10-Q: Quarterly report [Sections 13 or 15(d)]
Published on November 15, 2021
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of exchange on which registered | ||
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 ☐
Indicate
by checkmark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
As of November 12, 2021, there were shares of the registrant’s common stock outstanding.
BIORESTORATIVE THERAPIES, INC. AND SUBSIDIARY
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
BIORESTORATIVE THERAPIES, INC. AND SUBSIDIARY
CONDENSED Consolidated Balance Sheets
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Equipment, net | ||||||||
| Right of use asset | ||||||||
| Intangible assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and other current liabilities | ||||||||
| Accrued interest | ||||||||
| Lease liability, current portion | ||||||||
| PPP loan payable, current portion | - | |||||||
| Total Current Liabilities | ||||||||
| Lease liability, net of current portion | ||||||||
|
Notes
payable, net of debt discount of $ |
||||||||
| PPP loan payable, net of current portion | - | |||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | - | |||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ par value; Authorized, shares; | - | - | ||||||
| Series A Convertible Preferred stock, $par value; Authorized, shares; issued and outstanding at September 30, 2021 and December 31, 2020 | - |
- |
||||||
| Common stock, $par value; Authorized, ,000 shares; and issued and outstanding at September 30, 2021 and December 31, 2020, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Stockholders’ Deficit | ( |
) | ( |
) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
BIORESTORATIVE THERAPIES, INC. AND SUBSIDIARY
CONDENSED Consolidated STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Marketing and promotion | ||||||||||||||||
| Consulting | - | |||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Loss on extinguishment of notes payable, net | - | - | - | ( |
) | |||||||||||
| Change in fair value of derivative liabilities | - | - | - | ( |
) | |||||||||||
| Reorganization items, net | - | ( |
) | - | ||||||||||||
| Total other (income) expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net Loss Per Share | ||||||||||||||||
| - Basic and Diluted | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted Average Number of Common Shares Outstanding | ||||||||||||||||
| - Basic and Diluted | ||||||||||||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
BIORESTORATIVE THERAPIES, INC. AND SUBSIDIARY
CONDENSED Consolidated STATEMENTS of CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
| Common Stock |
Additional Paid-in |
Accumulated |
Total Shareholders’ |
|||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Shares issued in exchange of notes payable and accrued interest | - | - | ||||||||||||||||||
| Shares issued in cashless exercise of warrants | ( |
) | - | - | ||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||
| - restricted share units | - | - | - | |||||||||||||||||
| - options | - | - | - | |||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | |||||||||||||
| Balance as of March 31, 2021 | ( |
) | ( |
) | ||||||||||||||||
| Shares issued in exchange of notes payable and accrued interest | - | - | ||||||||||||||||||
| Shares issued in cashless exercise of warrants | ( |
) | - | ( |
) | |||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||
| - restricted share units | - | - | - | |||||||||||||||||
| - options | - | - | - | |||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | |||||||||||||
| Balance at June 30, 2021 | ( |
) | ( |
) | ||||||||||||||||
| Shares issued in cashless exercise of warrants | ( |
) | - | - | ||||||||||||||||
| Shares issued in litigation settlement | - | - | ||||||||||||||||||
| Fair market value of beneficial conversion feature and warrants issued with convertible notes payable instruments | - | - | - | |||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||
| - restricted share units | - | - | - | |||||||||||||||||
| - options | - | - | - | |||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | |||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Balance at January 1, 2020 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Shares and warrants issued for cash | - | - | ||||||||||||||||||
| Shares issued in exchange for notes payable and accrued interest | - | |||||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||
| - options | - | - | - | |||||||||||||||||
| Net loss | - | - | - | ( |
) | ( |
) | |||||||||||||
| Balance as of March 31, 2020 | ( |
) | ( |
) | ||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||
| - options | - | - | - | |||||||||||||||||
| Net income | - | - | - | |||||||||||||||||
| Balance at June 30, 2020 | ( |
) | ( |
) | ||||||||||||||||
| Stock-based compensation: | ||||||||||||||||||||
| - options | - | - | - | |||||||||||||||||
| Net income | - | - | - | ( |
) | ( |
) | |||||||||||||
| Balance at September 30, 2020 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
BIORESTORATIVE THERAPIES, INC. AND SUBSIDIARY
CONDENSED Consolidated STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended | ||||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization of debt discount | ||||||||
| Accretion of interest expense | - | |||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Shares issued in settlement of litigation | ||||||||
| Loss on extinguishment of note payables, net | - | |||||||
| Write-off of derivative liabilities | - | ( |
) | |||||
| Change in fair value of derivative liabilities | - | |||||||
| Non-cash effect of right of use asset | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid assets and other current assets | ||||||||
| Accounts payable | ||||||||
| Accrued interest, expenses and other current liabilities | ||||||||
| Lease liability | ( |
) | - | |||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from notes payable | - | |||||||
| Proceeds from PPP Loan | - | |||||||
| Proceeds from DIP Financing | - | |||||||
| Sales of common stock and warrants for cash | - | |||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash and cash equivalents | ( |
) | ||||||
| Cash - beginning of period | ||||||||
| Cash - end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Shares issued in exchange for notes payable and accrued interest | $ | $ | ||||||
| Bifurcated embedded conversion options and warrants recorded as derivative liability and debt discount | $ | $ | ||||||
| Sale of warrants recorded as derivative liabilities | $ | $ | ||||||
| Accrued DIP expenses exchanged for convertible notes | $ | $ | ||||||
The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
BIORESTORATIVE THERAPIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – NATURE OF THE ORGANIZATION, LIQUIDITY, AND BUSINESS
Corporate History
BioRestorative Therapies, Inc. has one wholly-owned subsidiary, Stem Pearls, LLC (“Stem Pearls”). BioRestorative Therapies, Inc. and its subsidiary are referred to collectively as “BRT” or the “Company”.
On March 20, 2020 (the “Petition Date”), the Company filed a voluntary petition commencing a case (the “Chapter 11 Case”) under chapter 11 of title 11 of the U.S. Code in the United States Bankruptcy Court for the Eastern District of New York (the “Bankruptcy Court”).
On August 7, 2020, the Company and Auctus Fund, LLC (“Auctus”), the Company’s largest unsecured creditor and a stockholder as of the Petition Date, filed an Amended Joint Plan of Reorganization (the “Plan”) and on October 30, 2020, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Plan, as amended. Amendments to the Plan are reflected in the Confirmation Order. On November 16, 2020 (the “Effective Date”), the Plan became effective. See Note 5 – Notes Payable – Chapter 11 Reorganization.
On October 27, 2021, the Company
effected a
Nature of the Business
BRT develops therapeutic products and medical therapies using cell and tissue protocols, primarily involving adult stem cells. BRT’s website is at www.biorestorative.com. BRT is currently developing a Disc/Spine Program referred to as “brtxDISC”. Its lead cell therapy candidate, BRTX-100, is a product formulated from autologous (or a person’s own) cultured mesenchymal stem cells collected from the patient’s bone marrow. The product is intended to be used for the non-surgical treatment of painful lumbosacral disc disorders or as a complimentary therapeutic to a surgical procedure. BRT is also engaging in research efforts with respect to a platform technology utilizing brown adipose (fat) for therapeutic purposes to treat type 2 diabetes, obesity and other metabolic disorders and has labeled this initiative its ThermoStem Program. Further, BRT has licensed a patented curved needle device that is a needle system designed to deliver cells and/or other therapeutic products or material to the spine and discs or other potential sites.
Liquidity
The
accompanying unaudited condensed consolidated financial statements have been prepared on the basis that the Company will continue as
a going concern, which contemplates realization of assets and satisfying liabilities in the normal course of business. At September 30,
2021, the Company had an accumulated deficit of approximately $
As
a result of the above, and cash on hand of approximately $
| 7 |
Current funds noted above may not be sufficient to enable the Company to fully complete its development activities or attain profitable operations. If the Company is unable to obtain such needed additional financing on a timely basis, the Company may have to curtail its development, marketing and promotional activities, which would have a material adverse effect on the Company’s business, financial condition and results of operations, and ultimately the Company could be forced to discontinue its operations and liquidate.
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the unaudited condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial information as of and for the three and nine months ended September 30, 2021 and 2020 has been prepared in accordance with GAAP for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial position at such dates and the operating results and cash flows for such periods. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission (the “SEC”). These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K filed with the SEC on April 30, 2021.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Stem Pearls. Intercompany accounts and transactions have been eliminated upon consolidation.
Chapter 11 Case
Chapter 11 Accounting
The unaudited condensed consolidated financial statements included herein have been prepared as if we were a going concern and in accordance with Accounting Standards Codification (“ASC”) 852, Reorganizations.
Weak industry conditions in 2019 negatively impacted the Company’s results of operations and cash flows and may continue to do so in the future. In order to decrease the Company’s indebtedness and maintain the Company’s liquidity levels sufficient to meet its commitments, the Company undertook a number of actions, including minimizing capital expenditures and further reducing its recurring operating expenses. The Company believed that even after taking these actions, it would not have sufficient liquidity to satisfy its debt service obligations and meet its other financial obligations. On March 20, 2020 (the “Petition Date”), the Company filed a voluntary petition commencing a case under chapter 11 of title 11 of the U.S. Code in the United States Bankruptcy Court for the Eastern District of New York. On August 7, 2020, the Company and Auctus, the Company’s largest unsecured creditor and a stockholder as of the Petition Date, filed an Amended Joint Plan of Reorganization (the “Plan”) and on October 30, 2020, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Plan, as amended. Amendments to the Plan are reflected in the Confirmation Order. On November 16, 2020 (the “Effective Date”), the Plan became effective.
| 8 |
Reorganization Items, Net
The
Company incurred costs after the Petition Date associated with the reorganization, primarily unamortized debt discount and post petition
professional fees. In accordance with applicable guidance, costs associated with the bankruptcy proceedings have been recorded as reorganization
items, net within the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended September
30, 2021 and 2020. Reorganization items, net for the three and nine months ended September 30, 2021 were $ and for the three and nine
months ended September 30, 2020 were ($
Reorganization items, net for the three and nine months ended September 30, 2020 consisted of the following:
| Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | |||||||
| Professional fees | $ | ( |
) | $ | ( |
) | ||
| Write-off of derivative liability | - | |||||||
| Default interest and penalties | - | ( |
) | |||||
| Unamortized debt discount on convertible notes | - | ( |
) | |||||
| Total reorganization items, net | $ | ( |
) | $ | ||||
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity-based transactions, revenue and expenses and disclosure of contingent liabilities at the date of the unaudited condensed consolidated financial statements. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined with precision, actual results could differ from these estimates which may cause the Company’s future results to be affected.
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the accompanying unaudited condensed consolidated financial statements. Significant estimates include the carrying value of intangible assets, deferred tax asset and valuation allowance, estimated fair value of derivative liabilities stemming from convertible debt securities, assumptions used in management’s liquidity analysis, and assumptions used in the Black-Scholes option pricing model, such as expected volatility, risk-free interest rate, and expected divided rate.
Revenue
The Company derives all of its revenue pursuant to a license agreement between the Company and a stem cell treatment company (“SCTC”) entered into in January 2012 and amended in November 2015. Pursuant to the license agreement, the SCTC granted to the Company a license to use certain intellectual property related to, among other things, stem cell disc procedures, and the Company has granted to the SCTC a sublicense to use, and the right to sublicense to third parties the right to use, in certain locations in the United States and the Cayman Islands, certain of the licensed intellectual property. In consideration of the sublicenses, the SCTC has agreed to pay the Company royalties on a per disc procedure basis.
| 9 |
Practical Expedients
As part of ASC 606, Revenue from Contracts with Customers (“ASC 606”), the Company has adopted several practical expedients including:
| ● | Significant Financing Component – the Company does not adjust the promised amount of consideration for the effects of a significant financing component since the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to the customer and when the customer pays for that good or service will be one year or less. |
| ● | Unsatisfied Performance Obligations – for performance obligations related to contracts with a duration of less than one year, the Company has elected to apply the optional exemption provided in ASC 606 and therefore is not required to disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially satisfied at the end of the reporting period. |
| ● | Right to Invoice – the Company has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the Company’s performance completed to date. The Company may recognize revenue in the amount the entity has a right to invoice. |
Contract Modifications
There were no contract modifications during the three and nine months ended September 30, 2021. Contract modifications are not routine in the performance of the Company’s contracts.
Cash
The
Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
There were
Accounts Receivable
Accounts
receivable are reported at their outstanding unpaid principal balances, net of allowances for doubtful accounts. The Company periodically
assesses its accounts receivable and other receivables for collectability on a specific identification basis. The Company provides for
allowances for doubtful accounts based on management’s estimate of uncollectible amounts considering age, collection history, and
any other factors considered appropriate. Payments are generally due within 30 days of invoice. The Company writes off accounts receivable
against the allowance for doubtful accounts when a balance is determined to be uncollectible. The Company did
Property and Equipment
Property
and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related
assets, generally
Leasehold improvements are amortized over the lesser of (i) the useful life of the asset or (ii) the remaining lease term. Maintenance and repairs are expensed as incurred. The Company capitalizes costs attributable to the betterment of property and equipment when such betterment extends the useful life of the assets. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts, and the resulting gain or loss, if any, will be reflected in operations.
| 10 |
Impairment of Long-Lived Assets
The
Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or circumstances indicate
that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the carrying
amount to the forecasted undiscounted net cash flows of the operation to which the assets relate. If the operation is determined to be
unable to recover the carrying amount of its assets, then these assets are written down to fair value first, followed by other long-lived
assets of the operation. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the
assets. During the three and nine months ended September 30, 2021 and 2020, the Company determined that there was
Intangible Assets
The Company records its intangible assets at cost in accordance with ASC 350, Intangibles – Goodwill and Other. Definite-lived intangible assets are amortized using the straight-line method over their estimated useful life, which is determined by identifying the period over which the cash flows from the asset are expected to be generated.
Advertising and Marketing Costs
The
Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $
Fair Value Measurements
As defined in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), fair value is the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.
| Level 1: | Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities. |
| Level 2: | Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars. |
| Level 3: | Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally-developed methodologies that result in management’s best estimate of fair value. |
| 11 |
Net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. All vested outstanding options and warrants are considered potential common stock. The dilutive effect, if any, of stock options, warrants, and unvested restricted stock units (“RSUs”) are calculated using the treasury stock method. All outstanding convertible notes are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. Since the effect of common stock equivalents is anti-dilutive with respect to losses, options, warrants, RSUs and convertible notes have been excluded from the Company’s computation of net loss per common share for the three and nine months ended September 30, 2021 and 2020.
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Options | ||||||||
| Warrants | ||||||||
| Unvested RSUs | - | |||||||
| Convertible notes – common stock | (1) | - | ||||||
| Total | ||||||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Options | ||||||||
| Warrants | ||||||||
| Unvested RSUs | - | |||||||
| Convertible notes – common stock | (1) | - | ||||||
| Total | ||||||||
| (1) |
The Company applies the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the statements of operations.
For stock options issued to employees and members of the board of directors for their services, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. For awards subject to service-based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred.
Pursuant to Accounting Standards Update (“ASU”) 2018-07 Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, the Company accounts for stock options issued to non-employees for their services in accordance with ASC 718. The Company uses valuation methods and assumptions to value the stock options that are in line with the process for valuing employee stock options noted above.
| 12 |
Since the shares underlying the Company’s 2010 Equity Participation Plan and the 2021 Stock Incentive Plan (the “Plans”) are registered, the Company estimates the fair value of the awards granted under the Plans based on the market value of its freely tradable common stock as reported on the Nasdaq Capital Market. On February 3, 2020, the Company was advised by OTC Markets Group that, based upon the closing bid price of the Company’s common stock being less than $0.001 per share for five consecutive trading days, the Company’s common stock was moved from the OTCQB Market to the Pink Market effective at market open on February 10, 2020. The fair value of the Company’s restricted equity instruments was estimated by management based on observations of the cash sales prices of both restricted shares and freely tradable shares. Awards granted to directors are treated on the same basis as awards granted to employees. Upon the exercise of an option or warrant, the Company issues new shares of common stock out of its authorized shares.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the unaudited condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, 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 utilizes ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the unaudited condensed consolidated financial statements or tax returns. The Company accounts for income taxes using the asset and liability method to compute the differences between the tax basis of assets and liabilities and the related financial amounts, using currently enacted tax rates. A valuation allowance is recorded when it is “more likely than not” that a deferred tax asset will not be realized. At September 30, 2021 and December 31, 2020, the Company’s net deferred tax asset has been fully reserved.
For uncertain tax positions that meet a “more likely than not” threshold, the Company recognizes the benefit of uncertain tax positions in the unaudited condensed consolidated financial statements. The Company’s practice is to recognize interest and penalties, if any, related to uncertain tax positions in income tax expense in the unaudited condensed consolidated statements of operations when a determination is made that such expense is likely.
Derivative Financial Instruments
The Company evaluates its convertible instruments to determine if those contracts or embedded components of those contracts qualify as derivative financial instruments to be separately accounted for in accordance with Topic 815 of the Financial Accounting Standards Board (“FASB”) ASC. The accounting treatment of derivative financial instruments requires that the Company record embedded conversion options (“ECOs”) and any related freestanding instruments at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. Conversion options are recorded as a discount to the host instrument and are amortized as amortization of debt discount on the unaudited condensed consolidated financial statements over the life of the underlying instrument. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.
The Multinomial Lattice Model and Black-Scholes option pricing model were used to estimate the fair value of the ECOs of convertible notes payable, warrants, and stock options that are classified as derivative liabilities on the unaudited condensed consolidated balance sheets. These models include subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the actual volatility during the most recent historical period of time equal to the weighted average life of the instruments.
| 13 |
Sequencing Policy
Under ASC 815-40-35 (“ASC 815”), the Company has adopted a sequencing policy whereby, in the event that reclassification of contracts from equity to assets or liabilities is necessary pursuant to ASC 815 due to the Company’s inability to demonstrate it has sufficient authorized shares as a result of certain securities with a potentially indeterminable number of shares, shares will be allocated on the basis of the earliest issuance date of potentially dilutive instruments, with the earliest grants receiving the first allocation of shares. Pursuant to ASC 815, issuances of securities to the Company’s employees and directors, or to compensate grantees in a share-based payment arrangement, are not subject to the sequencing policy.
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”)). The standard requires all leases that have a term greater than 12 months to be recognized on the balance sheet with a liability for the lease payments and a corresponding right-of-use (“ROU”) asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the ROU asset) and interest expense (for interest on the lease liability).
A lease is defined as a contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.
In accordance with ASC 842, Leases (“ASC 842”), the Company recognized an ROU asset and corresponding lease liability on its balance sheets for its office space lease agreement. See Note 8- Leases for further discussion, including the impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.
ROU assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms used in measuring ROU assets and lease liabilities may include or exclude periods covered by options to extend or terminate a lease, respectively, if it is reasonably certain that the Company will exercise the option(s).
Leases
in which the Company is the lessee are comprised of rented office space. All of the leases are classified as operating leases. The Company
has a lease agreement for office space with a remaining term of
Recently Issued Accounting Standards
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) (“ASU 2021-04”), which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity-classified after a modification or exchange. An entity should measure the effect of a modification or exchange of a freestanding equity-classified written call option that remains equity-classified after a modification or exchange as follows: i) for a modification or exchange that is a part of or directly related to a modification or exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as “debt” or a “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged. The amendments in ASU 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Company is currently evaluating the impact of this standard on its unaudited condensed consolidated financial statements.
All other newly issued but not yet effective accounting pronouncements have been deemed to be immaterial or not applicable to the Company.
| 14 |
NOTE 3 – INTANGIBLE ASSETS
The
Company is a party to a license agreement with the SCTC (as amended) (the “SCTC Agreement”). Pursuant to the SCTC Agreement,
the Company obtained, among other things, a worldwide, exclusive, royalty-bearing license from the SCTC to utilize or sublicense a certain
medical device patent for the administration of specific cells and/or cell products to the disc and/or spine (and other parts of the
body) and a worldwide (excluding Asia and Argentina), exclusive, royalty-bearing license to utilize or sublicense a certain method for
culturing cells. Pursuant to the license agreement with the SCTC, unless certain performance milestones had been or are satisfied, the
Company would have been required to pay to the SCTC $
Intangible assets consist of the following:
| Patents and Trademarks | Licenses | Accumulated Amortization | Total | |||||||||||||
| Balance as of January 1, 2020 | $ | $ | $ | ( |
) | $ | ||||||||||
| Amortization expense | - | - | ( |
) | ( |
) | ||||||||||
| Balance as of December 31, 2020 | ( |
) | ||||||||||||||
| Amortization expense | - | - | ( |
) | ( |
) | ||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( |
) | $ | ||||||||||
| Weighted average remaining amortization period at September 30, 2021 (in years) | ||||||||||||||||
Amortization of intangible assets consists of the following:
| Patents and Trademarks | Licenses | Accumulated Amortization | ||||||||||
| Balance as of January 1, 2020 | $ | $ | $ | |||||||||
| Amortization expense | ||||||||||||
| Balance as of December 31, 2020 | ||||||||||||
| Amortization expense | ||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | |||||||||
NOTE 4 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of:
|
September 30, 2021 |
December 31, 2020 |
|||||||
| Accrued payroll | $ | $ | ||||||
| Accrued research and development expenses | - | |||||||
| Accrued general and administrative expenses | ||||||||
| Accrued DIP and Plan costs related to DIP Funding and Plan(1) | - | |||||||
| Total accrued expenses | $ | $ | ||||||
| (1) |
| 15 |
NOTE 5 – NOTES PAYABLE
A summary of the notes payable activity during the nine months ended September 30, 2021 is presented below:
| Convertible Notes | Other Loans | Debt Discount | Total | |||||||||||||
| Outstanding, January 1, 2021 | $ | $ | $ | ( |
) | $ | ||||||||||
| Issuances | ( |
) | ||||||||||||||
| Exchanges for equity | ( |
) | - | ( |
) | |||||||||||
| Amortization of debt discount | - | - | 1,068,509 | |||||||||||||
| Outstanding, September 30, 2021 | $ | $ | $ | ( |
) | $ | ||||||||||
Chapter 11 Reorganization
On March 20, 2020, the Company filed a voluntary petition commencing a case under chapter 11 of title 11 of the U.S. Code in the United States Bankruptcy Court for the Eastern District of New York. On August 7, 2020, the Company and Auctus, the Company’s largest unsecured creditor and a stockholder as of the Petition Date, filed an Amended Joint Plan of Reorganization (the “Plan”). Pursuant to the Bankruptcy, for any outstanding principal and interest at the date of the Company’s Chapter 11 petition (except for creditors who provided additional debt financing in connection with the Bankruptcy), shares of the Company’s common stock were issued for each dollar of allowed claim, with such shares subject to leak-out restrictions prohibiting the holder from selling, without the consent of the Company, more than 33% of the issued shares during each of the three initial 30 day periods following the Effective Date. As a result of the Chapter 11 petition, the conversion rights for the then outstanding notes were rescinded and were subject to the conversion rights outlined above.
On October 30, 2020, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Plan, as amended. Amendments to the Plan are reflected in the Confirmation Order. On November 16, 2020 (the “Effective Date”), the Plan became effective.
The material features of the Plan, as amended and confirmed by the Confirmation Order, are as follows:
| i. | Treatment
of the financing to the Company by Auctus of up to $ |
| ii. |
Auctus
has provided $ |
| 16 |
| a. | Secured convertible notes of the Company (each, a “Secured Convertible Note”) in the principal amount equal to the Funding; the payment of the Secured Convertible Notes is secured by the grant of a security interest in substantially all of the Company’s assets; the Secured Convertible Notes have the following features: |
| ● | Maturity date of three years following the Effective Date; |
| ● | Interest
at the rate of |
| ● | The right of the holder to convert the indebtedness into shares of common stock of the Company at a price equal to the volume weighted average price for the common stock over the five trading days immediately preceding the conversion; and |
| ● | Mandatory conversion of all indebtedness at such time as the common stock is listed on the Nasdaq Capital Market or another senior exchange on the same terms as provided to investors in connection with a public offering undertaken in connection with such listing; |
| b. | Warrants
(each, a “Class A Warrant”) to purchase a number of shares of common stock equal
to the amount of the Funding provided divided by $ |
| c. | Warrants
(each, a “Class B Warrant” and together with the Class A Warrants, the “Plan
Warrants”) to purchase a number of shares of common stock equal to the Funding provided
divided by $ |
| iii. | The obligation to Auctus with respect to the DIP Funding has been exchanged for the following: |
| a. | A
Secured Convertible Note in the principal amount of approximately $ |
| b. | A
Class A Warrant to purchase |
| c. | A
Class B Warrant to purchase |
The
claim arising from the secured promissory notes of the Company, dated February 20, 2020, and February 26, 2020, in the original principal
amounts of $
| iv. | The
claim arising from the promissory note issued in June 2016 by the Company to Desmarais in
the original principal amount of $ |
| 17 |
| v. | The
claim arising from the promissory note issued in June 2016 by the Company to Tuxis Trust,
an entity related to Desmarais, in the original principal amount of $ |
| a. | $ |
| b. | $ |
| vi. | Holders
of allowed general unsecured claims (other than Auctus and the Other Lenders) received an
aggregate of shares of common stock where were valued at the fair market value of
the stock at issuance date of $ with an associated loss of $ |
| vii. | Auctus
and the Other Lenders have been issued, in respect of their allowed general unsecured claims
($ |
| a. | Maturity date of three years from the Effective Date; |
| b. | Interest
at the rate of |
| c. | The right of the holder to convert the indebtedness into shares of common stock at a price equal to the volume weighted average for the common stock over the five trading days immediately preceding the conversion; |
| d. | Mandatory conversion of all outstanding indebtedness at such time as the common stock listed on the Nasdaq Capital Market or another senior exchange on the same terms as provided to investors in connection with a public offering undertaken in connection with such listing; and |
| e. | A
leak-out restriction prohibiting each holder from selling, without the consent of the Company,
more than |
| viii. | The issuance of (a) the shares of common stock and the Unsecured Convertible Notes to the holders of allowed general unsecured claims and (b) the Secured Convertible Notes and Plan Warrants to Auctus in exchange for the DIP Funding and any common stock into which those Secured Convertible Notes and those Plan Warrants may be converted is exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to the Bankruptcy Code Section 1145. Such securities shall be freely transferrable subject to Section 1145(b)(i) of the Bankruptcy Code. |
Pursuant to the Plan, on the Effective Date, the Company filed a Certificate of Amendment to its Certificate of Incorporation pursuant to which, among other things, the number of shares of common stock authorized to be issued by the Company has been increased to and the par value of the shares of common stock has been reduced to $ per share.
The
Company recorded $
| 18 |
Convertible Notes
Conversions, Exchanges and Other
During
the nine months ended September 30, 2021, certain lenders converted unsecured convertible notes with an aggregate amount of $
Debtor-in-Possession Financing
During
the year ended December 31, 2020, and subsequent to the Petition Date, in connection with the Chapter 11 Case, the Company received debtor-in-possession
loans of $
The proceeds from the DIP Funding were used (a) for working capital and other general purposes of the Company; (b) United States Trustee fees; (c) Bankruptcy Court approved professional fees and other administrative expenses arising in the Chapter 11 Case; and (d) interest, fees, costs and expenses incurred in connection with the DIP Funding, including professional fees.
Pursuant
to the Plan, the obligation to Auctus with respect to the DIP Funding has been exchanged for two Secured Convertible Notes (see
Note 5 – Notes Payable – Chapter 11 Reorganization) for an aggregate principal amount of $
On
September 27, 2021, pursuant to the Plan, for
On
September 27, 2021, pursuant to the Plan, for
Interest
expense for the five Secured Convertible Notes was $
Public Offering Exchange
Subsequent to September
30, 2021, in connection with the public offering, see Note 9 – Subsequent Events, all of the above outstanding convertible
notes, associated accrued interest and warrants held by Auctus, as well as outstanding convertible notes in the aggregate principal
amount of $
Other Loans
On
March 14, 2021, under the U.S. Small Business Administration’s Paycheck Protection Program, the Company entered into a note
payable with a financial institution for $
| 19 |
Future minimum payments under the above notes payable following the nine months ended September 30, 2021 are as follows:
| Remainder of 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Thereafter | ||||
| Total future minimum payments | ||||
| Less: discount | ( |
) | ||
| Less: current | ( |
) | ||
| $ |
NOTE 6 – STOCKHOLDERS’ DEFICIT
Series A Preferred
Subsequent to September 30, 2021, concurrent with the Company’s public offering, see Note 9 – Subsequent Events, the Company’s Board of Directors adopted a resolution allowing for the authorization of and issuance of shares of the Company’s Preferred Stock, $ par value per share, designated as Series A Preferred Stock (“Series A”).
Dividends
Series A holders shall be entitled to receive, when and as declared by the Board of Directors, dividends on a pari passu basis with the holders of the shares of the Company’s common stock based upon the number of shares of common stock into which the Series A is then convertible.
Voting Rights
Series
A holders shall be entitled to vote on all matter presented to the stockholders of the Company and shall be entitled to such number of
votes that equal the number of shares of common stock that each share of Series A held may be converted into; provided, however, that
in no event shall a Series A holder be entitled to vote more than
Conversion
Optional Conversion - Each share of Series A shall be convertible, at any time, at the option of the Series A holder, into one share of common stock; provided, however, that in no event shall a Series A holder be entitled to convert any shares of Series A to the extent that such conversion would result in beneficial ownership by the Series A holder of more than 4.99% of the outstanding shares of common stock.
Automatic Conversion – In the event that an event occurs which has the effect of reducing a Series A holder’s beneficial ownership of shares of common stock to less than % of the then publicly disclosed outstanding shares of common stock, then within five business days thereafter, the Series A holder shall provide notice to the Company to such effect. Such notice shall have the effect of a notice of conversion such that the Series A holder’s post-conversion ownership of common stock will be 4.99% of the then publicly disclosed outstanding shares of common stock.
Stock Incentive Plan
On March 18, 2021, the Company’s Board of Directors adopted the BioRestorative Therapies, Inc. 2021 Stock Incentive Plan (the “2021 Plan”). Pursuant to the 2021 Plan, a total of shares of common stock are authorized to be issued pursuant to the grant of stock options, restricted stock units, restricted stock, stock appreciation rights and other incentive awards.
Warrant and Option Valuation
The Company has computed the fair value of warrants and options granted using the Black-Scholes option pricing model. The expected term used for warrants and options issued to non-employees is the contractual life and the expected term used for options issued to employees and directors is the estimated period of time that options granted are expected to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain vanilla” employee option grants. The Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.
Warrant Activity Summary
|
For the Nine Months Ended |
For the Nine Months Ended |
|||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Risk free interest rate | % | % | ||||||
| Contractual term (years) | ||||||||
| Expected volatility | % | % | ||||||
The weighted average estimated fair value of warrants granted during the nine months ended September 30, 2021 and 2020 was $ and $ per share, respectively.
| 20 |
During
the nine months ended September 30, 2021, the Company issued an aggregate of shares of the Company’ common stock, as a
result of the cashless exercise of
A summary of the warrant activity during the nine months ended September 30, 2021, is presented below:
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Life | Intrinsic | |||||||||||||
| Warrants | Price | In Years | Value | |||||||||||||
| Outstanding, January 1, 2021 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( |
) | ||||||||||||||
| Expired | ( |
) | ||||||||||||||
| Outstanding, September 30, 2021 | $ | $ | ||||||||||||||
| Exercisable, September 30, 2021 | $ | $ | ||||||||||||||
| Warrants Outstanding | Warrants Exercisable | |||||||||||||
| Weighted | ||||||||||||||
| Outstanding | Average | Exercisable | ||||||||||||
| Exercise | Number of | Remaining Life | Number of | |||||||||||
| Price | Warrants | In Years | Warrants | |||||||||||
| $ - $ | ||||||||||||||
| $ - $ | ||||||||||||||
| $ - $ | ||||||||||||||
| $ - $ | ||||||||||||||
| $ - $ | ||||||||||||||
| $ - $ | ||||||||||||||
| $ - $ | ||||||||||||||
Stock Options
| For the Nine Months Ended | ||||
| September 30, | ||||
| 2021 | ||||
| Risk free interest rate | % | |||
| Expected term (years) | ||||
| Expected volatility | % | |||
| Expected dividends | % | |||
The Company granted options for the purchase of shares of common stock during the nine months ended September 30, 2021.
The Company did t issue stock options during the nine months ended September 30, 2020.
| 21 |
The
grant date fair value of options issued during the nine months ended September 30, 2021 was $
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Life | Intrinsic | |||||||||||||
| Options | Price | In Years | Value | |||||||||||||
| Outstanding, January 1, 2021 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Forfeited | ( |
) | ||||||||||||||
| Outstanding, September 30, 2021 | $ | $ | ||||||||||||||
| Exercisable, September 30, 2021 | $ | $ | ||||||||||||||
| Options Outstanding | Options Exercisable | |||||||||||
| Weighted | ||||||||||||
| Outstanding | Average | Exercisable | ||||||||||
| Exercise | Number of | Remaining Life | Number of | |||||||||
| Price | Options | In Years | Options | |||||||||
| $ - $ | ||||||||||||
| $ - $ | ||||||||||||
| $ - $ | ||||||||||||
| $ - $ | ||||||||||||
| $ - $ | ||||||||||||
| $ - $ | ||||||||||||
On March 18, 2021, the Company, pursuant to two employment agreements, granted to its Chief Executive Officer and Chairman of the Board and its Vice President, Research and Development options to purchase an aggregate of shares of the Company’s common stock (see Note 7 – Commitments and Contingencies). The options have an exercise price of $ per share and. Subsequent to September 30, 2021, the Company reduced the exercise price of these options from $ per share to $ per share and revised the vesting period (see Note 9 – Subsequent Events).
Restricted Stock Units
Pursuant to the 2021 Plan, the Company grants RSUs to employees, consultants or non-employee directors (“Eligible Individuals”). The number, terms and conditions of the RSUs that are granted to Eligible Individuals are determined on an individual basis by the plan administrator. On the distribution date, the Company shall issue to the Eligible Individual one unrestricted, fully transferable share of the Company’s common stock (or the fair market value of one such share in cash) for each vested and nonforfeitable RSU.
On March 18, 2021, the Company, pursuant to two employment agreements, granted an aggregate of RSUs to its Chief Executive Officer and Chairman of the Board and its Vice President, Research and Development (see Note 7 – Commitments and Contingencies) with a fair value of $ per share. .
| 22 |
A summary of our unvested RSUs as of September 30, 2021, is as follows:
| Number of | ||||
| Shares | ||||
| Outstanding, January 1, 2021 | ||||
| Granted | ||||
| Forfeited | ||||
| Vested | ||||
| Outstanding, September 30, 2021 | ||||
|
For the Three Months Ended |
For the Nine Months Ended |
Unrecognized at |
Weighted Average Remaining Amortization |
|||||||||||||||||||||
| September 30, | September 30, | September 30, | Period | |||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | 2021 | (Years) | |||||||||||||||||||
| Consulting | $ | $ | $ | $ | $ | |||||||||||||||||||
| Research and development | ||||||||||||||||||||||||
| General and administrative | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||||||
Note 7 - COMMITMENTS AND CONTINGENCIES
Litigation, Claims and Assessments
Coventry Enterprises, LLC
On February 11, 2020, pursuant to an Order to Show Cause of the United States District Court of the Eastern District of New York (the “Court”), in the matter of Coventry Enterprises, LLC vs. BioRestorative Therapies, Inc., pending the hearing of the plaintiff’s application for a preliminary injunction, the Court issued a temporary restraining order enjoining the Company from issuing any additional shares of stock except for purposes of fulfilling the plaintiff’s share reserve requests or conversion requests until such reserve requests were fulfilled and enjoining the Company from reserving authorized shares for any other party until the plaintiff’s reserve requests were fulfilled. Pursuant to a hearing held on February 13, 2020, the temporary restraining order with regard to the Company issuing shares of common stock was not continued.
On
March 11, 2020, the Court ordered that
| 23 |
The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements.
Appointment or Departure of Directors and Certain Officers
On
March 18, 2021, the Company and Lance Alstodt, its President, Chief Executive Officer and Chairman of the Board, entered into an
employment agreement (the “Alstodt Employment Agreement”) which provides for a term ending on March 18, 2026. Pursuant
to the Alstodt Employment Agreement, Mr. Alstodt is entitled to receive initially an annual salary of $
On
March 18, 2021, the Company and Francisco Silva, its Vice President, Research and Development, entered into an employment agreement (the
“Silva Employment Agreement”) which provides for a term ending on March 18, 2026. Pursuant to the Silva Employment Agreement,
Mr. Silva is entitled to receive initially an annual salary of $
Conversion of Convertible Notes
During the year ended December 31, 2020, and prior to the Petition Date, certain lenders requested to exchange a portion of their outstanding convertible note principal and accrued interest for shares of the Company’s common stock. As of the Petition Date these shares had yet to be issued to the lenders; however, the shares of the Company’s common stock issued for unsecured claims as part of the Plan to the certain lenders represented the aggregate unsecured claims less the principal and accrued interest that was represented in the unaffected exchanges. The Company believes that there may be a potential contingency related to the non-issued shares that would be settled in shares of the Company’s common stock and not monetary compensation.
On
June 24, 2021, the Company entered into a Settlement Agreement with one of the abovementioned lenders whereby the Company agreed to issue
shares of the Company’s common stock in lieu of cash for an additional $
Note 8 - LEASES
With the adoption of ASC 842, operating lease agreements are required to be recognized on the balance sheet as ROU assets and corresponding lease liabilities.
The
Company is a party to a lease for
When
measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using its estimated
incremental borrowing rate at August 1, 2019. The weighted average incremental borrowing rate applied was
| 24 |
The following table presents net lease cost and other supplemental lease information:
|
Nine Months Ended September 30, 2021 |
Nine Months Ended September 30, 2020 |
|||||||
| Lease cost | ||||||||
| Operating lease cost (cost resulting from lease payments) | $ | $ | ||||||
| Net lease cost | $ | $ | ||||||
| Operating lease – operating cash flows (fixed payments) | $ | $ | ||||||
| Operating lease – operating cash flows (liability reduction) | $ | $ | ||||||
| Non-current leases – right of use assets | $ | $ | ||||||
| Current liabilities – operating lease liabilities | $ | $ | ||||||
| Non-current liabilities – operating lease liabilities | $ | $ | ||||||
Future minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases as of September 30, 2021:
| Fiscal Year | Operating Leases | |||
| Remainder of 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| Total future minimum lease payments | ||||
| Amount representing interest | ( |
) | ||
| Present value of net future minimum lease payments | $ | |||
NOTE 9 – SUBSEQUENT EVENTS
Appointment of Certain Officers and Election of Directors
Effective November 4, 2021, the Company appointed Robert E. Kristal as its Chief Financial Officer. Concurrently with his appointment, Mr. Kristal was granted an option to purchase shares of the Company’s common stock at an exercise price of $ per share. Such option is exercisable for a period and vests on a quarterly basis over a period commencing upon the date of grant.
Effective November 4, 2021, Patrick F. Williams was elected a director of the Company. Mr. Williams was appointed to the Audit Committee (Chair), Compensation Committee, and Nominating Committee of the Board of Directors of the Company. Concurrently with his election, Mr. Williams was granted an option for the purchase of shares of the Company’s common stock at an exercise price of $ per share. Such option is exercisable for a period and vests on a quarterly basis over a period commencing upon the date of grant.
Effective November 4, 2021, David Rosa was elected a director of the Company. Mr. Rosa was appointed to the Nominating Committee (Chair), Compensation Committee, and Audit Committee of the Board of Directors of the Company. Concurrently with his election, Mr. Rosa was granted an option for the purchase of shares of the Company’s common stock at an exercise price of $ per share. Such option is exercisable for a period and vests on a quarterly basis over a period commencing upon the date of grant.
Option Grants
On November 4, 2021, the Company granted options to purchase an aggregate of shares of its common stock, including the options to purchase shares each granted to Mr. Kristal, Mr. Williams, and Mr. Rosa, as noted above, to its officers and directors at an exercise price of $ per share. Included within the share option grants were grants to each of Mr. Alstodt and Mr. Silva for the purchase of shares of common stock and to Dr. Nickolay Kukekov, a director of the Company, for the purchase of shares of common stock. The option grants to Mr. Alstodt, Mr. Silva, and Dr. Kukekov have a term and an exercise price of $ per share. In addition, on November 4, 2021, the Company reduced the exercise price of options held by Mr. Alstodt and Mr. Silva, each for the purchase of shares of the Company’s common stock, from $ per share to $ per share and revised the vesting period.
On November 4, 2021, the Company granted options to purchase an aggregate of shares of the Company’s common stock to members of its Scientific Advisory Board and various employees and consultants at an exercise price of $ per share.
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Exchange Agreements
During
October 2021, the Company entered into an Exchange Agreement (the “Auctus Agreement”) with Auctus to exchange outstanding
convertible promissory notes in the aggregate principal amount of $
In
addition, during October 2021, the Company entered into Exchange Agreements with four other holders of convertible promissory notes and
warrants (collectively, the “Other Holders”) with regard to the exchange by the Other Holders of outstanding convertible
promissory notes in the aggregate principal amount of $
Effective
November 9, 2021, pursuant to the terms of their convertible notes, the Company issued to two noteholders an aggregate of shares
of common stock, with a fair value of $ per share, and warrants for the purchase of an aggregate of
Exercise of Warrants
During
October 2021, the Company received an exercise notice to issue an aggregate of
Reverse Stock Split
On
October 27, 2021, the Company effected a
Public Offering
On
November 9, 2021, the Company completed a public offering of units, each consisting of one share of common stock and a warrant for
the purchase of one share of common stock. Pursuant to the public offering, the Company issued and sold
units at a public offering price of $
per unit, and, pursuant to the exercise of an option granted to the underwriters, warrants for the purchase of
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking statements that reflect management’s current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 30, 2021, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation:
| ● | our ability to obtain financing needed to commence and complete our clinical trials; |
| ● | our ability to successfully develop and commercialize BRTX-100, our lead product candidate for the treatment of chronic lumbar disc disease; |
| ● | our ability to retain exclusive rights with regard to our licensed technology; |
| ● | our ability to protect our proprietary rights; |
| ● | our ability to achieve and sustain profitability of the existing lines of business; |
| ● | our ability to attract and retain world-class research and development talent; |
| ● | our ability to attract and retain key science, technology and management personnel and to expand our management team; |
| ● | the accuracy of estimates regarding expenses, future revenue, capital requirements, profitability, and needs for additional financing; |
| ● | business interruptions resulting from geo-political actions, including war and terrorism or disease outbreaks (such as the recent outbreak of COVID-19); |
| ● | our ability to attract and retain customers; and |
| ● | our ability to navigate through the increasingly complex therapeutic regulatory environment. |
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time, except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “Company,” “we,” “us” and “our” refer to BioRestorative Therapies, Inc., a Delaware corporation (“BRT”), and its wholly-owned subsidiary, Stem Pearls, LLC, a New York limited liability company (“Stem Pearls”). Unless otherwise specified, all dollar amounts are expressed in United States dollars.
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Intellectual Property
This report includes references to our federally registered trademarks, BioRestorative Therapies and Dragonfly design, BRTX-100, ThermoStem and Stem Pearls. We also own an allowed trademark application for BRTX. The Dragonfly Logo is also registered with the U.S. Copyright Office. This report also includes references to trademarks, trade names and service marks that are the property of other organizations. Solely for convenience, trademarks and trade names referred to in this report appear without the ®, SM or ™ symbols, and copyrighted content appears without the use of the symbol ©, but the absence of use of these symbols does not reflect upon the validity or enforceability of the intellectual property owned by us or third parties.
Corporate History
BioRestorative Therapies, Inc. has one wholly-owned subsidiary, Stem Pearls. BioRestorative Therapies, Inc. and its subsidiary are referred to collectively as “BRT” or the “Company”.
On March 20, 2020 (the “Petition Date”), the Company filed a voluntary petition commencing a case (the “Chapter 11 Case”) under Chapter 11 of title 11 of the U.S. Code in the United States Bankruptcy Court for the Eastern District of New York (the “Bankruptcy Court”).
On August 7, 2020, the Company and Auctus Fund, LLC (“Auctus”), the Company’s largest unsecured creditor and a stockholder as of the Petition Date, filed an Amended Joint Plan of Reorganization (the “Plan”) and on October 30, 2020, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Plan as amended. Amendments to the Plan are reflected in the Confirmation Order. On November 16, 2020 (the “Effective Date”), the Plan became effective. See Note 5 – Notes Payable in Part I, Item I of this report for additional information.
Business Overview
We develop therapeutic products and medical therapies using cell and tissue protocols, primarily involving adult (non-embryonic) stem cells. We are currently pursuing our Disc/Spine Program with our initial investigational therapeutic product being called BRTX-100. We submitted an IND application to the FDA to obtain authorization to commence a Phase 2 clinical trial investigating the use of BRTX-100, our lead cell therapy candidate, in the treatment of chronic lower back pain arising from degenerative disc disease. We have received such authorization from the FDA. We intend to commence such clinical trial during 2022 (assuming the receipt of necessary funding). We have obtained a license to use technology for investigational adult stem cell treatment of disc and spine conditions, including protruding and bulging lumbar discs. The technology is an advanced stem cell injection procedure that may offer relief from lower back pain, buttock and leg pain, and numbness and tingling in the leg and foot. We are also developing our ThermoStem Program. This pre-clinical program involves the use of brown adipose (fat) in connection with the cell-based treatment of type 2 diabetes and obesity as well as hypertension, other metabolic disorders and cardiac deficiencies. United States patents related to the ThermoStem Program were issued in September 2015, January 2019, March 2020, March 2021 and July 2021; Australian patents related to the ThermoStem Program were issued in April 2017, June and October 2019, and August 2021; Japanese patents related to the ThermoStem Program were issued in December 2017 and June 2021; Israeli patents related to the ThermoStem Program were issued in October 2019 and May 2020; and European patents related to the ThermoStem Program were issued in April 2020 and January 2021.
We have licensed a patented curved needle device that is a needle system designed to deliver cells and/or other therapeutic products or materials to the spine and discs or other potential sites. We anticipate that FDA approval or clearance will be necessary for this device prior to commercialization. We do not intend to utilize this device in connection with our contemplated Phase 2 clinical trial with regard to BRTX-100.
On October 27, 2021, we effected a 1-for-4,000 reverse stock split. We have retroactively applied the reverse stock split made effective on October 27, 2021 to share and per share amounts on the unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2021 and the year ended December 31, 2020. Our authorized shares of common stock and preferred stock were not affected as a result of the reverse stock split.
Revenue
We derived all of our revenue pursuant to a license agreement with the SCTC entered into in January 2012, as amended in November 2015. Pursuant to the license agreement, the SCTC granted to us a license to use certain intellectual property related to, among other things, stem cell disc procedures and we have granted to the SCTC a sublicense to use, and the right to sublicense to third parties the right to use, in certain locations in the United States and the Cayman Islands, certain of the licensed intellectual property. In consideration of the sublicenses, the SCTC has agreed to pay us royalties on a per disc procedure basis.
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Results of Operations
Comparison of the Three Months Ended September 30, 2021 to the Three Months Ended September 30, 2020
Our financial results for the three months ended September 30, 2021 are summarized as follows in comparison to the three months ended September 30, 2020:
| For The Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 8,000 | $ | 15,000 | ||||
| Operating Expenses: | ||||||||
| Marketing and promotion | 300 | 150 | ||||||
| Consulting | - | 33,594 | ||||||
| Research and development | 237,410 | 251,036 | ||||||
| General and administrative | 3,458,977 | 340,485 | ||||||
| Total Operating Expenses | 3,696,687 | 625,265 | ||||||
| Loss From Operations | (3,688,687 | ) | (610,265 | ) | ||||
| Other Expense: | ||||||||
| Interest expense | (495,545 | ) | (42,611 | ) | ||||
| Reorganization items, net | - | (183,387 | ) | |||||
| Total Other Expense | (495,545 | ) | (225,998 | ) | ||||
| Net Loss | $ | (4,184,232 | ) | $ | (836,263 | ) | ||
Revenues
For the three months ended September 30, 2021 and 2020, we generated $8,000 and $15,000, respectively, of royalty revenue in connection with our sublicense agreement.
Marketing and Promotion
Marketing and promotion expenses include advertising and promotion, marketing and seminars, meals, entertainment and travel expenses. For the three months ended September 30, 2021 and 2020, marketing and promotion expenses remained consistent.
We expect that marketing and promotion expenses will increase in the future as we increase our marketing activities following full commercialization of our products and services.
Consulting
Consulting expenses consist of consulting fees and stock-based compensation to consultants. For the three months ended September 30, 2021, consulting expenses decreased by $33,594, or 100%, from $33,594 to $0, as compared to the three months ended September 30, 2020. The decrease is primarily due to our reduced usage of consultants as we continue to emerge from our Chapter 11 reorganization.
Research and Development
Research and development expenses include cash and non-cash compensation of (a) our Vice President of Research and Development; (b) our Scientific Advisory Board members; and (c) laboratory staff and costs related to our brown fat and disc/spine initiatives. Research and development expenses are expensed as they are incurred. For the three months ended September 30, 2021, research and development expenses decreased by $13,626, or 5%, from $251,036 to $237,410, as compared to the three months ended September 30, 2020. The decrease is primarily due to a small decrease in stock compensation expense attributable to research and development.
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We expect that our research and development expenses will increase with the recommencement of our research and development initiatives during the quarter ended December 31, 2021 and subsequent fiscal periods.
General and Administrative
General and administrative expenses consist primarily of salaries, bonuses, payroll taxes, severance costs and stock-based compensation to employees (excluding any cash or non-cash compensation of our Vice President of Research and Development and our laboratory staff), as well as corporate expenses such as legal and professional fees, investor relations and occupancy-related expenses. For the three months ended September 30, 2021, general and administrative expenses increased by $3,118,492, or 916%, from $340,485 to $3,458,977, as compared to the three months ended September 30, 2020. The increase is primarily due to an increase of approximately $2,800,000 in stock-based compensation resulting from the issuances of 586,959 stock options and 293,479 RSUs.
We expect that our general and administrative expenses will further increase as we expand our staff, develop our infrastructure and incur additional costs to support the growth of our business.
Interest expense
For the three months ended September 30, 2021, interest expense increased $452,934, or 1,063%, as compared to the three months ended September 30, 2020. The increase was due to the increase in both interest and amortization of debt discount on outstanding notes payable as a result of our restructuring under our Chapter 11 reorganization.
Reorganization items, net
Reorganization items, net consists primarily of costs associated the post-petition Chapter 11 bankruptcy. For the three months ended September 30, 2021, we did not record reorganization items, net as compared to reorganization items, net of ($183,387) for the three months ended September 30, 2020.
Comparison of the Nine Months Ended September 30, 2021 to the Nine Months Ended September 30, 2020
Our financial results for the nine months ended September 30, 2021 are summarized as follows in comparison to the nine months ended September 30, 2020:
| For The Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 41,000 | $ | 60,000 | ||||
| Operating Expenses: | ||||||||
| Marketing and promotion | 9,120 | 28,131 | ||||||
| Consulting | 10,037 | 101,195 | ||||||
| Research and development | 563,562 | 698,917 | ||||||
| General and administrative | 21,756,887 | 1,129,218 | ||||||
| Total Operating Expenses | 22,339,606 | 1,957,611 | ||||||
| Loss From Operations | (22,298,606 | ) | (1,897,611 | ) | ||||
| Other Income (Expense): | ||||||||
| Interest expense | (1,601,551 | ) | (412,462 | ) | ||||
| Loss on extinguishment of notes payable, net | - | (658,152 | ) | |||||
| Change in fair value of derivative liabilities | - | (2,141,069 | ) | |||||
| Reorganization items, net | - | 597,919 | ||||||
| Total Other Expense | (1,601,551 | ) | (3,613,764 | ) | ||||
| Net Loss | $ | (23,900,157 | ) | $ | (5,511,375 | ) | ||
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Revenues
For the nine months ended September 30, 2021 and 2020, we generated $41,000 and $60,000, respectively, of royalty revenue in connection with our sublicense agreement.
Marketing and Promotion
Marketing and promotion expenses include advertising and promotion, marketing and seminars, meals, entertainment and travel expenses. For the nine months ended September 30, 2021, marketing and promotion expenses decreased by $19,011, or 68%, from $28,131 to $9,120, as compared to the nine months ended September 30, 2020. The decrease is primarily due to our reduced marketing plan as we continue to emerge from our Chapter 11 reorganization.
We expect that marketing and promotion expenses will increase in the future as we increase our marketing activities following full commercialization of our products and services.
Consulting
Consulting expenses consist of consulting fees and stock-based compensation to consultants. For the nine months ended September 30, 2021, consulting expenses decreased by $91,158, or 90%, from $101,195 to $10,037, as compared to the nine months ended September 30, 2020. The decrease is primarily due to our reduced usage of consultants as we continue to emerge from our Chapter 11 reorganization.
Research and Development
Research and development expenses include cash and non-cash compensation of (a) our Vice President of Research and Development; (b) our Scientific Advisory Board members; and (c) laboratory staff and costs related to our brown fat and disc/spine initiatives. Research and development expenses are expensed as they are incurred. For the nine months ended September 30, 2021, research and development expenses decreased by $135,355, or 19%, from $698,917 to $563,562, as compared to the nine months ended September 30, 2020. The decrease is primarily due to the decrease in stock compensation allocated to our research and development activities.
We expect that our research and development expenses will increase with the recommencement of our research and development initiatives during the year ending December 31, 2021.
General and Administrative
General and administrative expenses consist primarily of salaries, bonuses, payroll taxes, severance costs and stock-based compensation to employees (excluding any cash or non-cash compensation of our Vice President of Research and Development and our laboratory staff), as well as corporate expenses such as legal and professional fees, investor relations and occupancy related expenses. For the nine months ended September 30, 2021, general and administrative expenses increased by $20,627,669, or 1,827%, from $1,129,218 to $21,765,887, as compared to the nine months ended September 30, 2020. The increase is primarily due to an increase of approximately $19,500,000 in stock-based compensation resulting from the issuances of 586,959 stock options and 293,479 RSUs.
We expect that our general and administrative expenses will further increase as we expand our staff, develop our infrastructure and incur additional costs to support the growth of our business.
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Interest expense
For the nine months ended September 30, 2021, interest expense increased $189,089, or 13%, as compared to the nine months ended September 30, 2020. The increase was due to the increase in both interest and amortization of debt discount on outstanding notes payable as a result of our restructuring under our Chapter 11 reorganization.
Loss on extinguishment of notes payable, net
For the nine months ended September 30, 2021, we did not record a gain (loss) on extinguishment of notes payable, as compared to a loss on extinguishment of notes payable of $658,152 for the nine months ended September 30, 2020.
Change in fair value of derivative liabilities
For the nine months ended September 30, 2021, we did not record a gain (loss) related to the change in fair value of derivative liabilities, as compared to a loss related to the change in fair value of derivative liabilities of $2,141,069 for the nine months ended September 30, 2020.
Reorganization items, net
Reorganization items, net consists primarily of costs associated the post-petition Chapter 11 bankruptcy. For the nine months ended September 30, 2021, we did not record reorganization items, net as compared to reorganization items, net of $597,919 for the nine months ended September 30, 2020.
Liquidity and Capital Resources
Liquidity
We measure our liquidity in a number of ways, including the following:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Cash | $ | 1,129,716 | $ | 3,064,610 | ||||
| Working Capital | $ | 296,200 | $ | 2,142,229 | ||||
| Notes Payable (Gross) | $ | 10,041,342 | $ | 9,637,102 | ||||
Availability of Additional Funds
Based upon our accumulated deficit and stockholders’ deficit of $113,742,990 and $4,879,304, respectively, as of September 30, 2021, along with our forecast for continued operating losses and our need for financing to fund our contemplated clinical trials, as of such date, we required additional equity and/or debt financing to continue our operations.
As of September 30, 2021, our outstanding debt of $10,041,342, together with interest at a rate of between 5% and 7% per annum, has a maturity date of November 16, 2023, except for the PPP loan.
Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings.
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We may be unable to raise sufficient additional capital when we need it or raise capital on favorable terms. In addition, future financing may require us to pledge certain assets and enter into covenants that could restrict certain business activities or our ability to incur further indebtedness and may contain other terms that are not favorable to our stockholders or us. If we are unable to obtain adequate funds on reasonable terms, we may be required to significantly curtail or discontinue operations or obtain funds by entering into financing agreements on unattractive terms.
On November 9, 2021, we completed a public offering of units, each consisting of one share of common stock and a warrant for the purchase of one share of common stock. Pursuant to the public offering, we issued and sold 2,300,000 units at a publc offering price of $10.00 per unit and, pursuant to the exercise of an option granted to the underwriters, warrants for the purchase of 345,000 shares of common stock at a public offering price of $0.01 per warrant, less underwriting discounts and commissions.
Our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate our continuation as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
The following events have mitigated the above factors with regards to our ability to continue as a going concern: (i) on November 9, 2021, we received net proceeds of approximately $20,772,000 from our public offering, and (ii) in connection with the public offering, we exchanged all of our outstanding convertible debt to shares of common stock, Series A preferred stock, and warrants. As a result of the above, we have sufficient cash to fund operations for the twelve months subsequent to the filing date.
Cash Flows
During the nine months ended September 30, 2021 and 2020, our sources and uses of cash were as follows:
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (2,184,894 | ) | $ | (1,392,145 | ) | ||
| Net cash provided by financing activities | 250,000 | 1,566,475 | ||||||
| Increase (decrease) in cash | $ | (1,934,894 | ) | $ | 174,330 | |||
Operating Activities
Net cash used in operating activities was $2,184,894 for the nine months ended September 30, 2021, primarily due to the net loss of $23,900,157 which was primarily offset by non-cash expenses of $21,182,776 related primarily to amortization of debt discount and stock-based compensation and $541,414 of cash provided by changes in the levels of operating assets and liabilities, primarily as a result of increases in accrued interest and accounts payable, decreases in accounts receivable and prepaid and other current assets, all partially offset by a decrease in lease liability. Net cash used in operating activities was $1,392,145 for the nine months ended September 30, 2020, primarily due to the net loss of $5,511,375, which was partially offset by non-cash expenses of $3,047,219 related to amortization of debt discount, accretion of interest expense, stock-based compensation, change in fair value of derivative liabilities, and loss on extinguishment of notes payable and $1,072,011 of cash provided by changes in the levels of operating assets and liabilities, primarily as a result of increases in accounts payable, accrued interest, expenses and other current liabilities and decreases in accounts receivable, prepaid expenses and other current assets.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2021 was $250,000, which was due to $250,000 of net proceeds from a loan received under the U.S. Small Business Administration’s Paycheck Protection Program. Net cash provided by financing activities for the nine months ended September 30, 2020, was $1,566,475, which was primarily due to $1,114,713 of proceeds from the DIP financing and $441,762 of net proceeds from debt financings.
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We anticipate that the costs to complete our Phase 2 clinical trials with regard to our Disc/Spine Program will be at least $12,000,000. In addition, we anticipate approximately $45,000,000 in additional funding will be needed to complete the clinical trials using BRTX-100 (assuming the receipt of no revenues). As a result of the above, we have sufficient cash to fund operations for the twelve months subsequent to the filing date.
Effects of Inflation
We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.
Significant Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our unaudited condensed consolidated financial statements included herein for the quarter ended September 30, 2021, and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on April 30, 2021.
New and Recently Adopted Accounting Pronouncements
Any new and recently adopted accounting pronouncements are more fully described in Note 2 to our unaudited condensed consolidated financial statements herein for the quarter ended September 30, 2021.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure 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 SEC’s rules and forms, 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 disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
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Under the supervision and with the participation of our management, including our principal executive officer, who is also our principal financial officer, we are required to perform an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Exchange Act, as of September 30, 2021. Management has not completed such evaluation and, as such, has concluded that our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive officer, who is also our principal financial officer, as appropriate to allow timely decisions regarding required disclosures. As a result of the material weakness in internal controls over financial reporting described below, we concluded that our disclosure controls and procedures as of September 30, 2021 were not effective.
Material Weaknesses in Internal Control over Financial Reporting
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2021 based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of September 30, 2021 was not effective.
A material weakness, as defined in the standards established by the Sarbanes-Oxley, is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim unaudited condensed consolidated financial statements will not be prevented or detected on a timely basis.
The ineffectiveness of the Company’s internal control over financial reporting was due to the following material weaknesses:
| ● | Inadequate segregation of duties due to limited personnel consistent with control objectives; |
| ● | Adherence to formal policies and procedures post-bankruptcy; and |
| ● | Lack of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner. |
Changes in Internal Control Over Financial Reporting
Other than described above there have been no changes in our internal control over financial reporting that occurred during our third quarter of 2021 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company, threatened against or affecting our Company, our common stock, our subsidiary or of our Company’s or our subsidiary’s officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1A. Risk Factors
An investment in our common stock involves a number of very significant risks. You should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on April 30, 2021, in addition to other information contained in those reports and in this quarterly report in evaluating the Company and its business before purchasing shares of our common stock. The Company’s business, operating results and financial condition could be adversely affected due to any of those risks.
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Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds
During the three months ended September 30, 2021, we issued the following securities in transactions not involving any public offering. For each of the following transactions, we relied upon Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), as transactions by an issuer not involving any public offering or Section 1145 of the Bankruptcy Code as a security exchanged by an issuer for a claim against the issuer in a bankruptcy plan of reorganization. For each such transaction, we did not use general solicitation or advertising to market the securities, the securities were offered to a limited number of persons, the investors had access to information regarding us (including information contained in our Annual Report on Form 10-K for the year ended December 31, 2020, Quarterly Report on Form 10-Q for the periods ended March 31, 2021 and June 30, 2021, and Current Reports on Form 8-K filed with the Securities and Exchange Commission, press releases made by us and information contained in filings with the bankruptcy court), and we were available to answer questions by prospective investors. We reasonably believe that each of the investors is an accredited investor.
| Warrants | ||||||||||||||||||||||||
| Date Issued | Common Stock | Shares |
Exercise Price |
Term (Years) |
Purchaser(s) | Consideration(1) | ||||||||||||||||||
| 7/16/2021 | 750 | - | - | - | (2) | $ | 21,000 | (3) | ||||||||||||||||
| 9/27/2021 | 34,500 | - | - | - | (2) | $ | 489,900 | (4) | ||||||||||||||||
| (1) | The value of the non-cash consideration was estimated to be the fair value of our restricted common stock. Since our shares are thinly traded in the open market, the fair value of our equity instruments was estimated by management based on observations of the cash sale prices of both restricted shares and freely tradeable shares. |
| (2) | Accredited investor. |
| (3) | Issued as part of litigation settlement. |
| (4) | Issued on a cashless net exercise basis pursuant to the exercise of warrants. |
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| Incorporated by Reference | ||||||||
|
Exhibit Number |
Exhibit Description | Form | Exhibit | Filing Date | ||||
| 3.1 | Certificate of Incorporation, as amended | 8-K | 3.2 | 10/26/2021 | ||||
| 3.2 | Certificate of Designations of Preferred Stock (Series A) | 8-K | 3.1 | 11/15/2021 | ||||
| 3.3 | Bylaws | 8-K | 3.4 | 12/23/2014 | ||||
| 31.1* | Certification of Principal Executive Officer | |||||||
| 31.2* | Certification of Principal Financial Officer | |||||||
| 32.1** | Section 1350 Certification of Principal Executive Officer and Principal Financial Officer | |||||||
| 101.INS | Inline XBRL Instance Document | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Date File (embedded within the Inline XBRL document) | |||||||
* Filed herewith.
** In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| BIORESTORATIVE THERAPIES, INC. | ||
| By: | /s/ Lance Alstodt | |
| Lance Alstodt | ||
| Chief Executive Officer, President, and Chairman of the Board | ||
| (Principal Executive Officer) | ||
| Date: November 15, 2021 | ||
| By: | /s/ Robert E. Kristal | |
| Robert E. Kristal | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
| Date: November 15, 2021 | ||
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