10-Q 1 form10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 30, 2021

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from _________ to _________

 

Commission file number: 001-37603

 

BIORESTORATIVE THERAPIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   91-1835664
(State or other Jurisdiction of Incorporation or Organization)   (I.R.S. Employer Identification No.)

 

40 Marcus Drive, Melville, New York   11747
(Address of Principal Executive Offices)   (Zip Code)

 

(631) 760-8100

(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
Common Stock, $0.0001 par value   BRTX   Nasdaq Capital Market

 

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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

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
       
Non-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 ☐ No

 

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. Yes ☒ No ☐

 

As of November 12, 2021, there were 3,492,985 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

 

  Page
   
PART I. FINANCIAL INFORMATION 3
     
ITEM 1. Financial Statements 3
     
  Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020 3
     
  Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited) 4
     
  Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (unaudited) 6
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 7
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 34
     
ITEM 4. Controls and Procedures 34
     
PART II. OTHER INFORMATION 35
     
ITEM 1. Legal Proceedings 35
     
ITEM 1A. Risk Factors 35
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 36
     
ITEM 3. Defaults Upon Senior Securities 36
     
ITEM 4. Mine Safety Disclosures 36
     
ITEM 5. Other Information 36
     
ITEM 6. Exhibits 37
     
SIGNATURES 38

 

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  $1,129,716   $3,064,610 
Accounts receivable   8,000    17,000 
Prepaid expenses   31,956    105,407 
Total Current Assets   1,169,672    3,187,017 
           
Equipment, net   10,198    21,914 
Right of use asset   386,816    473,849 
Intangible assets, net   608,372    664,268 
           
Total Assets  $2,175,058   $4,347,048 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
           
Current Liabilities:          
Accounts payable  $124,558   $118,851 
Accrued expenses and other current liabilities   58,351    718,259 
Accrued interest   532,005    49,307 
Lease liability, current portion   114,387    158,371 
PPP loan payable, current portion   44,172    - 
Total Current Liabilities   873,473    1,044,788 
           
Lease liability, net of current portion   332,754    363,519 
Notes payable, net of debt discount of $4,399,034 and $5,366,869, respectively   5,642,307    4,270,233 
PPP loan payable, net of current portion   205,828    - 
           
Total Liabilities   7,054,362    5,678,540 
           
Commitments and Contingencies   -      
           
Stockholders’ Deficit:          
Preferred stock, $0.01 par value; Authorized, 20,000,000 shares;    -    - 
Series A Convertible Preferred stock, $0.01 par value; Authorized, 1,543,158 shares; none issued and outstanding at September 30, 2021 and December 31, 2020   

-

    

-

 
Common stock, $0.0001 par value; Authorized, 300,000,000,000 shares; 872,195 and 715,544 issued and outstanding at September 30, 2021 and December 31, 2020, respectively   87    72 
Additional paid in capital   108,863,599    88,511,269 
Accumulated deficit   (113,742,990)   (89,842,833)
           
Total Stockholders’ Deficit   (4,879,304)   (1,331,492)
           
Total Liabilities and Stockholders’ Deficit  $2,175,058   $4,347,048 

 

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  $8,000   $15,000   $41,000   $60,000 
                     
Operating expenses:                    
Marketing and promotion   300    150    9,120    28,281 
Consulting   -    33,594    10,037    101,195 
Research and development   237,410    251,036    563,562    698,917 
General and administrative   3,458,977    340,485    21,756,887    1,129,218 
Total operating expenses   3,696,687    625,265    22,339,606    1,957,611 
                     
Loss from operations   (3,688,687)   (610,265)   (22,298,606)   (1,897,611)
                     
Other income (expense):                    
Interest expense   (495,545)   (42,611)   (1,601,551)   (1,412,462)
Loss on extinguishment of notes payable, net   -    -    -    (658,152)
Change in fair value of derivative liabilities   -    -    -    (2,141,069)
Reorganization items, net   -    (183,387)   -    597,919 
Total other (income) expense   (495,545)   (225,998)   (1,601,551)   (3,613,764)
                     
Net loss  $(4,184,232)  $(836,263)  $(23,900,157)  $(5,511,375)
                     
Net Loss Per Share                    
- Basic and Diluted  $(4.99)  $(2.10)  $(30.31)  $(15.93)
                     
Weighted Average Number of Common Shares Outstanding                    
- Basic and Diluted   838,689    398,663    788,564    345,975 

 

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   715,544   $72   $88,511,269   $(89,842,833)  $(1,331,492)
                          
Shares issued in exchange of notes payable and accrued interest   4,852    -    213,673    -    213,673 
Shares issued in cashless exercise of warrants   73,582    7    (7)   -    - 
Stock-based compensation:                         
- restricted share units   -    -    179,098    -    179,098 
- options   -    -    13,897,669    -    13,897,669 
Net loss   -    -    -    (15,653,330)   (15,653,330)
                          
Balance as of March 31, 2021   793,978    79    102,801,702    (105,496,163)   (2,694,382)
                          
Shares issued in exchange of notes payable and accrued interest   3,217    -    103,703    -    103,703 
Shares issued in cashless exercise of warrants   39,750    4    (82,135)   -    (82,131)
Stock-based compensation:                         
- restricted share units   -    -    1,164,135    -    1,164,135 
- options   -    -    1,762,329    -    1,762,329 
Net loss   -    -    -    (4,062,595)   (4,062,595)
                          
Balance at June 30, 2021   836,945    83    105,749,734    (109,558,758)   (3,808,941)
                          
Shares issued in cashless exercise of warrants   34,500    4    (4)   -    - 
Shares issued in litigation settlement   750    -    21,000    -    21,000 
Fair market value of beneficial conversion feature and warrants issued with convertible notes payable instruments   -    -    166,404    -    166,404 
Stock-based compensation:                         
- restricted share units   -    -    1,164,135    -    1,164,135 
- options   -    -    1,762,330    -    1,762,330 
Net loss   -    -    -    (4,184,232)   (4,184,232)
                          
Balance at September 30, 2021   872,195   $87   $108,863,599   $(113,742,990)  $(4,879,304)
                          
Balance at January 1, 2020   19,463   $2   $65,793,998   $(78,570,146)  $(12,776,146)
                          
Shares and warrants issued for cash   250    -    10,000    -    10,000 
Shares issued in exchange for notes payable and accrued interest   378,950    38    2,558,894    -    2,558,932 
Stock-based compensation:                         
- options   -    -    221,881    -    221,881 
Net loss   -    -    -    (7,550,772)   (7,550,772)
                          
Balance as of March 31, 2020   398,663    40    68,584,773    (86,120,918)   (17,536,105)
                          
Stock-based compensation:                         
- options   -    -    219,264    -    219,264 
Net income   -    -    -    2,875,660    2,875,660 
                          
Balance at June 30, 2020   398,663    40    68,804,037    (83,245,258)   (14,441,181)
                          
Stock-based compensation:                         
- options   -    -    184,766    -    184,766 
Net income   -    -    -    (836,263)   (836,263)
                          
Balance at September 30, 2020   398,663   $40   $68,988,803   $(84,081,521)  $(15,092,678)

 

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  $(23,900,157)  $(5,511,375)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization of debt discount   1,068,498    1,066,526 
Accretion of interest expense   -    2,810,973 
Depreciation and amortization   67,612    95,917 
Stock-based compensation   19,929,696    625,911 
Shares issued in settlement of litigation   21,000      
Loss on extinguishment of note payables, net   -    658,152 
Write-off of derivative liabilities   -    (4,375,231)
Change in fair value of derivative liabilities   -    2,141,069 
Non-cash effect of right of use asset   87,033    23,902 
Changes in operating assets and liabilities:          
Accounts receivable   9,000    17,000 
Prepaid assets and other current assets   73,451    11,759 
Accounts payable   5,707    145,020 
Accrued interest, expenses and other current liabilities   528,015    898,232 
Lease liability   (74,749)   - 
           
Net cash used in operating activities   (2,184,894)   (1,392,145)
           
Cash flows from financing activities:          
Proceeds from notes payable   -    441,762 
Proceeds from PPP Loan   250,000    - 
Proceeds from DIP Financing   -    1,114,713 
Sales of common stock and warrants for cash   -    10,000 
           
Net cash provided by financing activities   250,000    1,566,475 
           
Net (decrease) increase in cash and cash equivalents   (1,934,894)   174,330 
           
Cash - beginning of period   3,064,610    1,664 
           
Cash - end of period  $1,129,716   $175,994 
           
Supplemental cash flow information:          
Cash paid for:          
Interest  $-   $- 
Non-cash investing and financing activities:          
Shares issued in exchange for notes payable and accrued interest  $317,376   $2,558,932 
Bifurcated embedded conversion options and warrants recorded as derivative liability and debt discount  $

166,404

   $2,377,818 
Sale of warrants recorded as derivative liabilities  $-

   $10,000 
Accrued DIP expenses exchanged for convertible notes  $

698,901

   $

-

 

 

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 1-for-4,000 reverse stock split. The Company has 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. The Company’s authorized shares of common stock and preferred stock were not affected as a result of the reverse stock split.

 

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 $113,743,000 and working capital surplus of approximately $296,000. For the nine months ended September 30, 2021, the Company had a loss from operations of approximately $22,299,000 (of which, approximately $19,930,000 was attributable to non-cash stock-based compensation) and negative cash flows from operations of approximately $2,185,000. The Company’s operating activities consume the majority of its cash resources. The Company anticipates that it will continue to incur operating losses as it executes its development plans for 2021, as well as other potential strategic and business development initiatives. In addition, the Company has had and expects to have negative cash flows from operations, at least into the near future. The Company has previously funded, and plans to continue funding, these losses primarily through current cash on hand received subsequent to quarter end and additional infusions of cash from equity and debt financing. On November 9, 2021, the Company received net proceeds of approximately $20,772,000 from its public offering (see Note 9 – Subsequent Events).

 

As a result of the above, and cash on hand of approximately $22,191,150 as of November 10, 2021, the Company believes it has sufficient cash to fund operations for the twelve months subsequent to the filing date.

 

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 ($183,387) and $597,919, respectively, representing cash used in operating activities.

 

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  $(183,387)  $(333,077)
Write-off of derivative liability   -    4,375,231 
Default interest and penalties   -    (864,125)
Unamortized debt discount on convertible notes   -    (2,580,110)
Total reorganization items, net  $(183,387)  $597,919 

 

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 no cash equivalents as of September 30, 2021 or December 31, 2020.

 

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 not record an allowance for doubtful accounts as of September 30, 2021 and December 31, 2020, respectively.

 

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 315 years. Expenditures that enhance the useful lives of assets are capitalized and depreciated. Computer equipment costs are capitalized as incurred and depreciated on a straight-line basis over a range of 35 years.

 

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 no impairment charge for intangible assets.

 

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 $300 and $150 for the three months ended September 30, 2021 and 2020, respectively. Advertising and marketing expenses were $9,120 and $28,281 for the nine months ended September 30, 2021 and 2020, respectively. Advertising and marketing expenses are recorded in marketing and promotion on the unaudited condensed consolidated statements of operations.

 

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 Common Share

 

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.

 

The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive:

   2021   2020 
   Three Months Ended 
   September 30, 
   2021   2020 
         
Options   588,048    1,217 
Warrants   3,704,997    1,996 
Unvested RSUs   293,479    - 
Convertible notes – common stock   697,582(1)   - 
Total   5,284,121    3,213 

 

   2021   2020 
   Nine Months Ended 
   September 30, 
   2021   2020 
         
Options   588,048    1,217 
Warrants   3,704,997    1,996 
Unvested RSUs   293,479    - 
Convertible notes – common stock   697,582(1)   - 
Total   

5,284,121

    3,213 

 

(1)As of September 30, 2021, all of the convertible notes had variable conversion prices and the shares issuable were estimated based on the market conditions. Pursuant to the note agreements, there were 12,876,004 shares of common stock reserved for future note conversions as of September 30, 2021 (see Note 9 – Subsequent Events).

 

Stock-based Compensation

 

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.

 

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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 3.25 years as of September 30, 2021.

 

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.

 

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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 $150,000 by April 2017 and an additional $250,000 by April 2019 in order to maintain its exclusive rights with regard to the disc/spine technology. In February 2017, the Company received authorization from the Food and Drug Administration (the “FDA”) to proceed with a Phase 2 clinical trial. Based upon such authorization, the Company has satisfied a performance milestone such that the Company was not required to pay to the SCTC a minimum amount of $150,000 by April 2017 to retain exclusive rights with regard to the disc/spine technology. In addition, the Company believes that it has until February 2022 to complete the Phase 2 clinical trial in order to satisfy the final performance milestone such that the Company was not required to pay the additional $250,000 by April 2019 pursuant to the SCTC Agreement to maintain its exclusive rights.

 

Intangible assets consist of the following:

   Patents and Trademarks   Licenses   Accumulated Amortization   Total 
Balance as of January 1, 2020  $3,676   $1,301,500   $(566,012)  $739,164 
Amortization expense   -    -    (74,896)   (74,896)
Balance as of December 31, 2020   3,676    1,301,500    (640,908)   664,268 
Amortization expense   -    -    (55,896)   (55,896)
Balance as of September 30, 2021  $3,676   $1,301,500   $(696,804)  $608,372 
Weighted average remaining amortization period at September 30, 2021 (in years)   -    8.18           

 

 

Amortization of intangible assets consists of the following:

   Patents and Trademarks   Licenses   Accumulated Amortization 
Balance as of January 1, 2020  $3,312   $562,700   $566,012 
Amortization expense   364    74,532    74,896 
Balance as of December 31, 2020   3,676    637,232    640,908 
Amortization expense   -    55,896    55,896 
Balance as of September 30, 2021  $3,676   $693,128   $696,804 

 

NOTE 4 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consist of:

  

September 30,

2021

  

December 31,

2020

 
         
Accrued payroll  $22,898   $- 
Accrued research and development expenses   29,673    - 
Accrued general and administrative expenses   5,781    60,661 
Accrued DIP and Plan costs related to DIP Funding and Plan(1)   -    657,598 
Total accrued expenses  $58,352   $718,259 

 

(1)Amount represents DIP and Plan costs associated with the Auctus DIP Funding and the Plan.

 

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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  $9,637,102   $-   $(5,366,869)  $4,270,233 
Issuances   715,303    250,000    (182,805)   782,498 
Exchanges for equity   (311,063)   -    82,131    (228,932)
Amortization of debt discount   -    -    1,068,509    1,068,509 
Outstanding, September 30, 2021  $10,041,342   $250,000   $(4,399,034)  $5,892,308 

 

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), 100 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 $7,000,000 which Auctus has provided or committed to provide consisting of the debtor-in-possession loans made to the Company by Auctus during the Chapter 11 Case (the “DIP Funding”) and additional funding as described below.

 

ii.Auctus has provided $3,500,000 in funding to the Company (the “Initial Auctus Funding”) and is to provide, subject to certain conditions, additional funding to the Company, as needed, in an amount equal to $3,500,000, less the sum of the debtor-in-possession loans made to the Company by Auctus during the Chapter 11 Case (inclusive of accrued interest) (approximately $1,227,000 as of the Effective Date) and the costs incurred by Auctus as the debtor-in-possession lender (the “DIP Costs”). The DIP Costs and the additional Plan costs in the aggregate totaled $650,493, of which $500,000 and $150,493 were recorded in debt discount and accrued expenses, respectively, on the consolidated balance sheets. On September 27, 2021, these amounts were converted into secured convertible promissory notes totaling an aggregate principal amount of $715,303. In addition, four other persons and entitles (collectively, the “Other Lenders”) who held allowed general unsecured claims provided funding to the Company in the aggregate amount of approximately $348,000 (the “Other Funding” and together with the Initial Auctus Funding, the “Funding”). In consideration of the Funding, the Company has issued the following:

 

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 7% per annum;
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 $2.00 (a total of 1,750,000 Class A Warrants in consideration of the Initial Auctus Funding and a total of approximately 174,250 Class A Warrants in the aggregate in consideration of the Other Funding), such Class A Warrants having an exercise price of $2.00 per share; and

 

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 $4.00 (a total of 875,000 Class B Warrants in consideration of the Initial Auctus Funding and a total of approximately 87,125 Class B Warrants in the aggregate in consideration of the Other Funding), such Class B Warrants having an exercise price of $4.00 per share.

 

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 $1,349,591 (110% of the DIP Funding) with a maturity date of November 16, 2023;

 

b.A Class A Warrant to purchase 613,451 shares of common stock; and

 

c.A Class B Warrant to purchase 306,725 shares of common stock (as to which 181,571 shares of common stock have been exercised on a net exercise basis, pursuant to the terms of the Class B Warrant, with respect to the issuance of 167,781 shares of common stock, of which 54,449 and 113,332 were issued during 2020 and 2021, respectively).

 

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 $320,200 and $33,562, respectively, issued to John Desmarais (“Desmarais”) (collectively, the “Desmarais Notes”), was treated as an allowed secured claim in the aggregate amount of $490,699 and was exchanged for a Secured Convertible Note in such amount.

 

iv.The claim arising from the promissory note issued in June 2016 by the Company to Desmarais in the original principal amount of $175,000 was treated as an allowed general unsecured claim in the amount of $245,192 and was satisfied and exchanged for 6,130 shares of common stock.

 

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 $500,000 was treated as follows:

 

a.$444,534 was treated as an allowed general unsecured claim in such amount and exchanged for 11,113 shares of common stock; and

 

b.$309,301 was treated as an allowed secured claim in such amount and exchanged for a Secured Convertible Note in such amount with a maturity date of November 16, 2023.

 

vi.Holders of allowed general unsecured claims (other than Auctus and the Other Lenders) received an aggregate of 262,432 shares of common stock where were valued at the fair market value of the stock at issuance date of $14,381,259 with an associated loss of $3,883,991 recognized in Reorganization Items, net on the accompanying consolidated statement of operations in exchange for approximately $10,497,268 outstanding accounts payable and convertible debt (including accrued interest), with such shares being subject to a leak-out restriction prohibiting each holder from selling, without consent of the Company, more than 33% of its shares during each of the three initial 30 day periods following the Effective Date.

 

vii.Auctus and the Other Lenders have been issued, in respect of their allowed general unsecured claims ($3,261,819 in the case of Auctus and an aggregate of approximately $382,400 in the case of the Other Lenders), a convertible promissory note of the Company (each, an “Unsecured Convertible Note”) in the allowed amount of the claim, which Unsecured Convertible Notes have the following material features:

 

a.Maturity date of three years from the Effective Date;

 

b.Interest at the rate of 5% per annum;

 

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 16.6% of the underlying shares received upon conversion during each of the six initial 30-day periods following the Effective Date.

 

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 300,000,000,000 and the par value of the shares of common stock has been reduced to $0.0001 per share.

 

The Company recorded $152,499 and $- of interest expense related to notes payable and convertible note payable for the three months ended September 30, 2021 and 2020, respectively. The Company recorded $438,913 and $368,810 of interest expense related to notes payable and convertible note payable for the nine months ended September 30, 2021 and 2020, respectively (see Note 9 – Subsequent Events).

 

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 $317,894 (including $6,314 of accrued interest) for an aggregate of 8,069 shares of the Company’s common stock at a conversion price of $40 per share.

 

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 $1,189,413 in the aggregate from Auctus.

 

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 $1,349,591 which bear interest at 7% per annum with a maturity date of November 16, 2023. In connection with the Secured Convertible Notes, Auctus received warrants to purchase an aggregate of 920,176 shares of Company’s common stock with exercise prices ranging between $2.00 and $4.00 per share.

 

On September 27, 2021, pursuant to the Plan, for 110% of the DIP Costs, the Company issued to Auctus secured two convertible promissory notes in the aggregate principal amount of $183,043, with a maturity date of November 16, 2023. The notes bear interest at 7% per annum which is payable on maturity. Amounts due under the notes may be converted into shares of the Company’s common stock, at $0.0001 par value, at a conversion price equal to the average five daily volume weighted average price on the latest day prior to the conversion date. In connection with the notes, the Company granted to Auctus Class A Warrants to purchase up to 83,201 shares of the Company’s common stock at an exercise price of $2.00 per share. The Class A Warrants expire on November 16, 2025. In addition, in connection with the notes, the Company granted to Auctus Class B Warrants to purchase up to 41,601 shares of the Company’s common stock at an exercise price of $4.00 per share. The Class B Warrants expire on November 16, 2025. The warrants had an aggregate grant date fair value of $152,300 which was recorded as a debt discount and is being amortized over the term of the note. In addition, the note contains a beneficial conversion feature with a relative fair value of $14,103 which was recorded as a debt discount and is being amortized over the term of the note. As of September 30, 2021, $183,043 was outstanding.

 

On September 27, 2021, pursuant to the Plan, for 110% of the Plan Costs, the Company issued to Auctus a secured convertible promissory note in the principal amount of $532,499, with a maturity date of November 16, 2023. The note bears interest at 7% per annum which is payable on maturity. Amounts due under the note may be converted into shares of the Company’s common stock, at $0.0001 par value, at a conversion price equal to the average five daily volume weighted average price on the latest day prior to the conversion date. As of September 30, 2021, $532,499 was outstanding.

 

Interest expense for the five Secured Convertible Notes was $24,214 and $71,062 for the three and nine months ended September 30, 2021, respectively. Interest expense during the three and nine months ended September 30, 2020 was $6,769.

 

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 $1,219,945, associated accrued interest and warrants for the purchase of an aggregate of 236,411 shares of common stock, were exchanged for an aggregate amount of 1,856,938 units of common stock and warrants (of the type issued pursuant to the Company’s public offering) (except that Auctus received shares of Series A preferred stock in lieu of common stock with regard to a portion of the exchanged amount, as described in Note 9 – Subsequent Events), ultimately resulting in approximately 1,543,000 newly issued shares of Series A Convertible Preferred Stock, approximately 314,000 shares of common stock and approximately 1,857,000 warrants being issued (see Note 9 – Subsequent Events).

 

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 $250,000 at an interest rate of 1% per annum and a maturity date of March 14, 2026. Pursuant to the note, principal and interest payments are deferred for ten months. At that time the Company may apply for loan forgiveness. If the Company does not apply for loan forgiveness, or if the loan forgiveness is denied, the Company will be required to make monthly payments of $5,100 starting on January 14, 2022. As of September 30, 2021, the Company has not applied for loan forgiveness. All remaining unpaid principal and interest is due and payable at the maturity date. At September 30, 2021, $250,000 was outstanding.

 

19

 

 

Future minimum payments under the above notes payable following the nine months ended September 30, 2021 are as follows:

 

    2021 
Remainder of 2021  $- 
2022   58,970 
2023   10,100,903 
2024   60,161 
Thereafter   71,307 
Total future minimum payments   10,291,351 
Less: discount   (4,399,034)
Less:payable   5,892,307 
Less: current   (44,172)
Notes payable, non-current  $5,848,135 

 

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 1,543,458 shares of the Company’s Preferred Stock, $.01 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 4.99% of the then outstanding shares of common stock.

 

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 4.5% 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 1,175,000 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

 

In applying the Black-Scholes option pricing model to warrants granted or issued, the Company used the following assumptions:

  

For the Nine

Months Ended

  

For the Nine

Months Ended

 
   September 30, 2021   September 30, 2020 
Risk free interest rate   0.98%   1.63%
Contractual term (years)   4.10    5.00 
Expected volatility   314%   202%

 

The weighted average estimated fair value of warrants granted during the nine months ended September 30, 2021 and 2020 was $14.40 and $40 per share, respectively.

 

20

 

 

During the nine months ended September 30, 2021, the Company issued an aggregate of 147,832 shares of the Company’ common stock, as a result of the cashless exercise of 170,495 warrants to Auctus.

 

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   3,750,597   $4.40    4.9   $95,965,883 
Granted   125,031    2.80           
Exercised   (170,473)   4.00           
Expired   (158)   10,560.00           
Outstanding, September 30, 2021   3,704,997   $4.00    4.1   $44,239,960 
                     
Exercisable, September 30, 2021   3,704,997   $4.00    4.1   $44,239,960 

 

The following table presents information related to stock warrants at September 30, 2021:

Warrants Outstanding   Warrants Exercisable 
        Weighted     
    Outstanding   Average   Exercisable 
Exercise   Number of   Remaining Life   Number of 
Price   Warrants   In Years   Warrants 
 $0.00 - $60    3,703,246    4.2    3,703,246 
 $800 - $7,960    1,450    2.8    1,450 
 $4,000 - $7,960    

55

    

2.4

    

55

 
 $8,000 - $11,960    19    2.1    19 
 $12,000 - $15,960    18    1.8    18 
 $16,000 - $19,960    202    0.6    202 
 $20,000 - $23,960    7    0.2    7 
      3,704,997    4.2    3,704,997 

 

Stock Options

 

In applying the Black-Scholes option pricing model to stock options granted, the Company used the following assumptions:

   For the Nine Months Ended 
   September 30, 
   2021 
Risk free interest rate   1.71%
Expected term (years)   5.50 
Expected volatility   228%
Expected dividends   0.00%

 

The Company granted options for the purchase of 586,959 shares of common stock during the nine months ended September 30, 2021.

 

The Company did not 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 $27,736,052.

 

A summary of the option activity during the nine months ended September 30, 2021 is presented below:

 

           Weighted     
       Weighted   Average     
       Average   Remaining   Aggregate 
   Number of   Exercise   Life   Intrinsic 
   Options   Price   In Years   Value 
Outstanding, January 1, 2021   1,215   $3,920.00    6.2    - 
Granted   586,959   47.60           
Forfeited   (126)   3,000.00           
Outstanding, September 30, 2021   588,048   $55.60    9.2   $- 
                     
Exercisable, September 30, 2021   294,658   $61.59    9.2   $- 

 

The following table presents information related to stock options at September 30, 2021:

Options Outstanding  Options Exercisable
       Weighted     
   Outstanding   Average   Exercisable 
Exercise  Number of   Remaining Life   Number of 
Price  Options   In Years   Options 
$0.00 - $48   586,959    9.5    293,605 
$1,040 - $2,960   44    7.9    44 
$3,000 - $3,960   1,026    5.2    990 
$4,000 - $23,960   1    2.7    1 
$24,000 - $79,960   9    2.3    9 
$80,000 - $120,000   9    0.5    9 
    588,048    9.4    294,658 

 

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 586,959 shares of the Company’s common stock (see Note 7 – Commitments and Contingencies). The options have an exercise price of $47.60 per share and vest to the extent of 50% on the date of grant, 25% on the one-year anniversary of the grant date and 25% on the two-year anniversary of the grant date. Subsequent to September 30, 2021, the Company reduced the exercise price of these options from $47.60 per share to $13.50 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 293,479 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 $47.60 per share. The RSUs vest to the extent of one-third on the one-year anniversary of the grant date, one-third on the two-year anniversary of the grant date, and one-third on the three-year anniversary of the grant date.

 

22

 

 

A summary of our unvested RSUs as of September 30, 2021, is as follows:

   Number of 
   Shares 
Outstanding, January 1, 2021   - 
Granted   293,479 
Forfeited   - 
Vested   - 
Outstanding, September 30, 2021   293,479 

 

The following table presents information related to stock compensation expense:

   

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   $ -     $ 33,594     $ -     $ 67,178     $ -       -  
Research and development     24,305       32,669       73,730       121,007       7,749       0.1  
General and administrative     2,902,160       118,503       19,855,966       252,960       21,864,782       2.1  
    $ 2,926,465     $ 184,766     $ 19,929,696     $ 441,145     $ 21,872,531       2.1  

 

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 the Company (i) convene and hold a special meeting, by no later than March 18, 2020, of the Board of Directors of the Company (the “Board”), for approval of certain changes to the shares of the Company, as set forth below; (ii) approve a reverse split and/or a stock consolidation, solely of the Company’s outstanding shares, at a ratio of 1,000 to 1, (iii) approve of the continuation of the Company’s then total authorized shares of common stock at 2,000,000,000 shares; and (iv) to call a special meeting of stockholders of the Company, within ten days of the special meeting of the Board and by not later than March 25, 2020, to approve the foregoing. On March 18, 2020, the Board considered the matter, and, based upon the Court order, determined to approve the foregoing items, including the 1,000 to 1 reverse split, subject to the Company having available funds to effectuate such items. As discussed above in Note 5 – Notes Payable – Chapter 11 Reorganization, on March 20, 2020, the Company filed a petition commencing its Chapter 11 Case. As of the date of this report, the Company has not effected the 1,000 to 1 reverse split; however, on October 27, 2021, the Company effected a 1-for-4,000 reverse split of its common stock.

 

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 $250,000. Mr. Alstodt’s annual salary will increase by $50,000 per year. In addition, in the event certain performance goals are met, Mr. Alstodt’s salary will increase by $150,000. The Alstodt Employment Agreement also provides for the grant to Mr. Alstodt pursuant to the 2021 Plan of (i) a ten year option for the purchase of 293,479 shares of common stock of the Company and (ii) 146,740 RSUs of the Company (see Note 6 – Stockholders’ Deficit) for additional information. Subsequent to September 30, 2021, the Company reduced the exercise price of these options from $47.60 per share to $13.50 per share and revised the vesting period (see Note 9 – Subsequent Events).

 

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 $225,000. Mr. Silva’s annual salary will increase by $50,000 per year. In addition, in the event certain performance goals are met, Mr. Silva’s salary will increase by $150,000. The Silva Employment Agreement also provides for the grant to Mr. Silva pursuant to the 2021 Plan of (i) a ten year option for the purchase of 293,479 shares of common stock of the Company and (ii) 146,740 RSUs of the Company (see Note 6 – Stockholders’ Deficit) for additional information. Subsequent to September 30, 2021, the Company reduced the exercise price of these options from $47.60 per share to $13.50 per share and revised the vesting period (see Note 9 – Subsequent Events).

 

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 750 shares of the Company’s common stock in lieu of cash for an additional $30,000 of approved unsecured claims related to the Plan. On July 16, 2021, the Company issued the 750 shares with a fair value of $28 per share.

 

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 6,800 square feet of space located in Melville, New York (the “Melville Lease”) with respect to its corporate and laboratory operations. The Melville Lease was scheduled to expire in March 2020 (subject to extension at the option of the Company for a period of five years) and provided for an annual base rental during the initial term ranging between $132,600 and $149,260. In June 2019, the Company exercised its option to extend the Melville Lease and entered into a lease amendment with the lessor whereby the five-year extension term commenced on January 1, 2020, with annual base rent ranging between $153,748 and $173,060.

 

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 12%.

 

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)  $118,779   $115,311 
Net lease cost  $118,779   $115,311 
           
Operating lease – operating cash flows (fixed payments)  $118,779   $115,311 
Operating lease – operating cash flows (liability reduction)  $74,749   $63,132 
Non-current leases – right of use assets  $386,816   $502,861 
Current liabilities – operating lease liabilities  $114,387   $97,081 
Non-current liabilities – operating lease liabilities  $332,755   $447,142 

 

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  $39,593 
2022   163,132 
2023   168,028 
2024   173,060 
Total future minimum lease payments   543,813 
Amount representing interest   (96,671)
Present value of net future minimum lease payments  $447,142 

 

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 10,490 shares of the Company’s common stock at an exercise price of $13.50 per share. Such option is exercisable for a ten year period and vests on a quarterly basis over a two year 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 10,490 shares of the Company’s common stock at an exercise price of $13.50 per share. Such option is exercisable for a ten year period and vests on a quarterly basis over a two year 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 10,490 shares of the Company’s common stock at an exercise price of $13.50 per share. Such option is exercisable for a ten year period and vests on a quarterly basis over a two year period commencing upon the date of grant.

 

Option Grants

 

On November 4, 2021, the Company granted options to purchase an aggregate of 140,824 shares of its common stock, including the options to purchase 10,490 shares each granted to Mr. Kristal, Mr. Williams, and Mr. Rosa, as noted above, to its officers and directors at an exercise price of $13.50 per share. Included within the 140,824 share option grants were grants to each of Mr. Alstodt and Mr. Silva for the purchase of 42,059 shares of common stock and to Dr. Nickolay Kukekov, a director of the Company, for the purchase of 25,236 shares of common stock. The option grants to Mr. Alstodt, Mr. Silva, and Dr. Kukekov have a ten year term and an exercise price of $13.50 per share. Such options are exercisable to the extent of 50% on the date of grant and 50% quarterly over a period of two years commencing one year from the date of grant. 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 293,479 shares of the Company’s common stock, from $47.60 per share to $13.50 per share and revised the vesting period.

 

On November 4, 2021, the Company granted options to purchase an aggregate of 110,767 shares of the Company’s common stock to members of its Scientific Advisory Board and various employees and consultants at an exercise price of $13.50 per share.

 

25

 

 

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 $8,826,952, $596,446 in accrued interest, and outstanding warrants for the purchase of an aggregate of 3,441,586 shares of the Company’s common stock for units of common stock and warrants that were issued by the Company in its underwritten public offering (the “Public Offering”), except that, to the extent the issuance of common stock pursuant to the Auctus Agreement would result in Auctus being the beneficial owner of more than 4.99% of the Company’s outstanding common stock, the Company will instead issue to Auctus shares of Series A preferred stock. On November 9, 2021, in connection with the Public Offering, the Company issued to Auctus 133,422 shares of the Company’s common stock, 1,543,158 shares of Series A preferred stock, and warrants for the purchase of 1,676,580 shares of common stock.

 

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 $419,945, $25,115 in accrued interest, and warrants to purchase of an aggregate of 236,411 shares of the Company’s common stock for the units that are issued in the Public Offering. On November 9, 2021, in connection with the Public Offering, the Company issued the Other Holders an aggregate of 94,942 shares of the Company’s common stock and warrants for the purchase of an aggregate of 94,942 shares of common stock.

 

Effective November 9, 2021, pursuant to the terms of their convertible notes, the Company issued to two noteholders an aggregate of 85,416 shares of common stock, with a fair value of $10.00 per share, and warrants for the purchase of an aggregate of 85,416 shares of common stock, upon the conversion of an aggregate principal and accrued interest amount of $800,000 and $54,159, respectively, upon the Company’s listing on the Nasdaq Capital Market.

 

Exercise of Warrants

 

During October 2021, the Company received an exercise notice to issue an aggregate of 22,917 shares of common stock to a warrant holder, with a fair value of $240 per share, pursuant to a warrant associated with the Plan. As of the date of this report the shares have yet to be issued.

 

Reverse Stock Split

 

On October 27, 2021, the Company effected a 1-for-4,000 reverse stock split. The Company has retroactively applied the reverse stock split, including the rounding up of