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 months ended March 31, 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. At March 31, 2022,
the Company had an accumulated deficit of $138,962,278
and working capital surplus of $19,384,971.
For the three months ended March 31, 2022, the Company
had a loss from operations of $5,053,793
(of which, $3,375,903
was attributable to non-cash stock-based compensation)
and negative cash flows from operations of $1,594,634.
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 2022, 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.
The
Company believes the following has been able to mitigate the above factors with regard to its ability to continue as a going concern:
on November 9, 2021, the Company received net proceeds of approximately $21,073,000 from its public offering. As a result of the above,
and cash on hand of $19,322,520 as of March 31, 2022, the Company believes it has sufficient cash to fund operations for the twelve months
subsequent to the filing date.
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 months ended March 31, 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 months ended March 31, 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.
Principles
of Consolidation
The
unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary Stem Pearls.
Intercompany accounts and transactions have been eliminated upon consolidation.
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 divided rate.
Revenue
The
Company derives all of its revenue pursuant to a license agreement between the Company and a stem cell treatment company (“SCTC”)
entered into in January 2012 and amended in November 2015. Pursuant to the license agreement, the SCTC granted to the Company a license
to use certain intellectual property related to, among other things, stem cell disc procedures, and the Company has granted to the SCTC
a sublicense to use, and the right to sublicense to third parties the right to use, in certain locations in the United States and the
Cayman Islands, certain of the licensed intellectual property. In consideration of the sublicenses, the SCTC has agreed to pay the Company
royalties on a per disc procedure basis.
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 which is not separately
identifiable from other promises in the contracts and is, therefore, not distinct. 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 March 31, 2022 and 2021, the Company
recognized $16,000 and $18,000, respectively, of revenue related to the Company’s sublicenses.
Contract
Modifications
There
were no contract modifications during the three months ended March 31, 2022. 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, 2022 or December 31, 2021.
Accounts
Receivable
Accounts
receivable are reported at their outstanding unpaid principal balances, net of allowances for doubtful accounts. The Company periodically
assesses its accounts receivable and other receivables for collectability on a specific identification basis. The Company provides for
allowances for doubtful accounts based on management’s estimate of uncollectible amounts considering age, collection history, and
any other factors considered appropriate. Payments are generally due within 30 days of invoice. The Company writes off accounts receivable
against the allowance for doubtful accounts when a balance is determined to be uncollectible. The Company did not record an allowance
for doubtful accounts as of March 31, 2022 or December 31, 2021.
Property
and Equipment
Property
and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related
assets, generally 3 – 15 years. Expenditures that enhance the useful lives of assets are capitalized and depreciated. Computer
equipment costs are capitalized as incurred and depreciated on a straight-line basis over a range of 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 expensed as incurred. The Company capitalizes costs attributable to the betterment of property and equipment when such betterment
extends the useful life of the assets. At the time of retirement or other disposition of property and equipment, the cost and accumulated
depreciation are removed from the accounts, and the resulting gain or loss, if any, will be reflected in operations.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or circumstances indicate
that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the carrying
amount to the forecasted undiscounted net cash flows of the operation to which the assets relate. If the operation is determined to be
unable to recover the carrying amount of its assets, then these assets are written down to fair value first, followed by other long-lived
assets of the operation. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the
assets. During the three months ended March 31, 2022
and 2021, the Company determined that there was no impairment charge for intangible assets.
Intangible
Assets
The
Company records its intangible assets at cost in accordance with ASC 350, Intangibles – Goodwill and Other. Definite-lived
intangible assets are amortized using the straight-line method over their estimated useful life, which is determined by identifying the
period over which the cash flows from the asset are expected to be generated.
Advertising
and Marketing Costs
The
Company expenses advertising and marketing costs as they are incurred. Advertising and marketing expenses were $469 and $2,600 for the
three months ended March 31, 2022 and 2021, respectively. Advertising and marketing expenses are recorded in marketing and promotion
on the unaudited condensed consolidated statements of operations.
Fair
Value Measurements
As
defined in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), fair value is the price that would be received
for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).
The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions
about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated,
or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and
the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent
measurement.
Level
1: |
Quoted
prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in
which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing
basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed
equities. |
|
|
Level
2: |
Pricing
inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as
of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies.
These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities,
time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant
economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument,
can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options
and collars. |
|
|
Level
3: |
Pricing
inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally-developed
methodologies that result in management’s best estimate of fair value. |
Fair
Value of Financial Instruments
The
carrying value of cash, accounts receivable, accounts payable and accrued expenses, and other current liabilities approximate their fair
values based on the short-term maturity of these instruments.
Net
Loss per Common Share
Net
loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
All vested outstanding options and warrants are considered potential common stock. The dilutive effect, if any, of stock options, warrants,
and unvested restricted stock units (“RSUs”) are calculated using the treasury stock method. All outstanding convertible
notes are considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method.
Since the effect of common stock equivalents is anti-dilutive with respect to losses, options, warrants, RSUs and convertible notes have
been excluded from the Company’s computation of net loss per common share for the three months ended March 31, 2022 and 2021.
The
following table summarizes the securities that were excluded from the diluted loss per share calculation because the effect of including
these potential shares was antidilutive:
SCHEDULE OF WEIGHTED AVERAGE DILUTIVE COMMON SHARES
| |
Three Months Ended | |
| |
March 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Options | |
| 864,611 | | |
| 588,174 | |
Warrants | |
| 4,739,765 | | |
| 3,672,265 | |
Unvested RSUs | |
| 220,527 | | |
| 293,479 | |
Convertible notes – common stock | |
| - | | |
| 201,082 | (1) |
Total | |
| 5,824,903 | | |
| 4,755,000 | |
| (1) | As
of March 31, 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 1,519,645 shares of common stock reserved for future note conversions as of March
31, 2021. |
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.
Grant
income
Funding
received under research grants for reimbursement of research and development expenses is recorded as grant income in the other (income)
expense section of the condensed consolidated statements of operations.
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, 2022 and December 31, 2021, 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.
Leases
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, Leases (“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, the Company recognized a right-of-use (“ROU”) asset and corresponding lease liability on its balance
sheets for its office space lease agreement. See Note 8 - Leases for further discussion, including the impact on the Company’s
financial statements and related disclosures.
ROU
assets include any initial direct costs and prepaid lease payments and exclude any lease incentives. 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. The Company has a lease agreement for office space with a remaining
term of 2.75 years as of March 31, 2022.
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.
Intangible
assets consist of the following:
SCHEDULE
OF FINITE LIVED INTANGIBLE ASSETS
| |
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 | |
| - | | |
| - | | |
| (18,631 | ) | |
| (18,631 | ) |
Balance as of March 31, 2022 | |
$ | 3,676 | | |
$ | 1,301,500 | | |
$ | (734,067 | ) | |
$ | 571,109 | |
Weighted average remaining amortization period at March 31, 2022 (in years) | |
| - | | |
| 7.68 | | |
| | | |
| | |
Accumulated
amortization of intangible assets consists of the following:
SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS AMORTIZATION EXPENSES
| |
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 | |
| - | | |
| 18,631 | | |
| 18,631 | |
Balance as of March 31, 2022 | |
$ | 3,676 | | |
$ | 730,391 | | |
$ | 734,067 | |
NOTE
4 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
expenses and other current liabilities consist of:
SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| |
March 31, 2022 | | |
December
31,2021 | |
| |
| | |
| |
Accrued payroll | |
$ | 26,250 | | |
$ | 28,370 | |
Accrued research and development expenses | |
| - | | |
| 29,672 | |
Accrued general and administrative expenses | |
| 129,787 | | |
| 76,928 | |
Total accrued expenses | |
$ | 156,037 | | |
$ | 134,970 | |
NOTE
5 – NOTES PAYABLE
A
summary of the notes payable activity during the three months ended March 31, 2022 is presented below:
SCHEDULE OF NOTES PAYABLE ACTIVITY
| |
PPP Loan | |
Outstanding, January 1, 2022 | |
$ | 250,000 | |
Issuances | |
| - | |
Forgiveness | |
| (250,000 | ) |
Outstanding, March 31, 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
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 of and issuance of 1,543,458 shares of the Company’s Preferred Stock, $.01 par value per share,
designated as Series A Preferred Stock (“Series A”). The Series A has a liquidation preference of $0.001 per share.
Dividends
Series
A holders shall be entitled to receive, when and as declared by the Board of Directors, dividends on a pari passu basis with the holders
of the shares of the Company’s common stock based upon the number of shares of common stock into which the Series A is then convertible.
Voting
Rights
Series
A holders shall be entitled to vote on all matters presented to the stockholders of the Company and shall be entitled to such number
of votes that equal the number of shares of common stock into which each share of Series A held may be converted; provided, however,
that in no event shall a Series A holder be entitled to vote more than 4.99% of the then outstanding shares of common stock.
Conversion
Optional
Conversion - Each share of Series A shall be convertible, at any time, at the option of the Series A holder, into one share of common
stock; provided, however, that in no event shall a Series A holder be entitled to convert any shares of Series A to the extent that such
conversion would result in beneficial ownership by the Series A holder of more than 4.99% of the outstanding shares of common stock.
Automatic
Conversion – If an event occurs which has the effect of reducing a Series A holder’s beneficial ownership of shares of common
stock to less than 4.5% of the then publicly disclosed outstanding shares of common stock, then, within five business days thereafter,
the Series A holder shall provide notice to the Company to such effect. Such notice shall have the effect of a notice of conversion such
that the Series A holder’s post-conversion ownership of common stock will be 4.99% of the then publicly disclosed outstanding shares
of common stock.
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 are 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 March 31, 2022,
based on stock option and restricted stock units currently outstanding under the 2021 Plan, no shares remain available for future grant
under the 2021 Plan.
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 three months ended March 31, 2022 and 2021.
A
summary of the warrant activity during the three months ended March 31, 2022, is presented below:
SCHEDULE OF WARRANT ACTIVITY
| |
| | |
| | |
Weighted | | |
| |
| |
| | |
Weighted | | |
Average | | |
| |
| |
| | |
Average | | |
Remaining | | |
Aggregate | |
| |
Number of | | |
Exercise | | |
Life | | |
Intrinsic | |
| |
Warrants | | |
Price | | |
In Years | | |
Value | |
Outstanding, January 1, 2022 | |
| 4,739,871 | | |
$ | 11.78 | | |
| 4.9 | | |
$ | - | |
Granted | |
| - | | |
| - | | |
| | | |
| | |
Exercised | |
| - | | |
| - | | |
| | | |
| | |
Expired | |
| (106 | ) | |
| 4.00 | | |
| | | |
| | |
Outstanding, March 31, 2022 | |
| 4,739,765 | | |
$ | 11.78 | | |
| 4.6 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable, March 31, 2022 | |
| 4,739,765 | | |
$ | 11.78 | | |
| 4.6 | | |
$ | - | |
The
following table presents information related to warrants at March 31, 2022:
SCHEDULE OF STOCK WARRANTS
Warrants Outstanding | | |
Warrants Exercisable | |
| | |
| | |
Weighted | | |
| |
| | |
Outstanding | | |
Average | | |
Exercisable | |
Exercise | | |
Number of | | |
Remaining Life | | |
Number of | |
Price | | |
Warrants | | |
In Years | | |
Warrants | |
$ | 10 | | |
| 4,501,937 | | |
| 4.6 | | |
| 4,501,937 | |
$ | 12.50 | | |
| 235,970 | | |
| 4.6 | | |
| 235,970 | |
$ | 60 | | |
| 250 | | |
| 2.8 | | |
| 250 | |
$ | 800 | | |
| 869 | | |
| 2.6 | | |
| 869 | |
$ | 2,240 | | |
| 39 | | |
| 2.2 | | |
| 39 | |
$ | 3,400 | | |
| 264 | | |
| 2.0 | | |
| 264 | |
$ | 4,000 | | |
| 55 | | |
| 1.9 | | |
| 55 | |
$ | 8,000 | | |
| 19 | | |
| 1.6 | | |
| 19 | |
$ | 14,000 | | |
| 18 | | |
| 1.3 | | |
| 18 | |
$ | 16,000 | | |
| 329 | | |
| 1.7 | | |
| 329 | |
$ | 16,600 | | |
| 14 | | |
| 0.6 | | |
| 14 | |
$ | 20,000 | | |
| 1 | | |
| 0.2 | | |
| 1 | |
| | | |
| 4,739,765 | | |
| 4.6 | | |
| 4,739,765 | |
Stock
Options
In
applying the Black-Scholes option pricing model to stock options granted, the Company used the following assumptions:
SCHEDULE OF STOCK OPTION GRANTED ASSUMPTIONS
| |
For the Three Months Ended | | |
For the Three Months Ended | |
| |
March 31, | | |
March 31, | |
| |
2022 | | |
2021 | |
Risk free interest rate | |
| 2.42 | % | |
| 1.71 | % |
Expected term (years) | |
| 3.50 | | |
| 5.50 | |
Expected volatility | |
| 286 | % | |
| 228 | % |
Expected dividends | |
| 0.00 | % | |
| 0.00 | % |
The
Company granted options for the purchase of 25,000 shares of common stock during the three months ended March 31, 2022.
The
Company granted options for the purchase of 586,959 shares of common stock during the three months ended March 31, 2021.
The
grant date fair value of options issued during the three months ended March 31, 2022 was $122,117.
The
grant date fair value of options issued during the three months ended March 31, 2021 was $27,736,052.
A
summary of the stock option activity during the three months ended March 31, 2022 is presented below:
SCHEDULE
OF STOCK OPTION ACTIVITY
| |
| | |
| | |
Weighted | | |
| |
| |
| | |
Weighted | | |
Average | | |
| |
| |
| | |
Average | | |
Remaining | | |
Aggregate | |
| |
Number of | | |
Exercise | | |
Life | | |
Intrinsic | |
| |
Options | | |
Price | | |
In Years | | |
Value | |
Outstanding, January 1, 2022 | |
| 839,639 | | |
$ | 18.73 | | |
| 9.5 | | |
| - | |
Granted | |
| 25,000 | | |
| 4.92 | | |
| | | |
| | |
Forfeited | |
| (28 | ) | |
| 3,383 | | |
| | | |
| | |
Outstanding, March 31, 2022 | |
| 864,611 | | |
$ | 17.51 | | |
| 9.2 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable, March 31, 2022 | |
| 512,436 | | |
$ | 20.57 | | |
| 9.2 | | |
$ | - | |
The
following table presents information related to stock options at March 31, 2022:
SCHEDULE
OF STOCK OPTION BY EXERCISE PRICE
Options Outstanding | | |
Options Exercisable | |
| | |
| | |
Weighted | | |
| |
| | |
Outstanding | | |
Average | | |
Exercisable | |
Exercise | | |
Number of | | |
Remaining Life | | |
Number of | |
Price | | |
Options | | |
In Years | | |
Options | |
$ | 4.92 | | |
| 25,000 | | |
| 5.0 | | |
| - | |
$ | 13.50 | | |
| 838,550 | | |
| 9.2 | | |
| 511,383 | |
$ | 1,040 | | |
| 44 | | |
| 7.5 | | |
| 44 | |
$ | 3,000 | | |
| 1,006 | | |
| 4.8 | | |
| 998 | |
$ | 22,800 | | |
| 1 | | |
| 2.3 | | |
| 1 | |
$ | 48,200 - $52,000 | | |
| 9 | | |
| 1.8 | | |
| 9 | |
$ | 120,000 | | |
| 1 | | |
| 1.0 | | |
| 1 | |
| | | |
| 864,611 | | |
| 9.2 | | |
| 512,436 | |
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
(or the fair market value of one such share in cash) 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 (see Note 7 – Commitments and Contingencies) with a fair value of $4.21 per share.
The RSUs vest in twelve equal monthly installments.
A
summary of our unvested RSUs as of March 31, 2022 is as follows:
SCHEDULE
OF UNVESTED RESTRICTED STOCK UNITS
| |
Number of | |
| |
Shares | |
Outstanding, January 1, 2022 | |
| 293,479 | |
Granted | |
| 24,876 | |
Forfeited | |
| - | |
Vested | |
| (97,828 | ) |
Outstanding, March 31, 2022 | |
| 220,527 | |
The
following table presents information related to stock compensation expense:
SCHEDULE OF STOCK OPTION EXPENSE
| |
For
the Three Months Ended | | |
Unrecognized at | | |
Weighted Average Remaining Amortization | |
| |
March 31, | | |
March 31, | | |
Period | |
| |
2022 | | |
2021 | | |
2022 | | |
(Years) | |
Consulting | |
$ | 72,819 | | |
$ | - | | |
$ | - | | |
| - | |
Research and development | |
| - | | |
| 25,121 | | |
| - | | |
| - | |
General and administrative | |
| 3,303,084 | | |
| 14,051,646 | | |
| 16,899,278 | | |
| 0.9 | |
| |
$ | 3,375,903 | | |
$ | 14,076,767 | | |
$ | 16,899,278 | | |
| 0.9 | |
Note
7 - COMMITMENTS AND CONTINGENCIES
Research
and Development Agreement
On
December 20, 2021, the Company entered into a Master Clinical Services Agreement (the “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 Services Agreement has a 46-month
term with an estimated budgeted cost of $5,844,380.
Upon execution of the 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 Services Agreement as the services
are rendered. During the three months ended March 31, 2022, the Company incurred $477,597 of research and development expense and
had a balance in prepaid expense of $395,525
at March 31, 2022 associated with the
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 was scheduled to expire in March 2020 (subject to extension at the option
of the Company for a period of five years) and provided for an annual base rental during the initial term ranging between $132,600 and
$149,260. In June 2019, the Company exercised its option to extend the Melville Lease and entered into a lease amendment with the lessor
whereby the five-year extension term commenced on January 1, 2020 with annual base rent ranging between $153,748 and $173,060.
When
measuring lease liabilities for leases that were classified as operating leases, the Company discounted lease payments using its estimated
incremental borrowing rate at August 1, 2019. The weighted average incremental borrowing rate applied was 12%.
The
following table presents net lease cost and other supplemental lease information:
SCHEDULE
OF NET LEASE COST AND OTHER SUPPLEMENTAL LEASE INFORMATION
| |
Three Months Ended March 31, 2022 | | |
Three Months Ended March 31, 2021 | |
Lease cost | |
| | | |
| | |
Operating lease cost (cost resulting from lease payments) | |
$ | 40,783 | | |
$ | 39,593 | |
Net lease cost | |
$ | 40,783 | | |
$ | 39,593 | |
| |
| | | |
| | |
Operating lease – operating cash flows (fixed payments) | |
$ | 40,783 | | |
$ | 39,593 | |
Operating lease – operating cash flows (liability reduction) | |
$ | 28,445 | | |
$ | 24,176 | |
Non-current leases – right of use assets | |
$ | 328,794 | | |
$ | 444,838 | |
Current liabilities – operating lease liabilities | |
$ | 123,899 | | |
$ | 105,459 | |
Non-current liabilities – operating lease liabilities | |
$ | 268,357 | | |
$ | 392,256 | |
Future
minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases as of March 31, 2022:
SCHEDULE
OF FUTURE MINIMUM PAYMENTS UNDER NON-CANCELABLE LEASES FOR OPERATING LEASES
Fiscal Year | |
Operating Leases | |
2022 (excluding the three months ended March 31, 2022) | |
$ | 122,349 | |
2023 | |
| 168,028 | |
2024 | |
| 173,060 | |
Total future minimum lease payments | |
| 463,437 | |
Amount representing interest | |
| (71,181 | ) |
Present value of net future minimum lease payments | |
$ | 392,256 | |