10-Q 1 form10-q.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, 2022

 

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 14, 2022, there were 3,673,629 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, 2022 AND 2021

 

TABLE OF CONTENTS

 

  Page
   
PART I. FINANCIAL INFORMATION 3
     
ITEM 1. Financial Statements 3
     
  Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021 3
     
  Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited) 4
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited) 6
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 7
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 25
     
ITEM 4. Controls and Procedures 25
     
PART II. OTHER INFORMATION 26
     
ITEM 1A. Risk Factors 26
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
   
ITEM 6. Exhibits 26
     
SIGNATURES 27

 

2

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

BIORESTORATIVE THERAPIES, INC., AND SUBSIDIARY

CONDENSED Consolidated Balance Sheets

 

   September 30,   December 31, 
   2022   2021 
   (Unaudited)     
ASSETS          
           
Current Assets:          
Cash and cash equivalents  $6,573,111   $21,026,727 
Investments held in marketable securities   9,913,667    - 
Accounts receivable   45,000    5,000 
Prepaid expenses and other current assets   356,046    436,181 
Total Current Assets   16,887,824    21,467,908 
           
Property and equipment, net   231,324    37,993 
Right of use asset   270,772    357,805 
Intangible assets, net   530,298    589,740 
           
Total Assets  $17,920,218   $22,453,446 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current Liabilities:          
Accounts payable  $468,501   $50,827 
Accrued expenses and other current liabilities   114,647    134,970 
Lease liability, current portion   134,031    119,055 
PPP loan payable, current portion   -    58,970 
Total Current Liabilities   717,179    363,822 
           
Lease liability, net of current portion   198,724    301,645 
PPP loan payable, net of current portion   -    191,030 
           
Total Liabilities   915,903    856,497 
           
Commitments (Note 7)   -      
           
Stockholders’ Equity          
Preferred stock, $0.01 par value; Authorized, 20,000,000 shares;          
Series A Convertible Preferred stock, $0.01 par value; 1,543,158 authorized shares, 0 and 1,543,158 issued and outstanding at September 30, 2022 and December 31, 2021, respectively   -    15,432 
Series B Convertible Preferred stock, $0.01 par value; 1,543,158 authorized shares, 1,543,158 and 0 issued and outstanding at September 30, 2022 and December 31, 2021, respectively   15,432    - 
Common stock, $0.0001 par value; Authorized, 75,000,000 shares; 3,646,450 and 3,520,391 issued and outstanding at September 30, 2022 and December 31, 2021, respectively   365    353 
Additional paid in capital   165,281,862    155,727,292 
Accumulated deficit   (148,293,344)   (134,146,128)
           
Total Stockholders’ Equity   17,004,315    21,596,949 
           
Total Liabilities and Stockholders’ Equity  $17,920,218   $22,453,446 

 

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, 2022   September 30, 2021   September 30, 2022   September 30, 2021 
                 
Revenues  $29,000   $8,000   $116,100   $41,000 
                     
Operating expenses:                    
Research and development   989,170    237,410    2,839,731    563,562 
General and administrative   3,649,530    3,459,277    11,568,490    21,776,044 
Total operating expenses   4,638,700    3,696,687    14,408,221    22,339,606 
                     
Loss from operations   (4,609,700)   (3,688,687)   (14,292,121)   (22,298,606)
                     
Other (income) expense:                    
Interest expense   28,841    495,545    104,465    1,601,551 
Gain on PPP loan forgiveness   -    -    (250,000)   - 
Grant income   -    -    (16,654)   - 
Other expense   17,284    -    17,284    - 
Total other (income) expense   46,125    495,545    (144,905)   1,601,551 
                     
Net loss  $(4,655,825)  $(4,184,232)  $(14,147,216)  $(23,900,157)
                     
Net Loss Per Share - Basic and Diluted  $(1.28)  $(4.99)  $(3.93)  $(30.31)
                     
Weighted Average Number of Common Shares Outstanding - Basic and Diluted   3,642,215    838,689    3,602,979    788,564 

 

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’ EQUITY (DEFICIT)

(Unaudited)

 

                                     
   Series A   Series B                   Total 
   Convertible   Convertible           Additional       Stockholders’ 
   Preferred Stock   Preferred Stock   Common Stock   Paid-in   Accumulated   Equity 
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Deficit   (Deficit) 
                                     
Balance at January 1, 2022   1,543,158   $15,432    -   $-    3,520,391   $353   $155,727,292   $(134,146,128)  $     21,596,949 
                                              
Stock-based compensation:                                             
- restricted share units   -    -    -    -    97,828    10    1,164,125    -    1,164,135 
- options   -    -    -    -    -    -    2,138,949    -    2,138,949 
- common stock   -    -    -    -    13,500    1    72,818    -    72,819 
Net loss   -    -    -    -    -    -    -    (4,816,150)   (4,816,150)
                                              
Balance as of March 31, 2022   1,543,158    15,432    -    -    3,631,719    364    159,103,184    (138,962,278)   20,156,702 
                                              
Stock-based compensation:                                             
- restricted share units   -    -    -    -    6,220    1    1,190,349    -    1,190,350 
- options   -    -    -    -    -    -    1,865,297    -    1,865,297 
- common stock   -    -    -    -    5,770    -    48,504    -    48,504 
Net loss                       -    -         (4,675,241)   (4,675,241)
                                              
Balance as of June 30, 2022   1,543,158    15,432    -    -    3,643,709    365    162,207,334    (143,637,519)   18,585,612 
                                              
September 8, 2022, issuance of Series B Preferred stock in exchange for Series A Preferred stock   (1,543,158)   (15,432)   1,543,158    15,432    -    -    -    -    - 
Stock-based compensation:                                             
- restricted share units   -    -    -    -    6,218    -    1,209,231    -    1,209,231 
- options   -    -    -    -    -    -    1,865,297    -    1,865,297 
- common stock   -    -    -    -    (3,477)   -    -    -    - 
Net loss   -    -    -    -    -    -    -    (4,655,825)   (4,655,825)
Balance as of September 30, 2022   -   $-    1,543,158   $15,432    3,646,450   $365   $165,281,862   $(148,293,344)  $17,004,315 
                                              
Balance at January 1, 2021   -    -    -    -    715,544   $72   $88,511,269   $(89,842,833)  $(1,331,492)
                                            
Shares issued in exchange for 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 for 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 as of 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 as of September 30, 2021   -   $-    -   $-    872,195   $87   $108,863,599   $(113,742,990)  $(4,879,304)

 

The accompanying footnotes are an integral part of these unaudited condensed consolidated financial statements.

 

5

 

 

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

           
   Nine Months Ended 
   September 30, 2022   September 30, 2021 
Cash flows from operating activities:          
Net Loss  $(14,147,216)  $(23,900,157)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization of debt discount   -    1,068,498 
Unrealized loss on marketable securities   19,895   - 
Depreciation and amortization   88,751    67,612 
Stock-based compensation - options   5,869,543    17,422,328 
Stock-based compensation - common stock   121,323    - 
Stock-based compensation - RSUs   3,563,716    2,507,368 
Shares issued in settlement of litigation   -    21,000 
Gain on PPP loan forgiveness   (250,000)   - 
Non-cash lease expense   87,033    87,033 
Changes in operating assets and liabilities:          
Accounts receivable   (40,000)   9,000 
Prepaid assets and other current assets   80,135    73,451 
Accounts payable   417,674    5,707 
Accrued expenses and other current liabilities   (20,321)   528,015 
Lease liability   (87,945)   (74,749)
           
Net cash used in operating activities   (4,297,412)   (2,184,894)
           
Cash flows from investing activities:          
Purchase of marketable securities   (9,933,562)   - 
Purchases of equipment   (222,642)   - 
Net cash used in investing activities   (10,156,204)   - 
           
Cash flows from financing activities:          
Proceeds from PPP Loan   -    250,000 
           
Net cash provided by financing activities   -    250,000 
           
Net decrease in cash and cash equivalents   (14,453,616)   (1,934,894)
           
Cash and cash equivalents - beginning of period   21,026,727    3,064,610 
           
Cash and cash equivalents - end of period  $6,573,111   $1,129,716 
          
Non-cash investing and financing activities:          
Shares issued in exchange for notes payable and accrued interest  $-   $317,376 
Bifurcated embedded conversion options and warrants recorded as derivative liability and debt discount  $-   $166,404 
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 October 27, 2021, the Company effected a 1-for-4,000 reverse stock split of its common stock. 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. In connection with the reverse stock split, the Company’s authorized number of shares of common stock was reduced from 300,000,000,000 to 75,000,000. The Company’s authorized number of shares of preferred stock was not affected by the reverse stock split.

 

On November 9, 2021, the Company completed a $23,000,000 underwritten public offering of units of securities pursuant to which an aggregate of 2,300,000 shares of the Company’s common stock and warrants for the purchase of an aggregate of 2,645,000 shares of the Company’s common stock were issued. The Company intends to use the net proceeds from the offering as follows: (i) undertaking of clinical trials with respect to BRTX-100 and its related collection and delivery procedure; (ii) pre-clinical research and development with respect to the Company’s ThermoStem Program; and (iii) for general corporate and working capital purposes. In connection with the public offering, the Company’s common stock was listed on the Nasdaq Capital Market.

 

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. For the nine months ended September 30, 2022, the Company had a net loss of $14.1 million (of which, $9.6 million was attributable to non-cash stock-based compensation) and negative cash flows from operations of $4.3 million. The Company’s operating activities consume the majority of its cash resources. The Company anticipates that it will continue to incur net losses as it executes its development plans for 2022 and beyond, 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 and additional infusions of cash from equity and debt financing.

 

Based on cash on hand as of September 30, 2022, the Company believes it has sufficient cash to fund operations for the twelve months subsequent to the filing date. 

 

7

 

 

Current funds noted above will 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, 2022 and 2021 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, 2022 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 consolidated financial statements for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2022.

 

Prior Period Reclassifications

 

Certain prior period amounts have been reclassified for consistency with current period presentation. These reclassifications had no effect on the condensed consolidated statements of operations or cash flows.

 

Principles of Consolidation

 

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated upon consolidation.

 

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, and assumptions used in the Black-Scholes option pricing model, such as expected volatility, risk-free interest rate, and expected dividend rate.

 

8

 

 

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.

 

The Company’s contracted transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s contracts have a single performance obligation with a fixed determinable contract value. The Company’s performance obligation is satisfied upon the transfer of risk of loss to the customer. All sales have fixed pricing and there are currently no variable components included in the Company’s revenue. The timing of the Company’s revenue recognition may differ from the timing of receiving royalty payments. A receivable is recorded when revenue is recognized prior to receipt of a royalty payment and the Company has an unconditional right to the royalty payment. Alternatively, when a royalty payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. During the three months ended September 30, 2022 and 2021, the Company recognized $29,000 and $8,000 respectively, of revenue related to the Company’s sublicenses. During the nine months ended September 30, 2022 and 2021, the Company recognized $116,100 and $41,000, respectively, of revenue related to the Company’s sublicenses.

 

Contract Modifications

 

There were no contract modifications during the three and nine months ended September 30, 2022. Contract modifications are not routine in the performance of the Company’s contracts.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents held at financial institutions may at times exceed insured amounts. The Company believes it mitigates such risk by investing in or through, as well as maintaining cash balances with, major financial institutions. As of September 30, 2022, the Company had cash and cash equivalents totaling $16.5 million.

 

9

 

 

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.

 

10

 

 

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2022, and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

 

       Fair value measurements at reporting date using: 
Description  Fair Value   Quoted
prices in
active
markets
for identical
liabilities
(Level 1)
   Significant other
observable
inputs
(Level 2)
   Significant
unobservable
inputs
(Level 3)
 
Assets:                    
Cash equivalents as of September 30, 2022  $4,898,305   $4,898,305   $-   $- 
Marketable securities as of September 30, 2022  $9,913,667   $9,913,667   $-   $- 
Marketable securities as of December 31, 2021  $-   $-   $-   $- 

 

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 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, 2022 and 2021.

 

The following table summarizes the securities that were excluded from the diluted loss per share calculation:

   Three Months Ended 
   September 30, 
   2022   2021 
         
Options   864,609    588,048 
Warrants   4,739,723    3,704,997 
Unvested RSUs   208,086    293,479 
Convertible notes – common stock (1)   -    697,582 
Total   5,812,418    5,284,121 

 

   Nine Months Ended 
   September 30, 
   2022   2021 
         
Options   864,609    588,048 
Warrants   4,739,723    3,704,997 
Unvested RSUs   208,086    293,479 
Convertible notes – common stock (1)   -    697,582 
Total   5,812,418    5,284,121 

 

  (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.

11

 

 

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 condensed consolidated 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 as opposed to being estimated at the time of grant and revised.

 

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 consistent with the process for valuing employee stock options noted above.

 

Income Taxes

 

The Company accounts for income taxes pursuant to the asset and liability method which requires the recognition of deferred income tax assets and liabilities related to the expected future tax consequences arising from temporary differences between the carrying amounts and tax bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Any effects of changes in income tax rates or laws are included in income tax expense in the period of enactment.

 

The Company records valuation allowances against deferred tax assets when it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company routinely evaluates the realizability of deferred tax assets by assessing the likelihood that deferred tax assets will be recovered based on all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, estimates of future taxable income, tax planning strategies and results of operations. Estimating future taxable income is inherently uncertain and requires judgment. In projecting future taxable income, historical results are considered along with certain assumptions related to future earnings. As of September 30, 2022 and December 31, 2021, the Company had a full valuation allowance applied against its deferred tax assets.

 

From time to time the Company may recognize an income tax benefit, in its consolidated statements of operations, related to uncertain tax positions taken. For uncertain tax positions that are “more likely than not” to sustain an income tax audit, the Company may record an allowance against certain deferred tax assets related to these positions. 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.

 

12

 

 

Research and Development Expenses

 

Research and development expenses are expensed as incurred and recorded as a component of operating expenses in the Company’s condensed consolidated statements of operations.

 

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 (excluding Asia and Argentina), exclusive, royalty-bearing license from the SCTC to utilize or sublicense a certain method for culturing cells and 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). Pursuant to the license agreement with the SCTC, certain performance milestones (or payouts in lieu of performance milestones) had to be satisfied in order for the Company to maintain its exclusive rights with regard to the disc/spine technology (subject to the SCTC’s compliance with its obligations under the SCTC Agreement). The Company did not timely satisfy the third of these performance milestones (which needed to be satisfied by February 2022). Accordingly, such rights may currently be non-exclusive. The Company and the SCTC are currently negotiating the terms of an agreement confirming the exclusive nature of the license. No assurance can be given in this regard. In February 2017, the Company received authorization from the Food and Drug Administration (the “FDA”) to proceed with a Phase 2 clinical trial. The Company has commenced such clinical trial. In March 2022, a United States patent relating to the Company’s BRTX-100 clinical program was issued. The patent along with the license agreement gave rise to definite lived intangible assets. The below table details the activity related to those intangible assets from January 1, 2021 through September 30, 2022:

   Patents and
Trademarks
   Licenses   Accumulated
Amortization
   Total 
Balance as of January 1, 2021  $3,676   $1,301,500   $(640,908)  $664,268 
Amortization expense   -    -    (74,528)   (74,528)
Balance as of December 31, 2021   3,676    1,301,500    (715,436)   589,740 
Amortization expense   -    -    (59,442)   (59,442)
Balance as of September 30, 2022  $3,676   $1,301,500   $(774,878)  $530,298 
Weighted average remaining amortization period as of September 30, 2022 (in years)   -    7.18           

 

13

 

 

Accumulated amortization of intangible assets consists of the following:

   Patents and
Trademarks
   Licenses   Accumulated
Amortization
 
Balance as of January 1, 2021  $3,676   $637,232   $640,908 
Amortization expense   -    74,528    74,528 
Balance as of December 31, 2021   3,676    711,760    715,436 
Amortization expense   -    59,442    59,442 
Balance as of September 30, 2022  $3,676   $771,202   $774,878 

 

NOTE 4 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consist of:

   September 30,
2022
   December 31,
2021
 
         
Accrued payroll  $26,250   $28,370 
Accrued research and development expenses   -    29,672 
Accrued general and administrative expenses   88,397    76,928 
Total accrued expenses  $114,647   $134,970 

 

NOTE 5 – NOTES PAYABLE

 

A summary of the notes payable activity during the nine months ended September 30, 2022 is presented below:

    PPP Loan  
Outstanding, January 1, 2022   $ 250,000  
Issuances     -  
Forgiveness     (250,000 )
Outstanding, September 30, 2022   $ -  

 

On March 14, 2021, under the U.S. Small Business Administration’s Paycheck Protection Program (“PPP”), 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 were deferred for ten months. At that time the Company was able to apply for loan forgiveness. At December 31, 2021, $250,000 was outstanding. On January 5, 2022, the total amount of the PPP loan was forgiven.

 

NOTE 6 – STOCKHOLDERS’ EQUITY (DEFICIT)

 

Series A Preferred Stock

 

On November 8, 2021, in connection with the Company’s public offering, the Company’s Board of Directors adopted a resolution allowing for the authorization 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”). The Series A has a liquidation preference of $0.001 per share. On September 8, 2022, the Company issued 1,543,158 shares of Series B Preferred Stock (“Series B”) to Auctus Fund, LLC (“Auctus”) in exchange for an equal number of shares of the Company’s outstanding Series A. Simultaneously, the stock certificate representing the Series A shares was being returned to the Company for cancellation. On such date and upon such exchange, the Company’s Board of Directors cancelled the Series A.

 

14

 

 

Series B Preferred Stock

 

Effective September 8, 2022, the Company issued 1,543,158 shares of Series B to Auctus in exchange for an equal number of shares of the Company’s outstanding Series A. The terms of the Series B are substantially identical to those of the Series A, except that, among other things, the limitation on beneficial ownership of common stock of the Company upon a conversion of the Series B into Common Stock, and the limitation on the number of votes attributable to the Series B, is 9.99% of the then outstanding Common Stock of the Company instead of 4.99% as provided for the Series A. The Company shall, at all times, reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the full conversion of the Series B. The Series B is not subject to redemption by the Company or any Series B holder. The exchange of Series A for Series B had no impact on the Company’s financial statements as of September 30, 2022.

 

On October 25, 2022, Auctus converted 25,000 shares of Series B into 25,000 shares of Common Stock at a conversion rate of $10.00 per share. The number of shares of Series B remaining outstanding after this conversion is 1,518,158.

 

Dividends

 

Series B 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 Common Stock based upon the number of shares of Common Stock into which the Series B is then convertible.

 

Voting Rights

 

Series B holders shall be entitled to vote on all matters presented to the stockholders of the Company for a vote at a meeting of stockholders of the Company or a written consent in lieu of a meeting of stockholders of the Company, and shall be entitled to such number of votes for each share of Series B entitled to vote at such meetings or pursuant to such consent, voting together with the holders of shares of Common Stock and other shares of preferred stock who are entitled to vote, and not as a separate class, except as required by law. The number of votes to which the Series B holders shall be entitled to vote for each share of Series B shall equal the number of shares of Common Stock into which such Series B is then convertible; provided, however, that in no event shall a Series B holder be entitled to vote more than 9.99% of the then outstanding shares of Common Stock.

 

Conversion

 

Optional Conversion - Each share of Series B shall be convertible, at any time and from time to time, at the option of the Series B holder, into one share of Common Stock based upon a conversion price of $10.00 per share; provided, however, that in no event shall a Series B holder be entitled to convert any shares of Series B to the extent that such conversion would result in beneficial ownership by such Series B holder of more than 9.99% of the outstanding shares of common stock.

 

Automatic Conversion – From time to time, in the event of that an event occurs, including adjustment due to merger, consolidation, etc., subdivision or combination of Common Stock, adjustment due to distribution, purchase rights, and notice of adjustments, which has the effect of reducing a Series B holder’s beneficial ownership of shares of common stock to less than 9.5% of the then publicly disclosed outstanding shares of Common Stock, then, within five (5) business days, the Series B holder shall provide notice to the Company to such effect, which notice shall state the number of shares of Common Stock beneficially owned by the Series B holder and shall provide reasonable detail with regard thereto, including the number of derivative securities compromising a portion of such beneficial share amount. Such notice shall have the effect of a notice of conversion with respect to the conversion of such number of shares of Series B as would increase the Series B holder’s beneficial ownership of Common Stock to 9.99% of the then publicly disclosed outstanding shares of Common Stock.

 

2021 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 were initially authorized to be issued pursuant to the grant of stock options, restricted stock units, restricted stock, stock appreciation rights and other incentive awards. As of September 30, 2022, based on stock options and restricted stock units currently outstanding under the 2021 Plan, no shares remained available for future grants under the 2021 Plan.

 

15

 

 

Amendments to 2021 Stock Incentive Plan

 

On December 10, 2021, subject to stockholder approval, the Company’s Board of Directors approved amendments to the 2021 Plan to increase the number of shares of Common Stock authorized to be issued from 1,175,000 to 2,500,000 and to clarify certain provisions of the 2021 Plan as to the authority of the Board of Directors and the Compensation Committee to make adjustments to, among other things, the exercise price of granted options. Concurrently, subject to stockholder approval of the amendments to the 2021 Plan, the Company’s Compensation Committee reduced the exercise price of the outstanding options under the 2021 Plan for the purchase of an aggregate of 838,549 shares of the Company’s common stock from $13.50 per share to $5.08 per share (the closing price of the Company’s common stock on the day immediately preceding the Compensation Committee determination), including the options held by the Company’s officers and directors as follows: (i) Lance Alstodt, the Company’s President, Chief Executive Officer and Chairman of the Board: 335,538 shares, (ii) Francisco Silva, the Company’s Vice President of Research and Development and a director: 335,538 shares; (iii) Robert Kristal, the Company’s Chief Financial Officer: 10,490 shares; (iv) Robert Paccasassi, the Company’s Vice President of Quality Assurance and Regulatory Compliance: 8,277 shares; (v) Nickolay Kukekov, one of the Company’s directors: 25,236 shares; (vi) Patrick F. Williams, one of the Company’s directors: 10,490 shares; and (vii) David Rosa, one of the Company’s directors: 10,490 shares. On November 3, 2022, the Company’s stockholders approved the amendments to the 2021 Plan.

 

As of September 30, 2022, options for the purchase of 864,609 shares of Common Stock had been granted pursuant to the 2021 Plan. In addition, as of such date, 318,356 restricted stock units (“RSUs”) had been granted pursuant to the 2021 Plan and no shares were reserved for future grants under the 2021 Plan (without giving effect to the amendment to the 2021 Plan increasing the number of shares authorized to be issued under the 2021 Plan to 2,500,000). As a result of the November 3, 2022 stockholder approval, the exercise price of the outstanding options under the 2021 Plan was reduced to $5.08 per share. The changes had no impact on the Company’s financial statements at September 30, 2022.

 

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

 

No warrants were granted or issued during the nine months ended September 30, 2022 and 2021.

 

A summary of the warrant activity during the nine months ended September 30, 2022, is presented below:

       Weighted 
       Average 
   Number of   Exercise 
   Warrants   Price 
Outstanding, January 1, 2022   4,739,871   $11.78 
Granted   -    - 
Exercised   -    - 
Expired   (148)   16,099.00 
Outstanding, September 30, 2022   4,739,723   $10.89 
           
Exercisable, September 30, 2022   4,739,723   $10.89 

 

16

 

 

Stock Options

 

The Company grants stock options to certain employees which are recognized as compensation expense on a straight-line basis over the vesting term of the grants. Vesting terms are generally two years, and grants expire between five and ten years.

 

For the three months ended September 30, 2022 and 2021, the Company recognized compensation expense related to stock option grants of $1.9 million and $1.7 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company recognized compensation expense related to stock option grants of approximately $6.0 million and $17.4 million, respectively.

 

The Company granted options for the purchase of 25,000 shares of common stock during the nine months ended September 30, 2022, with a grant date fair value of $4.88 per share. As of September 30, 2022, the unamortized compensation expense related to these grants was $0.09 million.

 

The Company granted options for the purchase of 586,959 shares of common stock during the nine months ended September 30, 2021, with a grant date fair value of $47.25 per share, after taking into effect the reverse stock split. At September 30, 2022, the unamortized compensation expense related to these grants was $3.2 million.

 

A summary of the stock option activity during the nine months ended September 30, 2022 is presented below:

       Weighted 
       Average 
   Number of   Exercise 
   Options   Price 
Outstanding, January 1, 2022   839,639   $18.73 
Granted   25,000    4.92 
Forfeited   (30)   3,273.00 
Outstanding, September 30, 2022   864,609   $18.73 
           
Exercisable, September 30, 2022   532,045   $17.50 

 

Restricted Stock Units

 

Pursuant to the 2021 Plan, the Company grants RSUs to employees, consultants and 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 share of the Company’s common stock for each vested and nonforfeitable RSU.

 

On March 18, 2022, the Company granted an aggregate of 24,876 RSUs to its Chief Executive Officer, President and Chairman of the Board and its Vice President, Research and Development with a fair value of $4.21 per share. The RSUs vest in twelve equal monthly installments.

 

A summary of the Company’s unvested RSUs as of September 30, 2022 is as follows:

   Number of 
   Shares 
Outstanding, January 1, 2022   293,480 
Granted   24,876 
Forfeited   - 
Vested   (110,270)
Outstanding, September 30, 2022   208,086 

 

There were 2,074 restricted stock units vested in October 2022.

 

17

 

 

For the three months ended September 30, 2022 and 2021, the Company recognized compensation expense related to RSUs of $1.2 million and $1.2 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company recognized compensation expense related to RSUs of $3.6 million and $2.5 million, respectively.

 

For the three months ended September 30, 2022 and 2021, the Company recognized compensation expense of $3.1 million and $2.9 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company recognized compensation expense of $9.6 million and $19.9 million, respectively.

 

The Company’s unrecognized compensation expense was $10.8 million as of September 30, 2022.

 

Note 7 - COMMITMENTS

 

Clinical Services Agreement

 

On December 20, 2021, the Company entered into a Master Clinical Services Agreement (the “Clinical Services Agreement”) with Professional Research Consulting, Inc. (“PRC”) pursuant to which PRC will provide trial management services related to the Company’s Phase 2 clinical trials. The Clinical Services Agreement has a 46-month term with an estimated budgeted cost of $5,844,380. Upon execution of the Clinical Services Agreement, the Company made an upfront payment of $328,152 which was recorded as a prepaid expense on the condensed consolidated balance sheet at December 31, 2021, and is being expensed over the life of the Clinical Services Agreement as the services are rendered. During the three and nine months ended September 30, 2022, the Company incurred $0.6 million and $1.7 million, respectively, of research and development expense related to this agreement and had a balance in prepaid expense of approximately $0.3 million as of September 30, 2022 associated with the Clinical Services Agreement.

 

Note 8 - LEASES

 

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 is scheduled to expire in December 2024 and provides for an annual base rental during the term, which commenced as of January 1, 2020, ranging between $153,748 and $173,060. The remaining term of this lease is approximately 2.25 years as of September 30, 2022.

 

When calculating the present value of lease liabilities for operating leases, the Company discounted the lease payments using its estimated incremental borrowing rate at the inception of the term. The weighted average incremental borrowing rate applied to the Melville Lease was 12%.

 

The following table presents net lease cost and other supplemental lease information:

   Nine Months
Ended September 30,
2022
   Nine Months
Ended September 30,
2021
 
Lease cost          
Operating lease cost (cost resulting from lease payments)  $122,349   $118,779 
Net lease cost  $122,349   $118,779 
           
Operating lease – operating cash flows (fixed payments)  $122,349   $118,779 
Operating lease – operating cash flows (liability reduction)  $87,945   $74,749 
Non-current leases – right of use assets  $270,772   $386,816 
Current liabilities – operating lease liabilities  $134,031   $114,387 
Non-current liabilities – operating lease liabilities  $198,724   $332,755 

 

Future minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases as of September 30, 2022:

Fiscal Year  Operating Leases 
Remainder of 2022  $40,783 
2023   168,028 
2024   173,060 
Total future minimum lease payments   381,871 
Amount representing interest   (49,116)
Present value of net future minimum lease payments  $332,755 

 

NOTE 9 – SUBSEQUENT EVENTS

 

On November 3, 2022, BioRestorative Therapies, Inc. held its Annual Meeting of Stockholders. At the Annual Meeting, the Company’s stockholders: (i) elected the nominees as the Class II directors, (ii) approved amendments to the Company’s 2021 Stock Incentive Plan, (iii) authorized the reincorporation of the Company from the State of Delaware to the State of Nevada, (iv) approved, on a non-binding advisory basis, the compensation of the Company’s executive officers, (v) recommended, on a non-binding advisory basis, that future advisory votes be held every three years with regard to the approval of the Company’s executive compensation, and (vi) ratified the selection of Marcum LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2022. 

 

18

 

 

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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors That May Affect Future Results and Financial Condition” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 30, 2022, 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 complete our clinical trials and implement our business plan;
our ability to successfully develop and commercialize BRTX-100, our lead product candidate for the treatment of chronic lumbar disc disease, as well as our metabolic ThermoStem Program;
our possible lack of 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, and its wholly-owned subsidiary, Stem Pearls, LLC, a New York limited liability company. Unless otherwise specified, all dollar amounts are expressed in United States dollars.

 

19

 

 

Intellectual Property

 

This report includes references to our federally registered trademarks, BioRestorative Therapies and Dragonfly design, BRTX-100, ThermoStem and BRTX. The Dragonfly Logo is also registered with the U.S. Copyright Office. This report may also include 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

 

Our offices are located in Melville, New York where we have established a laboratory facility in order to increase our capabilities for the further development of possible cellular-based treatments, products and protocols, stem cell-related intellectual property and translational research applications.

 

As of September 30, 2022, our accumulated deficit was $148.3 million. We have historically only generated a modest amount of revenue, and our losses have principally been operating expenses incurred in research and development, non-cash expenses such as stock-based compensation, plus costs associated with meeting the requirements of being a public company. We expect to continue to incur substantial costs for these activities over at least the next year.

 

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. In March 2022, a United States patent issued in our Disc/Spine Program. 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 and have commenced such clinical trial through the execution of a CRO agreement with PRC Clinical, the execution of clinical trial agreements, the enrollment of patients in the clinical trials, the purchase of manufacturing equipment, the expansion of our laboratory to include capabilities for clinical production and the certification of our clinical grade cell therapy manufacturing facility. 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, October 2019 and August 2021; Japanese patents related to the ThermoStem Program were issued in December 2017, June 2021, and February 2022; Israeli patents related to our ThermoStem Program were issued in October 2019, May 2020, and March 2022; 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.

 

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.

 

20

 

 

Results of Operations

 

Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

 

Our financial results for the three months ended September 30, 2022 are summarized as follows in comparison to the three months ended September 30, 2021:

 

   For The Three Months Ended 
   September 30, 
   2022   2021 
Revenues  $29,000   $8,000 
           
Operating Expenses:          
Research and development   989,170    237,410 
General and administrative   3,649,530    3,459,277 
Total Operating Expenses   4,638,700    3,696,687 
Loss From Operations   (4,609,700)   (3,688,687)
           
Other Expense:          
Interest expense   28,841    495,545 
Total Other Expense   17,284    - 
Net Loss  $(4,655,825)  $(4,184,232)

 

Revenues

 

For the three months ended September 30, 2022 and 2021, we generated $29,000 and $8,000, respectively, of royalty revenue in connection with our sublicense agreement. We do not expect that such increased level of revenues related to this agreement will continue in future periods.

 

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. For the three months ended September 30, 2022, research and development expenses increased by $751,760, or 317%, from $237,410 to $989,170, as compared to the three months ended September 30, 2021, as we recommenced our research and development initiatives, including the engagement of PRC Clinical to serve as our CRO in connection with our clinical trials, following the completion of our public offering of common stock and warrants in November 2021.

 

We expect that our higher level of research and development expenses will continue in 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, 2022, general and administrative expenses increased by approximately $0.2 million, or 5%, from approximately $3.5 million to approximately $3.7 million, as compared to the three months ended September 30, 2021. The increase is primarily due to an increase in stock-based compensation related to various consultants and executives during the three months ended September 30, 2022.

 

21

 

 

We expect that our general and administrative expenses will 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, 2022, interest expense decreased $466,704, or 94%, as compared to the three months ended September 30, 2021. The decrease was due to the exchange of our outstanding interest-bearing convertible debt for common and preferred shares and warrants in connection with our public offering in November 2021.

 

Comparison of the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

 

Our financial results for the nine months ended September 30, 2022 are summarized as follows in comparison to the nine months ended September 30, 2021:

 

   For The Nine Months Ended 
   September 30, 
   2022   2021 
Revenues  $116,100   $41,000 
           
Operating Expenses:          
Research and development   2,839,731    563,562 
General and administrative   11,568,490    21,776,044 
Total Operating Expenses   14,408,221    22,339,606 
Loss From Operations   (14,292,121)   (22,298,606)
           
Other (Income) Expense:          
Interest expense   104,465    1,601,551 
Gain on PPP loan forgiveness   (250,000)   - 
Other expense   17,284    - 
Grant income   (16,654)   - 
Total Other (Income) Expense   (144,905)   1,601,551 
Net Loss  $(14,147,216)  $(23,900,157)

 

Revenues

 

For the nine months ended September 30, 2022 and 2021, we generated $116,100 and $41,000, respectively, of royalty revenue in connection with our sublicense agreement. We do not expect that such increased level of revenues related to this agreement will continue in future periods.

 

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. For the nine months ended September 30, 2022, research and development expenses increased by $2,276,169, or 404%, from $563,562 to $2,839,731, as compared to the nine months ended September 30, 2021, as we recommenced our research and development initiatives, including the engagement of PRC Clinical to serve as our CRO in connection with our clinical trials, following the completion of our public offering of common stock and warrants in November 2021.

 

We expect that our higher level of research and development expenses will continue in subsequent fiscal periods.

 

22

 

 

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, 2022, general and administrative expenses decreased by approximately $10.2 million, or 47%, from approximately $21.8 million to approximately $11.6 million, as compared to the nine months ended September 30, 2021. The decrease is primarily due to a decrease of approximately $10.5 million in stock-based compensation during the nine months ended September 30, 2022 as compared to September 30, 2021, which related to grants issued to our executives.

 

We expect that our general and administrative expenses will increase as we expand our staff, develop our infrastructure, and incur additional costs to support the growth of our business.

 

Interest expense

 

For the nine months ended September 30, 2022, interest expense decreased $1,497,086, or 93%, as compared to the nine months ended September 30, 2021. The decrease was due to the exchange of our outstanding convertible debt for common and preferred shares and warrants in connection with our public offering in November 2021.

 

Gain on PPP loan forgiveness

 

Under the terms of the U.S. Small Business Administration’s Paycheck Protection Program (“PPP”), our $250,000 PPP loan was forgiven during the nine months ended September 30, 2022.

 

Grant income

 

Grant income of $16,654 during the nine months ended September 30, 2022 consists of funding received under a $256,000 National Institutes of Health Small Business Technology Transfer (STTR) Phase 1 grant, which we were awarded in September 2021.

 

Liquidity and Capital Resources

 

Liquidity

 

We measure our liquidity in a number of ways, including the following:

 

   September 30,   December 31, 
   2022   2021 
         
Cash and cash equivalents  $6,573,111   $21,026,727 

Investments held in marketable securities

  $

9,913,667

   $- 
           
Working Capital  $16,170,645   $21,104,086 
           
Notes Payable (Gross)  $-   $250,000 

 

Availability of Additional Funds

 

Based upon our accumulated deficit of $148,293,344 as of September 30, 2022, along with our forecast for continued operating losses and our need for financing to fund our contemplated clinical trials, we will eventually require additional equity and/or debt financing to continue our operations. However, we believe we have sufficient liquidity to continue our operations for the next twelve months from the date of this report.

 

Our operating needs include the planned costs to operate our business, including amounts required to fund our clinical trials, 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.

 

23

 

 

We may be unable to raise sufficient additional capital when we need it or raise capital on favorable terms. 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.

 

Cash Flows

 

During the nine months ended September 30, 2022 and 2021, our sources and uses of cash were as follows:

 

   Nine Months Ended September 30, 
   2022   2021 
Net cash used in operating activities  $(4,297,412)  $(2,184,894)
Net cash used in investing activities   (10,156,204)   - 
Net cash provided by financing activities   -    250,000 
Net decrease in cash  $(14,453,616)  $(1,934,894)

 

Operating Activities

 

Net cash used in operating activities was $4,297,412 for the nine months ended September 30, 2022, primarily due to cash used to fund the net loss of $14,147,216, which was partially offset by non-cash expenses of $9,554,582 related primarily to stock-based compensation and $349,543 of cash provided by changes in operating assets and liabilities. Net cash used in operating activities was $2,184,894 for the nine months ended September 30, 2021, primarily due to cash used to fund the net loss of $23,900,157 which was partially offset by non-cash expenses of $19,929,696 related primarily to stock-based compensation and $541,424 of cash provided by changes in operating assets and liabilities.

 

Investing Activities

 

Net cash used in investing activities consisted of $10,156,204 of equipment and marketable securities purchases during the nine months ended September 30, 2022. There were no cash flows from investing activities during the nine months ended September 30, 2021.

 

Financing Activities

 

There were no cash flows from financing activities during the nine months ended September 30, 2022.    Net cash provided by financing activities during the nine months ended September 30, 2021 was $250,000, which related entirely to a loan received under the U.S. Small Business Administration’s Paycheck Protection Program.

 

Significant Accounting Policies and Estimates

 

Our significant accounting policies are fully described in the notes to our unaudited condensed consolidated financial statements included herein for the quarter ended September 30, 2022, and in the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 30, 2022 (“Annual Report”). As of September 30, 2022, there were no changes to our critical accounting policies and estimates as disclosed in the Annual Report.

 

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.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such are not required to provide the information under 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.

 

Under the supervision and with the participation of our management, including our principal executive officer and 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, 2022 our management has completed their evaluation and has concluded that our disclosure controls and procedures were not effective, as a result of the material weaknesses in internal control over financial reporting described below, and thus that there remains a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis. Our assessment of internal controls over financial reporting does not include an evaluation by the Company’s registered public accounting firm.

 

Material Weaknesses in Internal Control over Financial Reporting

 

Management assessed the effectiveness of the Company’s internal control over financial reporting as of the quarter ended September 30, 2022 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, 2022 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 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:

 

Lack of adherence to formal policies and procedures;
Lack of risk assessment procedures on internal controls to detect financial reporting risks in a timely manner; and
Lack of sufficient formal procedures and controls to achieve complete and accurate financial reporting and disclosures, including controls over the preparation and review of journal entries and account reconciliations.

 

Management’s Plan to Remediate the Material Weaknesses

 

Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include:

 

Engagement of external financial consulting firm to continue to enhance financial reporting, financial operations and internal controls; and
Documentation of key procedures and controls using a risk-based approach.

 

Management will continue to monitor and evaluate the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

 

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 the three months ended September 30, 2022 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors That May Affect Future Results and Financial Condition” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 30, 2022, which could materially affect our business, financial condition or future results.

 

There were no material changes in the Company’s risk factors from the risks disclosed in the Annual Report.

 

Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds

 

None.

 

Item 6. Exhibits

 

        Incorporated by Reference

Exhibit

Number

  Exhibit Description   Form   Exhibit   Filing Date
                 
3.1   Certificate of Incorporation, as amended   10-K   3.1   3/30/2022
3.2   Certificate of Designation of Preferred Stock (Series B)   8-K   3.1   09/13/2022
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 14, 2022  
   
By: /s/ Robert E. Kristal  
  Robert E. Kristal  
  Chief Financial Officer  
  (Principal Financial Officer)  
Date: November 14, 2022  

 

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