NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – NATURE OF THE ORGANIZATION 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 10 –
Subsequent Events for additional information.
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 March
31, 2020, the Company had an accumulated deficit of approximately $86,121,000 and working capital deficiency of approximately
$18,363,000 For the three months ended March 31, 2020, the Company had a loss from operations of approximately $819,000
and negative cash flows from operations of approximately $449,000. 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.
The
Company believes the following has been able to mitigate the above factors with regards to its ability to continue as a going
concern: (i) as part of its Chapter 11 reorganization approximately $14,700,000 in outstanding debt and other liabilities were
exchanged for (a) shares of common stock, (b) new convertible notes or (c) new convertible notes and warrants to purchase shares
of common stock; (ii) the Company secured DIP financing during its Chapter 11 Case in the amount of $1,189,413 as well as an aggregate
amount of $3,848,548 in debt financing from Auctus and others as part of the Company’s Chapter 11 reorganization, to sustain
operations; and (iii) pursuant to the plan of reorganization, Auctus is required to loan to the Company, as needed and subject
to the Company becoming current in its SEC reporting obligations, an additional amount equal to $3,500,000, less the amount of
Auctus’ DIP financing ($1,226,901, inclusive of accrued interest) and its DIP costs. As a result of the above, the Company
believes it has sufficient cash to fund operations for the twelve months subsequent to the filing date. In addition, the Company
is seeking further funding to commence and complete a Phase 2 clinical study of the use of BRTX-100.
There
is no assurance that these funds will be sufficient to enable the Company to fully complete its development activities or attain
profitable operations. If the Company is unable to obtain such 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 months ended March 31, 2020 and 2019
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 our financial position at such dates and
the operating results and cash flows for such periods. Operating results for the three months ended March 31, 2020 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 financial statements
and related notes should be read in conjunction with the Company’s audited financial statements for the year ended December
31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 18, 2021.
Principles
of Consolidation
The
unaudited condensed consolidated financial statements include include the accounts of the Company and its wholly-owned subsidiary
Stem Pearls. 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, estimated fair value of derivative liabilities stemming from convertible
debt securities, and assumptions used in the Black-Scholes-Merton 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, as 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.
Practical
Expedients
As
part of ASC Topic 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 – all performance obligations related to contracts with
a duration for less than one year, the Company has elected to apply the optional exemption
provided in ASC Topic 60 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 to which the entity
has a right to invoice.
|
Contract
Modifications
There
were no contract modifications during the three months ended March 31, 2020. 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 March 31, 2020 or December 31, 2019.
Accounts
Receivable
Accounts
receivable are reported at their outstanding unpaid principal balances, net of allowances for doubtful accounts. The Company periodically
assesses its accounts and other receivables for collectability on a specific identification basis. The Company provides for allowances
for doubtful receivables 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 March 31, 2020 and December 31, 2019, respectively.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is computed using straight-line method over the estimated useful lives of the
related assets, generally three to fifteen years. Expenditures that enhance the useful lives of the assets are capitalized and
depreciated. Computer equipment costs are capitalized, as incurred, and depreciated on a straight-line basis over a range of 3
– 5 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 charged to expense as incurred. The Company capitalizes cost 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 will be removed from the accounts and the resulting gain or loss, if any, will be reflected
in operations.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing
the forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation
is determined to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by
other long-lived assets of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values,
depending on the nature of the assets. During
the three months ended March 31, 2020 and 2019, the Company did not record a loss on impairment.
Intangible
Assets
The
Company records its intangible assets at cost in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles
– Goodwill and Other. Definite lived intangible assets are amortized over their estimated useful life using the straight-line
method, 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 $22,008 and $15,837
for the three months ended March 31, 2020 and 2019, respectively, and 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,” fair value is the price that would be received to sell
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.
|
See
Note 7 – Derivative Liabilities for additional details regarding the valuation technique and assumptions used in valuing
Level 3 inputs.
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
year. All vested outstanding options and warrants are considered potential common stock. The dilutive effect, if any, of stock
options and warrants 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, and convertible notes have been excluded
from the Company’s computation of net loss per common share for the three months ended March 31, 2020 and 2019.
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 due to the Company’s net loss position even though the exercise price could be less
than the average market price of the common shares:
|
|
Three Months Ended March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Options
|
|
|
4,874,617
|
|
|
|
4,750,868
|
|
Warrants
|
|
|
8,823,490
|
|
|
|
4,601,841
|
|
Convertible notes
|
|
|
20,614,707,544
|
(1)
|
|
|
10,747,471
|
(1)
|
Total
|
|
|
20,628,405,651
|
|
|
|
20,100,180
|
|
(1)
As of March 31, 2020 and 2019, many 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 360,796,730 and 56,462,559 shares of common
stock reserved for future note conversions as of March 31, 2020 and 2019, respectively.
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 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 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.
Since
the shares underlying the Company’s 2010 Equity Participation Plan (the “Plan”) are registered, the Company
estimates the fair value of the awards granted under the Plan based on the market value of its freely tradable common stock as
reported on the OTC Markets. 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 March 31, 2020 and December
31, 2019, 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 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.
The 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.
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 of over 12 months to be recognized on the balance sheet with the liability for lease payments and the 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 a 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). This standard, which the Company adopted on January
1, 2019, was applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest
comparative period presented in the unaudited condensed consolidated financial statements. The adoption of ASU 2016 - 02 did not
have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures.
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. On January 1, 2019, the Company adopted ASC 842 and it primarily affected the accounting
treatment for operating lease agreements in which the Company is the lessee.
In
accordance with ASC 842, Leases, the Company recognized an ROU asset and corresponding lease liability on its balance sheets
for its office space lease agreement. See Note 9 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 may include options to extend
or terminate the lease if it is reasonably certain that the Company will exercise that option.
Leases
in which the Company is the lessee are comprised of office rental. All of the leases are classified as operating leases. The Company
has a lease agreement for office space with a remaining term of 4.75 years as of March 31, 2020.
Recently
Issued Accounting Standards
In
January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which eliminated the calculation of implied goodwill fair value. Instead, companies will record an impairment charge
based on the excess of a reporting unit’s carrying amount of goodwill over its fair value. This guidance simplifies the
accounting as compared to prior GAAP. The guidance is effective for fiscal years beginning after December 15, 2019. This standard,
adopted as of January 1, 2020, had no material impact on the Company’s unaudited condensed consolidated financial statements.
All
newly issued but not yet effective accounting pronouncements have been deemed to be not applicable or immaterial to the Company.
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, 2019
|
|
$
|
3,676
|
|
|
$
|
1,301,500
|
|
|
$
|
(491,117
|
)
|
|
$
|
814,059
|
|
Amortization expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(74,895
|
)
|
|
|
(74,895
|
)
|
Balance as of December 31, 2019
|
|
|
3,676
|
|
|
|
1,301,500
|
|
|
|
(566,012
|
)
|
|
|
739,164
|
|
Amortization expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(18,724
|
)
|
|
|
(18,724
|
)
|
Balance as of March 31, 2020
|
|
$
|
3,676
|
|
|
$
|
1,301,500
|
|
|
$
|
(584,736
|
)
|
|
$
|
720,440
|
|
Weighted average remaining amortization period at March 31, 2020 (in years)
|
|
|
0.75
|
|
|
|
9.65
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible assets consists of the following:
|
|
Patents and Trademarks
|
|
|
Licenses
|
|
|
Accumulated Amortization
|
|
Balance as of January 1, 2019
|
|
$
|
2,944
|
|
|
$
|
488,173
|
|
|
$
|
491,117
|
|
Amortization expense
|
|
|
368
|
|
|
|
74,527
|
|
|
|
74,895
|
|
Balance as of December 31, 2019
|
|
|
3,312
|
|
|
|
562,700
|
|
|
|
566,012
|
|
Amortization expense
|
|
|
92
|
|
|
|
18,632
|
|
|
|
18,724
|
|
Balance as of March 31, 2020
|
|
$
|
3,404
|
|
|
$
|
581,332
|
|
|
$
|
584,736
|
|
NOTE
4 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
expenses and other current liabilities consist of:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Accrued payroll
|
|
$
|
178,305
|
|
|
$
|
152,308
|
|
Accrued research and development expenses
|
|
|
806,175
|
|
|
|
806,175
|
|
Accrued general and administrative expenses
|
|
|
1,325,695
|
|
|
|
1,392,743
|
|
Accrued director compensation
|
|
|
557,500
|
|
|
|
557,500
|
|
Accrued rent
|
|
|
50,875
|
|
|
|
12,438
|
|
Total accrued expenses
|
|
$
|
2,918,550
|
|
|
$
|
2,921,164
|
|
NOTE
5 – NOTES PAYABLE
A
summary of the notes payable activity during the three months ended March 31, 2020 is presented below:
|
|
Related Party Notes
|
|
|
Convertible Notes
|
|
|
Other Notes
|
|
|
Debt Discount
|
|
|
Total
|
|
Outstanding, January 1, 2020
|
|
$
|
1,285,000
|
|
|
$
|
6,768,326
|
|
|
$
|
340,000
|
|
|
$
|
(1,247,420
|
)
|
|
$
|
7,145,906
|
|
Issuances
|
|
|
353,762
|
|
|
|
88,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
441,762
|
|
Third-party purchases
|
|
|
(287,041
|
)
|
|
|
287,041
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exchanges for equity
|
|
|
-
|
|
|
|
(813,393
|
)
|
|
|
-
|
|
|
|
253,654
|
|
|
|
(559,739
|
)
|
Conversions to equity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Repayments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Extinguishment of notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Recognition of debt discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,958,796
|
)
|
|
|
(2,958,796
|
)
|
Accretion of interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,886,036
|
|
|
|
2,886,036
|
|
Amortization of debt discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,066,526
|
|
|
|
1,066,526
|
|
Outstanding, March 31, 2020
|
|
$
|
1,351,721
|
|
|
$
|
6,329,974
|
|
|
$
|
340,000
|
|
|
$
|
-
|
|
|
$
|
8,021,695
|
|
Related
Party Notes
As
of March 31, 2020 and December 31, 2019, related party notes consisted of notes payable issued to certain directors of the Company,
family members of an officer of the Company, and the Tuxis Trust (the “Trust”). A former director and principal stockholder
of the Company (the “Director/Principal Stockholder”) serves as a trustee of the Trust, which was established for
the benefit of his immediate family.
During
the three months ended March 31, 2020, the Company issued to a former board member notes payable in the aggregate principal amount
of $353,762, which bore interest at the rate of 12% per annum and provided for original maturity date of March 10, 2020. As of
March 31, 2020, these notes are in default. Subsequent to March 31, 2020, pursuant to the Bankruptcy (See Note 10 - Subsequent
Events), these notes were exchanged for a Secured Convertible Note in a principal amount of $490,698.
Convertible
Notes
Issuances
During
the three months ended March 31, 2020, the Company issued to a certain lender a convertible note payable in the principal amount
of $88,000 for aggregate cash proceeds of $85,000 The difference was recorded as a debt discount and will be amortized over the
term of the note. The convertible note bore interest at 10% per annum payable at maturity with an original maturity date of January
31, 2021. The outstanding principal and accrued interest was convertible after 180 days at a conversion price of 61% of the lowest
daily volume weighted average price over the twenty days prior to the conversion date. The convertible note contained a cross-default
provision and was in default as of March 31, 2020. As a result, the convertible note bore a default interest of 22% per annum.
Subsequent to March 31, 2020, pursuant to the Bankruptcy (see Note 10 - Subsequent Events), the convertible note, in the aggregate
amount of $155,000 (including principal and accrued interest), was exchanged for 15,500,000 chares of the Company’s common
stock. See below within Note 7- Derivative Liabilities for additional details regarding the ECO of the convertible note.
Embedded
Conversion Options and Note Provisions
As
of March 31, 2020, outstanding convertible notes in the aggregate principal amount of $5,611,168 were convertible into shares
of common stock of the Company as follows: (i) $911,485 of aggregate principal amount of convertible notes were convertible at
a fixed price ranging from $0.25 to $2.00 per share for the first six months following the respective issue date, and thereafter
at a conversion price generally equal to 58% of the fair value of the Company’s stock, subject to adjustment, until the
respective note had been paid in full, (ii) $4,096,724 of aggregate principal amount of convertible notes were convertible generally
at a range of 58% to 65% of the fair value of the Company’s stock, subject to adjustment, depending on the note, and (iii)
$602,959 of aggregate principal amount of convertible notes were convertible into shares of common stock of the Company at a conversion
price ranging from $0.50 to $0.60 per share, subject to adjustment, and five-year warrants to purchase common stock of the Company
in the same ratio. The warrants provide for an exercise price ranging from $0.75 to $0.80 per share, subject to adjustment. Convertible
notes in the aggregate principal amount of $340,000 provided for a mandatory conversion into common stock of the Company and warrants
to purchase common stock of the Company in the same ratio upon the completion of an underwritten public offering by the Company
of its securities whereby the conversion price was to be equal to the lower of the respective original conversion terms, or 75%
of the offering price for the shares of common stock of the Company, or units of shares of common stock of the Company and warrants,
as the case may be, sold pursuant to the public offering. The Company analyzes the ECOs of its convertible notes at issuance to
determine whether the ECO should be bifurcated and accounted for as a derivative liability or if the ECO contains a beneficial
conversion feature. See below within this Note 5 – Notes Payable – Convertible Notes – Embedded Conversion Options
and Note Provisions and Note 7 – Derivative Liabilities for additional details regarding the ECOs of the convertible notes.
As
of March 31, 2020, a portion of convertible notes with an aggregate principal balance of $1,386,500, which were not yet convertible,
were to become convertible into shares of the Company’s common stock subsequent to March 31, 2020 at a conversion price
generally equal to 58% of the fair value of the Company’s stock, subject to adjustment, until the respective notes had been
paid in full.
As
of March 31, 2020, outstanding convertible notes in the aggregate principal amount of $1,263,750 had prepayment premiums, whereby,
in the event that the Company elected to prepay certain notes during the one hundred eighty-day period following the issue date,
the respective holder was entitled to receive a prepayment premium of up to 135%, depending on the note, on the then outstanding
principal balance including accrued interest.
As
of March 31, 2020, outstanding convertible notes in the aggregate principal amount of $4,324,882 had most favored nation (“MFN”)
provisions, whereby, so long as such respective note was outstanding, upon any issuance by the Company of any security with certain
identified provisions more favorable to the holder of such security, then at the respective holder’s option, those more
favorable terms were to become a part of the transaction documents with the holder. As of March 31, 2020, notes with applicable
MFN provisions were convertible using MFN conversion prices equal to 58% of the fair market value of the Company’s stock,
as defined.
During
the three months ended March 31, 2020, the Company determined that certain ECOs of issued or extended convertible notes were derivative
liabilities. The aggregate issuance date value of the bifurcated ECOs was $2,493,531, of which $2,377,818 was recorded as a debt
discount and is being amortized over the terms of the respective convertible notes. As of March 31, 2020, outstanding notes totaling
$4,201,019 were in default. See Note 7 – Derivative Liabilities for additional details.
The
conversion rights discussed above were subject to the Company’s Chapter 11 reorganization discussed below.
Conversions,
Exchanges and Other
During
the three months ended March 31, 2020, the Company and certain lenders exchanged convertible notes with bifurcated ECOs with an
aggegate net carrying amount of $1,580,587 (including an aggregate of $523,516 of principal less debt discount of $234,301, $126,043
of accrued interest and $1,165,329 related to the separated ECOs accounted for as derivative liabilities) for an aggregate of
1,515,799,750 shares of the Company’s common stock at conversion prices ranging from $0.0001 and $0.01 per share. In addition,
prior to the Petition Date, certain lenders intended to exchange outstanding debt (inclusive of accrued interest) for shares of
the Company’s common stock; however, the Company did not have sufficient shares authorized or reserved to effect the exchanges.
As such, the outstanding debt was exchanged as part of the Plan at a rate of 100 shares for each dollar of the allowable claim
at the Effective Date.
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. Pursuant to the Bankruptcy (see Note 10 – Subsequent
Events), 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 reorganization, pursuant to ASC 852, Reorganizations, the
Company has recorded all prepetition liabilities at the expected allowable claim amounts as of March 31, 2020. This resulted in
the Company amortizing the remaining debt discount of $2,583,107 to interest expense on the unaudited condensed consolidated statements
of operations.
NOTE
6 – Stockholders’ DEFICIT
Authorized
Capital
Subsequent
to March 31, 2020 and pursuant to the Chapter 11 plan of reorganization (see Note 10 - Subsequent Events), 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 its common
stock has been reduced to $0.0001 per share. The effect of the change in par value has been reflected in the statement of changes
in stockholders’ deficit for the three months ended March 31, 2020 and 2019.
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.
Common
Stock and Warrant Offering
During
the three months ended March 31, 2020, the Company issued 1,000,000 shares of the Company’s common stock and a five-year
immediately vested warrant for the purchase of 1,000,000 shares of the Company’s common stock with an exercise price of
$0.015 per share to a certain investor for gross proceeds of $10,000. The warrants had an aggregate grant date fair value of $10,000.
The warrants were subject to the Company’s sequencing policy and, as a result, were initially recorded as derivative liabilities.
See Note 7 - Derivative Liabilities for additional details.
Warrant
Activity Summary
In
applying the Black-Scholes option pricing model to warrants granted or issued, the Company used the following assumptions:
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Risk free interest rate
|
|
|
1.63
|
%
|
|
|
2.47% - 2.62
|
%
|
Contractual term (years)
|
|
|
5.00
|
|
|
|
1.00 - 5.00
|
|
Expected volatility
|
|
|
202
|
%
|
|
|
140% - 150
|
%
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The
weighted average estimated fair value of the warrants granted during the three months ended March 31, 2020 and 2019 was approximately
$0.01 and $0.51 per share, respectively.
A
summary of the warrant activity during the three months ended March 31, 2020 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
In Years
|
|
|
Value
|
|
Outstanding, January 1, 2020
|
|
|
8,379,177
|
|
|
$
|
1.43
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,000,000
|
|
|
|
0.015
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(555,687
|
)
|
|
|
1.06
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2020
|
|
|
8,823,490
|
|
|
$
|
1.29
|
|
|
|
3.5
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2020
|
|
|
8,823,490
|
|
|
$
|
1.29
|
|
|
|
3.5
|
|
|
$
|
-
|
|
The
following table presents information related to stock warrants at March 31, 2020:
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Exercisable
|
|
Exercise
|
|
|
Number of
|
|
|
Remaining Life
|
|
|
Number of
|
|
Price
|
|
|
Warrants
|
|
|
In Years
|
|
|
Warrants
|
|
|
$0.00 - $0.015
|
|
|
|
1,000,000
|
|
|
|
4.8
|
|
|
|
1,000,000
|
|
|
$0.20 - $1.99
|
|
|
|
5,662,301
|
|
|
|
3.8
|
|
|
|
5,662,301
|
|
|
$2.00 - $2.99
|
|
|
|
75,000
|
|
|
|
3.6
|
|
|
|
75,000
|
|
|
$3.00 - $3.99
|
|
|
|
70,000
|
|
|
|
3.3
|
|
|
|
70,000
|
|
|
$4.00 - $4.99
|
|
|
|
1,759,976
|
|
|
|
1.4
|
|
|
|
1,759,976
|
|
|
$5.00 - $5.99
|
|
|
|
182,667
|
|
|
|
1.2
|
|
|
|
182,667
|
|
|
$6.00 - $7.99
|
|
|
|
40,000
|
|
|
|
0.3
|
|
|
|
40,000
|
|
|
$10.00 - $15.00
|
|
|
|
33,546
|
|
|
|
0.2
|
|
|
|
33,546
|
|
|
|
|
|
|
8,823,490
|
|
|
|
3.5
|
|
|
|
8,823,490
|
|
Stock
Options
In
applying the Black-Scholes option pricing model to stock options granted, the Company used the following assumptions:
|
|
|
For the Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
Risk free interest rate
|
|
|
-
|
%
|
|
|
2.21% - 2.62
|
%
|
Expected term (years)
|
|
|
-
|
|
|
|
0.07 – 5.00
|
|
Expected volatility
|
|
|
-
|
%
|
|
|
104% - 156
|
%
|
The
Company did not issue stock options during the three months ended March 31, 2020.
The
weighted average estimated fair value of the stock options granted during the three months ended March 31, 2019 was approximately $44,247
per share.
A
summary of the option activity during the three months ended March 31, 2020 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
In Years
|
|
|
Value
|
|
Outstanding, January 1, 2020
|
|
|
4,879,617
|
|
|
$
|
0.99
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5,000
|
)
|
|
|
3.71
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2020
|
|
|
4,874,617
|
|
|
$
|
0.98
|
|
|
|
6.9
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2020
|
|
|
4,063,292
|
|
|
$
|
1.03
|
|
|
|
6.6
|
|
|
$
|
-
|
|
The
following table presents information related to stock options at March 31, 2020:
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Exercisable
|
|
Exercise
|
|
|
Number of
|
|
|
Remaining Life
|
|
|
Number of
|
|
Price
|
|
|
Options
|
|
|
In Years
|
|
|
Options
|
|
|
$0.26 - $0.74
|
|
|
|
175,000
|
|
|
|
9.4
|
|
|
|
175,000
|
|
|
$0.75 - $0.99
|
|
|
|
4,622,117
|
|
|
|
6.6
|
|
|
|
3,810,791
|
|
|
$1.00 - $5.99
|
|
|
|
5,000
|
|
|
|
4.2
|
|
|
|
5,000
|
|
|
$6.00 - $19.99
|
|
|
|
37,500
|
|
|
|
3.8
|
|
|
|
37,500
|
|
|
$20.00 - $30.00
|
|
|
|
35,000
|
|
|
|
2.0
|
|
|
|
35,000
|
|
|
|
|
|
|
4,874,617
|
|
|
|
6.6
|
|
|
|
4,063,291
|
|
The
following table presents information related to stock option expense:
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
|
For the Three Months Ended
|
|
|
Unrecognized at
|
|
|
Amortization
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
Period
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
(Years)
|
|
Consulting
|
|
$
|
34,012
|
|
|
$
|
296,081
|
|
|
$
|
79,358
|
|
|
|
0.6
|
|
Research and development
|
|
|
60,104
|
|
|
|
149,794
|
|
|
|
203,679
|
|
|
|
1.3
|
|
General and administrative
|
|
|
127,765
|
|
|
|
283,802
|
|
|
|
290,000
|
|
|
|
0.6
|
|
|
|
$
|
221,881
|
|
|
$
|
729,677
|
|
|
$
|
573,037
|
|
|
|
0.9
|
|
NOTE
7 – DERIVATIVE LIABILITIES
The
following table sets forth a summary of the changes in the fair value of Level 3 derivative liabilities that are measured at fair
value on a recurring basis:
Beginning balance as of January 1, 2020
|
|
$
|
915,959
|
|
Issuance of derivative liabilities
|
|
|
2,483,532
|
|
Extinguishment of derivative liabilities in connection with convertible note repayments and exchanges
|
|
|
(1,165,329
|
)
|
Change in fair value of derivative liabilities
|
|
|
2,141,069
|
|
Reclassification of derivative liabilities to equity
|
|
|
-
|
|
Beginning balance as of March 31, 2020
|
|
$
|
4,375,231
|
|
In
applying the Multinomial Lattice and Black-Scholes option pricing models to derivatives issued and outstanding during the three
months ended March 31, 2020 and 2019, the Company used the following assumptions:
|
|
For the Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Risk free interest rate
|
|
|
0.06% - 2.16%
|
|
|
|
2.21% - 2.62%
|
|
Expected term (years)
|
|
|
0.02 – 5.00
|
|
|
|
0.07 – 5.00
|
|
Expected volatility
|
|
|
54% - 163%
|
|
|
|
104% - 156%
|
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
During
the three months ended March 31, 2020, the Company recorded new derivative liabilities in the aggregate amount of $2,473,532 and
$10,000 related to the ECOs of certain convertible notes payable and warrants subject to sequencing, respectively. See Note 5
– Notes Payable – Convertible Notes for additional details. See Note 6 – Stockholders’ Deficit for warrants
issued and deemed to be derivative liabilities.
During
the three months ended March 31, 2020, the Company extinguished an aggregate of $1,165,329 of derivative liabilities in connection
with the exchanges of certain convertible notes payable into shares of the Company’s common stock. See Note 5 – Notes
Payable – Conversions, Exchanges and Other for additional details.
On
March 31, 2020, the Company recomputed the fair value of ECOs recorded as derivative liabilities to be $4,375,231. The Company
recorded a loss on the change in fair value of these derivative liabilities of $2,141,069 for the three months ended March 31,
2020.
On
March 31, 2020, the Company recomputed the fair value of the derivative liabilities related to outstanding warrants to be $-.
These warrants are either redeemable for cash equal to the Black-Scholes value, as defined, at the election of the warrant holder
upon a fundamental transaction pursuant to the warrant terms or were issued subsequent to the commencement of sequencing. The
Company did not record a gain or loss on the change in fair value of these derivative liabilities for the three months ended March
31, 2020.
Note
8 - COMMITMENTS AND CONTINGENCIES
Operating
Lease
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. Rent expense for the Melville office was $- and $30,000 for the three months ended March
31, 2020 and 2019, respectively. See Note 9 – Leases for additional detail.
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 this Note 13 under “Chapter 11 Reorganization,”
on March 20, 2020, the Company filed a petition commencing its Chapter 1 Case. As of the date of this report, the Company has
not effected the reverse split.
The
Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements.
Bonus
Accruals
As
of March 31, 2020 and December 31, 2019, the Company had remaining accruals of approximately $0 and $27,000, respectively, for
bonus milestones which were achieved in prior years and remain unpaid.
Appointment
or Departure of Directors and Certain Officers
The
Company and Mark Weinreb, its former Chief Executive Officer (“ Former CEO”), were parties to an employment agreement
that, as amended, was to expire on December 31, 2019. Pursuant to the employment agreement, as amended, in the event that (a)
the Former CEO’s employment was terminated by the Company without cause, or (b) the Former CEO terminated his employment
for “good reason” (each as defined in the employment agreement), or (c) the term of the Former CEO’s employment
agreement was not extended beyond December 31, 2019 and within three months of such expiration date, his employment was terminated
by the Company without “cause” or the Former CEO terminated his employment for any reason, the Former CEO was to be
entitled to receive severance in an amount equal to his then annual base salary and certain benefits, plus $100,000 (in lieu of
bonus). Further, in the event that the Former CEO’s employment was terminated by the Company without cause, or the Former
CEO terminated his employment for “good reason”, following a “change in control” (as defined in the employment
agreement), the Former CEO would be entitled to receive severance in an amount equal to one and one-half times his then annual
base salary and certain benefits, plus $300,000 (in lieu of bonus). Additionally, as part of the amended employment agreement,
the Former CEO was entitled to new performance-based cash bonuses payable for the years ending December 31, 2018 and 2019, such
that an aggregate of up to 50% of the Former CEO’s then annual base salary per annum could be earned for such year pursuant
to the satisfaction of such goals. The Former CEO resigned his employment with the Company on November 16, 2020, the effective
date of the Chapter 11 reorganization. Based upon such termination of employment, the Former CEO was entitled to receive his severance
of $400,000 and certain benefits plus $100,000, and the option accelerations as discussed above. The severance amount was generally
considered an unsecured claim in the Company’s Chapter 11 Case and the Former CEO received shares of the Company’s
common stock in exchange for such claim in a manner consistent with other unsecured creditors.
On
March 16, 2020, the Company and Mark Weinreb, its Chief Executive Officer, entered into an agreement pursuant to which, among
other matters, the term of his employment agreement with the Company was extended to the earlier of (i) September 30, 2020 or
(ii) the effective date of a plan of liquidation of the Company.
Conversion
of Convertible Notes
During
the three months ended March 31, 2020, 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
uneffected 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.
Note
9 - 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.
On
August 1, 2019, the Company recognized ROU assets and lease liabilities of $638,246. The Company elected to not recognize ROU
assets and lease liabilities arising from short-term office leases (leases with initial terms of twelve months or less, which
are deemed immaterial) on the balance sheets. On June 1, 2019, the Company exercised its right to extend its existing lease of
office space for an additional five years.
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%.
The
following table presents net lease cost and other supplemental lease information:
|
|
Three Months Ended March 31, 2020
|
|
Lease cost
|
|
|
|
|
Operating lease cost (cost resulting from lease payments)
|
|
$
|
38,437
|
|
Short term lease cost
|
|
|
-
|
|
Sublease income
|
|
|
-
|
|
Net lease cost
|
|
$
|
38,437
|
|
|
|
|
|
|
Operating lease – operating cash flows (fixed payments)
|
|
$
|
38,437
|
|
Operating lease – operating cash flows (liability reduction)
|
|
$
|
20,419
|
|
Non-current leases – right of use assets
|
|
$
|
560,883
|
|
Current liabilities – operating lease liabilities
|
|
$
|
89,222
|
|
Non-current liabilities – operating lease liabilities
|
|
$
|
497,714
|
|
Future
minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases following the three months
ended March 31, 2020:
Fiscal Year
|
|
Operating Leases
|
|
Remainder of 2020
|
|
$
|
115,311
|
|
2021
|
|
|
158,372
|
|
2022
|
|
|
163,132
|
|
2023
|
|
|
168,028
|
|
2024
|
|
|
173,060
|
|
Total future minimum lease payments
|
|
|
777,903
|
|
Amount representing interest
|
|
|
(190,967
|
)
|
Present value of net future minimum lease payments
|
|
$
|
586,936
|
|
Note
10 – SUBSEQUENT EVENTS
Chapter
11 Reorganization
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.
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”). 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:
|
|
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 $0.0005 (a total of 7,000,000,000
Class A Warrants in consideration of the Initial Auctus Funding and a total of approximately
697,000,000 Class A Warrants in the aggregate in consideration of the Other Funding),
such Class A Warrants having an exercise price of $0.0005 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 $0.001 (a total of 3,500,000,000 Class B Warrants in consideration
of the Initial Auctus Funding and a total of approximately 348,500,000 Class B Warrants
in the aggregate in consideration of the Other Funding), such Class B Warrants having
an exercise price of $0.001 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% DIP
Funding);
|
|
b.
|
A
Class A Warrant to purchase 2,453,802,480 shares of common stock; and
|
|
c.
|
A
Class B Warrant to purchase 1,226,901,240 shares of common stock (as to which 382,226,703
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 361,176,200 shares of common
stock).
|
In
addition, Auctus shall be entitled to receive a Secured Convertible Note, a Class A Warrant and a Class B Warrant in exchange
for its allowed DIP Costs and allowed Plan costs in a manner in which the DIP Funding was treated.
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 $320,200.49 and $33,561.50, respectively, issued to John Desmarais (“Desmarais”) (collectively,
the “Desmarais Notes”), was treated as an allowed secured claim in the aggregate amount of $490,698.81 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 $245,191.78 and was satisfied and exchanged for 24,519,200 shares
of common stock.
|
|
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.
|
$444,534,43
was treated as an allowed general unsecured claim in such amount and exchanged for 44,453,400
shares of common stock; and
|
|
b.
|
$309,301.19
was treated as an allowed secured claim in such amount and exchanged for a Secured Convertible
Note in such amount.
|
|
vi.
|
Holders
of allowed general unsecured claims (other than Auctus and the Other Lenders) received
an aggregate of 1,049,726,797 shares of common stock (in book entry form) in exchange
for approximately $10,497,268 in 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.
Debtor-in-Possession
Financing
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.
The
maturity date of the DIP Funding was to be the earliest to occur of (a) July 6, 2020; (b) ten days following entry of an order
confirming a chapter 11 plan in the Chapter 11 Case; (c) ten days following the entry of an order approving the sale of the Company
or the Company’s assets; or (d) the occurrence of an event of default under the promissory note evidencing the DIP Funding
(the “DIP Note”) following any applicable grace or cure periods.
Interest
on the outstanding principal amount of the DIP Note was to be payable in arrears on the maturity date at the rate of 8% per annum.
Upon the occurrence and during the continuance of an event of default, all obligations under the DIP Note were to bear interest
at a rate equal to the then current rate plus an additional 2% per annum.
As
discussed above, pursuant to the Plan, the obligation to Auctus with respect to the DIP Funding has been exchanged for a Second
Convertible Note.
Appointment
or Departure of Directors and Certain Officers
On
November 16, 2020, as contemplated by the Plan, Mr. Weinreb, A. Jeffrey Radov, Paul Jude Tonna and Robert B. Catell resigned as
directors of the Company and Mr. Weinreb resigned as the Company’s President, Chief Executive Officer and Chairman of the
Board.
Effective
as of the Effective Date, as contemplated by the Plan, Lance Alstodt was elected President, Chief Executive Officer, Chairman
of the Board and a director of the Company and Francisco Silva, the Company’s Vice President, Research and Development,
was elected a director of the Company.
On
March 18, 2021, Nickolay Kukekov was elected a director of the Company.
On
March 18, 2021, the Company’s Board of Directors adopted the BioRestorative Therapies, Inc. 2021 Stock Incentive Plan (the
“Plan”). Pursuant to the Plan, a total of 4,700,000,000 shares of common stock are authorized to be issued pursuant
to the grant of stock options, restricted stock units, restricted stock and stock appreciation rights.
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
Plan of (i) a ten year option for the purchase of 1,173,917,974 shares of common stock of the Company and (ii) 586,958,987 restricted
stock units of the Company (“RSUs”).
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 Plan of (i) a ten year option for the
purchase of 1,173,917,974 shares of common stock of the Company and (ii) 586,958,987 RSUs.