Ended | ||||||||||||||||
| March 31, | ||||||||||||||||
| 2023 | 2022 | Change | % Change | |||||||||||||
| Revenues | $ | - | $ | - | ||||||||||||
| Expenses | ||||||||||||||||
| General and Administrative Expenses | 203,242 | 161,195 | 42,047 | 26 | % | |||||||||||
| Research and Development | 227,932 | 157,493 | 70,439 | 45 | % | |||||||||||
| Stock-based compensation | 78,509 | 55,051 | 23,458 | 43 | % | |||||||||||
| Total Expenses | 509,683 | 373,739 | 135,944 | 36 | % | |||||||||||
| Interest expense | 960 | 1,460 | (500 | ) | (34 | )% | ||||||||||
| Net Loss | $ | (510,643 | ) | $ | (375,199 | ) | (136,444 | ) | 36 | % | ||||||
Revenues
We did not recognize revenues for the three months ended March 31, 2023 and 2022.
Research and Development Expenses
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Direct costs | $ | 211,272 | $ | 155,993 | ||||
| Allocated costs from Sanovas | 16,660 | 1,500 | ||||||
| Total Research and Development expenses | $ | 227,932 | $ | 157,493 | ||||
Research and development expenses increased by $70,439, or 45%, to $227,932 for the three months ended March 31, 2023 from $157,493 for the three months ended March 31, 2022. The increase was primarily the result of an increase in prototype related expense, engineering and technology consultants, and pilot manufacturing costs.
Stock Based Compensation Expenses
Stock-based compensation expenses increased by $23,458, or 43%, to $78,509 for the three months ended March 31, 2023 from $55,051 for the three months ended March 31, 2022. The increase was primarily due to the recognition of expense for options issued in mid - 2022, for which expense was recognized in the first quarter of 2023.
| 16 |
General and Administrative Expenses
| For the three months ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Direct costs | $ | 79,492 | $ | 65,364 | ||||
| Allocated costs from Sanovas | 123,750 | 95,831 | ||||||
| Total general and administrative expenses | $ | 203,242 | $ | 161,195 | ||||
Administrative expenses increased by $42,047 or 26%, to $203,242 for the three months ended March 31, 2023 from $161,195 for the three months ended March 31, 2022. We have no full-time employees. The increase in administrative expenses was primarily due to an increase in compensation allocated to us from Sanovas from approximately $90,000 to $120,000 during the three months ended March 31, 2023 and 2022, respectively due to an increase in Sanovas staff working on our related projects. Administrative costs consisting of costs related to executives and employees from Sanovas, were allocated based upon the amount of effort spent by such personnel on our business. Other administrative expenses were slightly higher and related primarily to increased professional fees and listing related expenses.
Liquidity and Capital Resources
To date, we have devoted substantially all of our resources to organizing, business planning, raising capital, designing and developing product candidates, and securing manufacturing and sales/distribution partners. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations primarily from the sale of common stock, loans and advances from related parties and by utilizing Sanovas personnel and facilities. During the three months ended March 31, 2023, we received $194,873 of cash advances and allocated services from Sanovas. We have settled a portion of the amounts due to Sanovas through the periodic issuance of shares of common stock, including 353,432 shares issued in May 2022 in settlement of the amounts due to Sanovas of $353,432 and 586,370 shares issued in November 2022 in settlement of the amounts due to Sanovas of $586,370.
We anticipate that we will need $12,000,000 in operating capital to (i) complete product design and testing for RetinalGenixTM and RetinalCamTM and submit RetinalGenixTM for FDA approval (we anticipate that the RetinalCamTM will not require FDA approval); (ii) complete the development and expansion of the software tools around the recently acquired DNA/GPS’ genetic mapping technology; and (iii) build the infrastructure for our sustained growth. We do not expect to generate any revenues from product sales unless and until we successfully complete development of RetinalGenixTM and RetinalCamTM and obtain regulatory approval for RetinalGenixTM. We will also require additional operating capital as a result of us operating as a public company, including for legal, accounting, investor relations, compliance and other expenses.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through public or private equity offerings, debt financings, strategic partnerships, collaborations and licensing arrangements or other capital sources. However, we may be unable to raise additional funds or enter into such other arrangements when needed, on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates.
Because of the numerous risks and uncertainties, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
Cash Flow Activities for the three months ended March 31, 2023 and 2022
The following table sets forth a summary of our cash flows for the periods presented:
| For The Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (77,575 | ) | $ | (96,792 | ) | ||
| Net cash provided by financing activities | 85,007 | 94,400 | ||||||
| Net increase/(decrease) in cash | 7,432 | (2,392 | ) | |||||
| Cash at beginning of the period | 38 | 4,947 | ||||||
| Cash at end of the period | $ | 7,470 | $ | 2,555 | ||||
| 17 |
Operating Activities
Net cash used in operating activities was $77,575 for the three months ended March 31, 2023 and $96,792 for the three months ended March 31, 2022, the decrease driven by a reduction in costs allocated from Sanovas to us and increases in accounts payable due to a lack of funding. The cash flow used in operating activities in 2023 was driven by the net loss of $510,643 offset in part by non-cash expenses of $78,509 and an increase in accounts payable and accrued interest payable of $158,701. In addition, Sanovas billed us for allocated costs and expenses paid on behalf of and allocated to us in the amount of $140,410 during the three months ended March 31, 2023, and we received $54,463 of net advances from Sanovas, for a net increase in due to Sanovas of $194,873.
The cash flow used in operating activities in 2022 was driven by the net loss of $375,199 offset in part by non-cash expenses of $55,051 and an increase in accounts payable and accrued interest payable of $11,185. In addition, Sanovas billed us for allocated costs and expenses paid on behalf of and allocated to us in the amount of $97,331 during the three months ended March 31, 2022, and we received $113,380 of net advances from Sanovas, for a net increase in due to Sanovas of $210,711.
Financing Activities
Net cash provided by financing activities was $85,007 and $94,400 during the three months ended March 31, 2023 and 2022, respectively, attributable to proceeds from advances from related parties of $85,007 in the three months ended March 31, 2023, and the sale of common stock of $60,500 and proceeds from advances from related parties of $33,900 in the three months ended March 31, 2022.
Critical Accounting Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures in the financial statements and accompanying notes. Management bases it estimates on historical experience and on assumptions believed to be reasonable under the circumstances. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. Estimates are used in areas including, but not limited to: research and development expense recognition, valuation of stock options, allowances of deferred tax assets, accrued expenses and liabilities, and cash flow assumptions regarding going concern considerations.
Stock-based Compensation
Stock-based compensation represents the cost related to stock-based awards granted to employees. We measure stock-based compensation costs at the grant date, based on the estimated fair value of the award and recognize the cost (net of estimated forfeitures) over the vesting period. Forfeitures are estimated on the date of grant and revised if actual or expected forfeiture activity differs materially from the original estimates. We estimate the fair value of stock options using a Black-Scholes valuation model. The cost is recorded in the consolidated statements of operations based on the employees’ respective function. The fair value of common stock was determined based upon the sale of common stock to third parties pursuant to the offering which commenced in 2019, which offering continued through January 2022.
The risk-free interest rate assumption is determined using the yield currently available on U.S. Treasury zero-coupon issues with a remaining term commensurate with the expected term of the award. Management has estimated expected volatility based on similar comparable industry sector averages. Expected life of the option represents the period of time options are expected to be outstanding. The estimate for dividend yield is 0% because we have not historically paid and does not intend to pay a dividend on its common stock in the foreseeable future.
Allocated costs from Sanovas
A substantial portion of our expenses are costs and expenses paid by Sanovas and costs and expenses allocated to us by Sanovas. We expect that to continue until we have sufficient resources to build our own team and infrastructure to support our operations. The allocations our payroll related expenses are based upon the estimated percentage of effort incurred by each employee on operations. Allocation of non-payroll related expenses are based upon whether the expense related to our operations.
| 18 |
Income taxes
We account for income taxes using the asset-and-liability method in accordance with Accounting Standards Codification 740, Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. 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 are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rate is recognized in the period that includes the enactment date. A valuation allowance has been recorded for all of the deferred tax assets.
Recently Issued and Adopted Accounting Standards
The following pronouncement may have an impact on the accounting policies of the Company:
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” (“ASU 2016-02”). ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The FASB issued ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” (“ASU 2018-10”), ASU No. 2018-11 “Leases (Topic 842) Targeted Improvements” (“ASU 2018-11”) in July 2018, and ASU No. 2018-20 “Leases (Topic 842) - Narrow Scope Improvements for Lessors” (“ASU 2018-20”) in December 2018. ASU 2018-10 and ASU 2018-20 provide certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 allows all entities adopting ASU 2016-02 to choose an additional (and optional) transition method of adoption, under which an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Pursuant to ASU 2019-10 the effective date for ASC 842 was deferred an additional year. We expect to recognize operating lease right-of-use assets and lease liabilities on the balance sheet upon adoption of this ASU for its 2022 financial period. We are currently evaluating these ASUs and their impact on our consolidated financial statements, but do not expect it to have a significant impact on its financial statements.
A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether the implementation of such proposed standards would be material to our financial statements.
JOBS Act
We are an “emerging growth company,” as defined in Section 2(a) the Securities Act, as modified by the JOBS Act. For as long as we continue to be an emerging growth company, we also intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory stockholder vote on executive compensation and any golden parachute payments not previously approved, exemption from the requirement of auditor attestation in the assessment of our internal control over financial reporting and exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of the end of the second fiscal quarter, (ii) the end of the fiscal year in which we have total annual gross revenues of $1.325 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or (iv) the end of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement filed under the Securities Act.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information under this Item is not required to be provided by smaller reporting companies.
| 19 |
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls
We are required to maintain disclosure controls and procedures (as defined in Rules 13a-15(e)€ and 15d-15(e) of the Exchange Act) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
In connection with the preparation of this Quarterly Report on Form 10-Q, we carried out an evaluation based on the criteria in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, under the supervision and with the participation of management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, due to a material weakness in our internal control over financial reporting relating to a lack of segregation of duties, management concluded that our disclosure controls and procedures were ineffective as of March 31, 2023.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our financial statements would not be prevented or detected on a timely basis. We are considering various remediation measures, including hiring internal accounting resources or using outside providers to provide additional resources and capabilities as well as implementing a more formal accounting and financial reporting system to mitigate such material weakness, but have not yet adopted or implemented any such measures. When we have sufficient business activity and funding available, we intend to begin to implement remediation measures to address our material weakness and improve our internal control over financial reporting and disclosure controls and procedures. We hope to complete the implementation, remediation and test of the new procedures in the first half of 2022, as resources permit us to spend time and money on building finance infrastructure.
Management is actively engaged in the planning for, and implementation of, remediation efforts to address our material weakness and improve our internal control over financial reporting and disclosure controls and procedures. We are developing procedures for the most critically-needed processes that we hope to have implemented by the end of the year.
Changes in Internal Control Over Financial Reporting
During the quarter ended March 31, 2023, there have been no changes in our internal controls over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
| 20 |
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition. Notwithstanding the foregoing, Sanovas, Inc. (“Sanovas”), the majority stockholder of Sanovas Ophthalmology, LLC which is our majority stockholder, commenced an action in the Court of Chancery of the State of Delaware against Halo Management LLC (“Halo”) and Lawrence Gerrans seeking an order declaring that any rights that Halo and/or Mr. Gerrans may have with respect to any equity securities in Sanovas and each of its affiliated subsidiaries (including, but not limited to, our Company) are void or voidable and may be cancelled. During the quarter ended March 31, 2023, there were no material developments with respect to this litigation. See note D to the Notes to financial statements for additional information with respect to this litigation.
ITEM 1A. RISK FACTORS.
Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item 1A, “Risk Factors,” contained in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”). Except as described below, our risk factors as of the date of this Quarterly Report on Form 10-Q have not changed materially from those described in “Part I, Item 1A. Risk Factors” of the Annual Report.
Risks Relating to Our Business
We have generated no revenue from commercial sales to date and our future profitability is uncertain.
We were incorporated in November 2017 and have a limited operating history, and our business is subject to all of the risks inherent in the establishment of a new business enterprise. Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with development and expansion of a new business enterprise. Since inception, we have incurred losses and expect to continue to operate at a net loss for at least the next several years. Our net losses for the years ended December 31, 2022 and December 31, 2021, were $3,913,990 and $2,179,294, respectively, and our accumulated deficit as of December 31, 2022 and December 31, 2021 was $9,018,306 and $5,104,316, respectively. Our net losses for the three months ended March 31, 2023 and 2022, were $510,643 and $375,199, respectively, and our accumulated deficit as of March 31, 2023 was $9,528,949. There can be no assurance that the products under development by us will be cleared for sale in the U.S. or elsewhere. Furthermore, there can be no assurance that if such products are cleared they will be successfully commercialized, and the extent of our future losses and the timing of our profitability are highly uncertain. If we are unable to achieve profitability, we may be unable to continue our operations.
| 21 |
There is substantial doubt about our ability to continue as a going concern.
As of March 31, 2023, we had cash, of $7,470. In addition, as of March 31, 2023, we had liabilities of $1,508,898. As of the date of this report, we do not have adequate resources to fund our operations through May 2024 without considering any potential future milestone payments that we may receive under any new collaborations that we may enter into in the future or any future capital raising transactions. We will need to raise additional funding to complete the development of its products and commence the market launch, assuming regulatory approval is obtained. We do not know whether additional financing will be available when needed, whether it will be available on favorable terms, or if it will be available at all. These factors raise substantial doubt about our ability to continue as a going concern. In the event that we are unable to obtain additional financing, we may be unable to continue as a going concern. There is no guarantee that we will be able to secure additional financing. Changes in our operating plans, our existing and anticipated working capital needs, costs related to legal proceedings we might become subject to in the future, the acceleration or modification of our development activities, any near-term or future expansion plans, increased expenses, potential acquisitions or other events may further affect our ability to continue as a going concern. Similarly, the report of our independent registered public accounting firm on our financial statements as of and for the year ended December 31, 2022 includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. If we cannot continue as a viable entity, our stockholders may lose some or all of their investment in us.
Failure to maintain effective internal control over our financial reporting in accordance with Section 404 of Sarbanes-Oxley could cause our financial reports to be inaccurate.
We are required pursuant to Section 404 of the Sarbanes-Oxley Act, or Section 404, to maintain internal control over financial reporting and to assess and report on the effectiveness of those controls. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting. Although we prepare our financial statements in accordance with accounting principles generally accepted in the United States, our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies, in which case we could become subject to regulatory sanction or investigation. Further, such an outcome could damage investor confidence in the accuracy and reliability of our financial statements.
Our management has concluded that our internal controls over financial reporting were, and continue to be, ineffective, and as of March 31, 2023 as a result of a material weakness in our internal controls due to the lack of segregation of duties. While management is working to remediate the material weakness, there is no assurance that such changes, when economically feasible and sustainable, will remediate the identified material weaknesses or that the controls will prevent or detect future material weaknesses. If we are not able to maintain effective internal control over financial reporting, our financial statements, including related disclosures, may be inaccurate, which could have a material adverse effect on our business.
| 22 |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Except as previously reported in prior filings with the Securities and Exchange Commission, there were no sales of unregistered securities for the three-months ended March 31, 2023.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
| * | Filed herewith. |
| 23 |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to the Report to be signed on its behalf by the undersigned thereunto duly authorized.
| RETINALGENIX TECHNOLOGIES INC. | ||
| Date: May 30, 2023 | By: | /s/ Jerry Katzman |
| Jerry Katzman, | ||
| Chief Executive Officer | ||
| (Principal Executive Officer and Principal Financial and Accounting Officer) | ||
| 24 |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14 OR RULE 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jerry Katzman, certify that:
| 1. | I have reviewed this quarterly report on Amendment No. 1 to Form 10-Q of RetinalGenix Technologies Inc..; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: | |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): | |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |
| Date: May 30, 2023 | /s/ Jerry Katzman |
| Jerry Katzman, | |
| Chief Executive Officer and President | |
| (Principal Executive Officer and Principal Financial and Accounting Officer) |
Exhibit 32.1
STATEMENT OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of RetinalGenix Technologies Inc. (the “Registrant”), hereby certifies, to such officer’s knowledge, that:
| 1. | The accompanying quarterly report on Amendment No. 1 to Form 10-Q for the period ended March 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and | |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. |
| Date: May 30, 2023 | /s/ Jerry Katzman |
| Jerry Katzman | |
| Chief Executive Officer and President | |
| (Principal Executive Officer and Principal Financial and Accounting Officer) |