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
December 29, 2022, the Company reincorporated from Delaware to Nevada. The reincorporation was structured as a statutory merger of BioRestorative
Therapies, Inc., a Delaware corporation, with and into its wholly-owned subsidiary, BioRestorative Therapies, Inc., a Nevada corporation.
Liquidity
The
accompanying consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which
contemplates realization of assets and satisfying liabilities in the normal course of business. For the three months ended March 31,
2023, the Company had a net loss of $5.7 million (of which, $3.3 million was attributable to non-cash stock-based compensation) and negative
cash flows from operations of $2.3 million. The Company’s operating activities consume the majority of its cash resources. The
Company anticipates that it will continue to incur net losses as it executes its development plans throughout 2023 and beyond, as well
as other potential strategic and business development initiatives. In addition, the Company has had and expects to have negative cash
flows from operations, at least into the near future. The Company has previously funded, and plans to continue funding, these losses
primarily through current cash on hand, investments in marketable securities and additional infusions of cash from equity and debt financing.
Based
on cash on hand as of March 31, 2023, the Company believes it has sufficient cash to fund operations for the twelve months subsequent
to the filing date of this Form 10-Q.
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 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 condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values. The accompanying
condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue
as a going concern.
Business
Operations
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. The information contained in our website is not intended to be incorporated
by reference into this Quarterly Report. 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 investigating the expansion of
the clinic application of BRTX-100 to other indications within the body. 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.
NOTE
2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis
of Presentation
The
accompanying condensed consolidated financial statements have been prepared in accordance with GAAP. The summary of significant accounting
policies presented below is designed to assist in understanding the Company’s condensed consolidated financial statements. Such
condensed consolidated financial statements and accompanying notes are the representations of Company’s management, who is responsible
for their integrity and objectivity.
The
condensed consolidated financial statements of the Company included herein have been prepared, pursuant to the rules and regulations
of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.
GAAP”) have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these condensed
consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included
in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 27, 2023 (the
“Annual Report”). The summary of significant accounting policies presented below is designed to assist in understanding the
Company’s consolidated financial statements. Such consolidated financial statements and accompanying notes are the representations
of Company’s management, who is responsible for their integrity and objectivity. Operating results for the three months ended March 31, 2023 are not necessarily
indicative of the results that may be expected for the entire year or for any other subsequent interim period.
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany accounts
and transactions have been eliminated upon consolidation.
Use
of Estimates
The
preparation of the 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 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.
Concentrations
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution.
The Company maintains deposits in its cash account in excess of the Federal Depository Insurance Corporation coverage of $250,000. As
of March 31, 2023, the Company has not experienced losses on this account.
The
royalties related to the Company’s sublicense comprised all of the Company’s revenue during the three months ended March
31, 2023 and 2022.
Summary
of Significant Accounting Policies
The
Company’s significant accounting policies are described in Note 2, Summary of Significant Accounting Policies and Recent Accounting
Standards, in the Annual Report. During the three months ended March 31, 2023, the Company did not make any changes to its significant
accounting policies, except as described below with respect to recent accounting pronouncements.
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. |
SCHEDULE
OF FAIR VALUE RECURRING BASIS
| |
Fair value measurements at reporting date using: | |
| |
Fair value | | |
Quoted prices in active markets for identical liabilities (Level 1) | | |
Significant other observable inputs (Level 2) | | |
Significant unobservable inputs (Level 3) | |
Assets: | |
| | | |
| | | |
| | | |
| | |
Marketable securities as of March 31, 2023 | |
$ | 10,537,580 | | |
$ | 10,537,580 | | |
| - | | |
| - | |
Marketable securities as of December 31, 2022 | |
$ | 13,072,831 | | |
$ | 13,072,831 | | |
| - | | |
| - | |
Fair
Value of Financial Instruments
The
carrying value of cash, accounts receivable, and accounts payable 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 year.
All 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 preferred stock is 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 preferred stock have been excluded from the Company’s
computation of diluted net loss per common share for the three months ended March 31, 2023 and 2022.
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 or conversion price could be
less than the average market price of the common shares:
SCHEDULE OF WEIGHTED AVERAGE DILUTIVE COMMON SHARES
| |
Three months ended March 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Options | |
| 1,493,656 | | |
| 864,611 | |
Warrants | |
| 4,791,075 | | |
| 4,739,765 | |
Unvested RSUs | |
| 97,827 | | |
| 220,527 | |
Convertible preferred stock | |
| 1,518,158 | | |
| 1,543,158 | |
Total | |
| 7,900,716 | | |
| 7,368,061 | |
Recently
Adopted Accounting Pronouncements
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which requires entities to estimate all expected
credit losses for financial assets measured at amortized cost basis, including trade receivables, held at the reporting date based on
historical experience, current conditions, and reasonable and supportable forecasts. The Company adopted this guidance on January 1, 2023.
The adoption of this accounting standard did not have a material impact on the Company’s condensed consolidated financial statements.
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, 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. The Company did
not timely satisfy the third of these performance milestones (which needed to be satisfied by February 2022). Accordingly, such rights
became non-exclusive. However, in November 2022, the Company entered into an amended agreement under which it paid $175,000 and issued
51,370 warrants, with a fair value of $117,030, in exchange for renewed exclusivity. The consideration transferred to the SCTC in exchange
for exclusivity was capitalized to intangible assets on the Company’s consolidated balance sheet as of December 31, 2022.
In
February 2017, the Company received authorization from the Food and Drug Administration (the “FDA”) to proceed with a Phase
2 clinical trial. In March 2022, the United States Patent and Trademark Office issued a patent relating to the Company’s BRTX-100
clinical program.
Intangible
assets consist of the following:
SCHEDULE OF INTANGIBLE ASSETS
| |
Patents and Trademarks | | |
Licenses | | |
Accumulated Amortization | | |
Total | |
Balance as of January 1, 2023 | |
$ | 3,676 | | |
$ | 1,593,530 | | |
$ | (793,768 | ) | |
$ | 803,438 | |
Amortization expense | |
| - | | |
| - | | |
| (22,436 | ) | |
| (22,436 | ) |
Balance as of March 31, 2023 | |
$ | 3,676 | | |
$ | 1,593,530 | | |
$ | (816,204 | ) | |
$ | 781,002 | |
Weighted average remaining amortization period as of March 31, 2023 | |
| - | | |
| 11 | | |
| | | |
| | |
Accumulated
amortization of intangible assets consists of the following:
SCHEDULE OF INTANGIBLE ASSETS AMORTIZATION EXPENSES
| |
Patents and Trademarks | | |
Licenses | | |
Accumulated Amortization | |
Balance as of January 1, 2023 | |
$ | 3,676 | | |
$ | 790,092 | | |
$ | 793,768 | |
Amortization expense | |
| - | | |
| 22,436 | | |
| 22,436 | |
Balance as of March 31, 2023 | |
$ | 3,676 | | |
$ | 812,528 | | |
$ | 816,204 | |
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, 2023 | | |
December 31, 2022 | |
Accrued payroll | |
$ | 162,500 | | |
$ | 26,250 | |
Accrued general and administrative expenses | |
| 70,484 | | |
| 103,822 | |
Total accrued expenses | |
$ | 232,984 | | |
$ | 130,072 | |
NOTE
5 - STOCKHOLDERS’ EQUITY
Series
A Preferred Stock
On
November 8, 2021, in connection with the Company’s public offering, the Company’s Board of Directors adopted a resolution
allowing for the designation and issuance of 1,543,158 shares of the Company’s Preferred Stock, $.01 par value per share, designated
as Series A Preferred Stock (“Series A”). The Series A had a liquidation preference of $0.001 per share. On September 8,
2022, the Company issued 1,543,158 shares of Series B Preferred Stock (“Series B”) to Auctus Fund, LLC (“Auctus”)
in exchange for an equal number of shares of the Company’s outstanding Series A. Simultaneously, the stock certificate representing
the Series A shares was being returned to the Company for cancellation. On such date and upon such exchange, the Company’s Board
of Directors cancelled the Series A.
Series
B Preferred Stock
Effective
September 8, 2022, the Company issued 1,543,158 shares of Series B to Auctus in exchange for an equal number of shares of the Company’s
outstanding Series A. The terms of the Series B are substantially identical to those of the Series A, except that, among other things,
the limitation on beneficial ownership of common stock of the Company upon a conversion of the Series B into Common Stock, and the limitation
on the number of votes attributable to the Series B, is 9.99% of the then outstanding Common Stock of the Company instead of 4.99% as
provided for the Series A. The Company shall, at all times, reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of Common Stock upon the full conversion of the Series B. The Series B is not subject to redemption
by the Company or any Series B holder.
Dividends
Series
B holders shall be entitled to receive, when and as declared by the Board of Directors, dividends on a pari passu basis with the holders
of the shares of Common Stock based upon the number of shares of Common Stock into which the Series B is then convertible.
Voting
Rights
Series
B holders shall be entitled to vote on all matters presented to the stockholders of the Company for a vote at a meeting of stockholders
of the Company or a written consent in lieu of a meeting of stockholders of the Company, and shall be entitled to such number of votes
for each share of Series B entitled to vote at such meetings or pursuant to such consent, voting together with the holders of shares
of Common Stock and other shares of preferred stock who are entitled to vote, and not as a separate class, except as required by law.
The number of votes to which the Series B holders shall be entitled to vote for each share of Series B shall equal the number of shares
of Common Stock into which such Series B is then convertible; provided, however, that in no event shall a Series B holder be entitled
to vote more than 9.99% of the then outstanding shares of Common Stock.
Conversion
Optional
Conversion - Each share of Series B shall be convertible, at any time and from time to time, at the option of the Series B holder, into
one share of Common Stock; provided, however, that in no event shall a Series B holder be entitled to convert any shares of Series B
to the extent that such conversion would result in beneficial ownership by such Series B holder of more than 9.99% of the outstanding
shares of common stock.
Automatic
Conversion – From time to time, in the event of that an event occurs, including adjustment due to merger, consolidation, etc.,
subdivision or combination of Common Stock, adjustment due to distribution, purchase rights, and notice of adjustments, which has the
effect of reducing a Series B holder’s beneficial ownership of shares of common stock to less than 9.5% of the then publicly disclosed
outstanding shares of Common Stock, then, within five (5) business days, the Series B holder shall provide notice to the Company to such
effect, which notice shall state the number of shares of Common Stock beneficially owned by the Series B holder and shall provide reasonable
detail with regard thereto, including the number of derivative securities compromising a portion of such beneficial share amount. Such
notice shall have the effect of a notice of conversion with respect to the conversion of such number of shares of Series B as would increase
the Series B holder’s beneficial ownership of Common Stock to 9.99% of the then publicly disclosed outstanding shares of Common
Stock.
On
October 25, 2022, Auctus converted 25,000 shares of Series B into 25,000 shares of Common Stock. As of March 31, 2023, number of shares
of Series B remaining outstanding after giving effect to this conversion was 1,518,158.
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.
Stock
Options
In
applying the Black-Scholes option pricing model to stock options granted, the Company used the following assumptions:
SCHEDULE OF STOCK OPTIONS GRANTED ASSUMPTIONS
| |
For the Three Months Ended | | |
For the Three Months Ended | |
| |
March 31, | | |
March 31, | |
| |
2023 | | |
2022 | |
Risk free interest rate | |
| 4.22 | % | |
| 2.42 | % |
Expected term (years) | |
| 3.5 | | |
| 3.50 | |
Expected volatility | |
| 175 | % | |
| 286 | % |
Expected dividends | |
| 0.00 | % | |
| 0.00 | % |
The
Company granted options for the purchase of 629,017 shares of common stock during the three months ended March 31, 2023. The grant date
fair value of options issued during the three months ended March 31, 2023 was $1,745,000.
The Company granted options for the purchase
of 25,000 shares of common stock during the three months ended March 31, 2022. The grant date fair value of options issued during the
three months ended March 31, 2022 was $122,117.
A
summary of the stock option activity during the three months ended March 31, 2023 is presented below:
SCHEDULE
OF STOCK OPTION ACTIVITY
| |
Number of
Options | | |
Weighted Average
Exercise Price | |
Outstanding, January 1, 2023 | |
| 864,639 | | |
$ | 5.08 | |
Granted | |
| 629,017 | | |
| 2.91 | |
Expired | |
| - | | |
| - | |
Outstanding, March 31, 2023 | |
| 1,493,656 | | |
$ | 4.17 | |
| |
| | | |
| | |
Exercisable, March 31, 2023 | |
| 951,222 | | |
$ | 4.62 | |
Restricted
Stock Units
Pursuant
to the 2021 Plan, the Company may grant restricted stock units (“RSUs”) to employees, consultants or non-employee directors
(“Eligible Individuals”). The number, terms and conditions of the RSUs that are granted to Eligible Individuals are determined
on an individual basis by the 2021 Plan administrator. On the distribution date, the Company shall issue to the Eligible Individual one
unrestricted, fully transferable share of the Company’s common stock (or the fair market value of one such share in cash) for each
vested and nonforfeitable RSU.
A
summary of our unvested RSUs as of March 31, 2023 is as follows:
SCHEDULE
OF UNVESTED RESTRICTED STOCK UNITS
| |
Number of Shares | |
Outstanding, December 31, 2022 | |
| 201,870 | |
Granted | |
| - | |
Forfeited | |
| - | |
Vested | |
| (104,043 | ) |
Outstanding, March 31, 2023 | |
| 97,827 | |
The
following table presents information related to stock compensation expense:
SCHEDULE OF STOCK OPTION EXPENSE
| |
For the three months ended
March 31, | | |
Unrecognized at March 31, | | |
Weighted Average Remaining Amortization Period | |
| |
2023 | | |
2022 | | |
2023 | | |
(Years) | |
Research and development | |
$ | - | | |
$ | - | | |
$ | - | | |
| | |
General and administrative | |
| 3,339,187 | | |
| 3,375,903 | | |
| 3,766,772 | | |
| | |
| |
$ | 3,339,187 | | |
$ | 3,375,903 | | |
$ | 3,766,772 | | |
| | |
The
following table presents stock compensation by award type:
SCHEDULE
OF STOCK COMPENSATION BY AWARD TYPE
| |
For the three months ended March 31, | |
| |
2023 | | |
2022 | |
Options | |
$ | 2,190,428 | | |
$ | 2,138,949 | |
RSUs | |
| 1,148,759 | | |
| 1,164,135 | |
Shares issued for services | |
| - | | |
| 72,819 | |
| |
$ | 3,339,187 | | |
$ | 3,375,903 | |
Note
6 - 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
| |
2023 | | |
2022 | |
| |
Three months ended March 31, | |
| |
2023 | | |
2022 | |
Lease cost | |
| | | |
| | |
Operating lease cost (cost resulting from lease payments) | |
$ | 42,007 | | |
$ | 40,783 | |
Net lease cost | |
$ | 42,007 | | |
$ | 40,783 | |
| |
| | | |
| | |
Operating lease - operating cash flows (fixed payments) | |
$ | 42,007 | | |
$ | 40,783 | |
Operating lease - operating cash flows (liability reduction) | |
$ | 33,288 | | |
$ | 28,444 | |
Non-current leases - right of use assets | |
$ | 212,749 | | |
$ | 328,794 | |
Current liabilities - operating lease liabilities | |
$ | 144,821 | | |
$ | 123,899 | |
Non-current liabilities - operating lease liabilities | |
$ | 123,536 | | |
$ | 268,357 | |
Future
minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases as of March 31, 2023:
SCHEDULE
OF FUTURE MINIMUM PAYMENTS UNDER NON-CANCELABLE LEASES FOR OPERATING LEASES
Fiscal Year | |
Operating Leases | |
2023 | |
$ | 169,286 | |
2024 | |
| 129,795 | |
Total future minimum lease payments | |
| 299,081 | |
Amount representing interest | |
| (30,724 | ) |
Present value of net future minimum lease payments | |
$ | 268,357 | |
Note
7 – SUBSEQUENT EVENTS
On
April 4, 2023, Auctus converted 120,000 shares of Series B into 120,000 shares of Common Stock. The number of shares of Series B remaining
outstanding after this conversion is 1,398,158.