NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – NATURE OF THE ORGANIZATION, LIQUIDITY, AND BUSINESS
Corporate
History
BioRestorative
Therapies, Inc. has one wholly-owned subsidiary, Stem Pearls, LLC (“Stem Pearls”). BioRestorative Therapies, Inc. and its
subsidiary are referred to collectively as “BRT” or the “Company”.
On
October 27, 2021, the Company effected a 1-for-4,000 reverse stock split of its common stock. The Company has retroactively applied the
reverse stock split made effective on October 27, 2021 to share and per share amounts on the unaudited condensed consolidated financial
statements for the three and nine months ended September 30, 2021. In connection with the reverse stock split, the Company’s authorized
number of shares of common stock was reduced from 300,000,000,000 to 75,000,000. The Company’s authorized number of shares of preferred
stock was not affected by the reverse stock split.
On
November 9, 2021, the Company completed a $23,000,000 underwritten public offering of units of securities pursuant to which an aggregate
of 2,300,000 shares of the Company’s common stock and warrants for the purchase of an aggregate of 2,645,000 shares of the Company’s
common stock were issued. The Company intends to use the net proceeds from the offering as follows: (i) undertaking of clinical trials
with respect to BRTX-100 and its related collection and delivery procedure; (ii) pre-clinical research and development with respect to
the Company’s ThermoStem Program; and (iii) for general corporate and working capital purposes. In connection with the public offering,
the Company’s common stock was listed on the Nasdaq Capital Market.
Nature
of the Business
BRT
develops therapeutic products and medical therapies using cell and tissue protocols, primarily involving adult stem cells. BRT’s
website is at www.biorestorative.com. BRT is currently developing a Disc/Spine Program referred to as “brtxDISC”. Its lead
cell therapy candidate, BRTX-100, is a product formulated from autologous (or a person’s own) cultured mesenchymal stem
cells collected from the patient’s bone marrow. The product is intended to be used for the non-surgical treatment of painful lumbosacral
disc disorders or as a complimentary therapeutic to a surgical procedure. BRT is also engaging in research efforts with respect to a
platform technology utilizing brown adipose (fat) for therapeutic purposes to treat type 2 diabetes, obesity and other metabolic disorders
and has labeled this initiative its ThermoStem Program. Further, BRT has licensed a patented curved needle device that is a needle system
designed to deliver cells and/or other therapeutic products or material to the spine and discs or other potential sites.
Liquidity
The
accompanying unaudited condensed consolidated financial statements have been prepared on the basis that the Company will continue as
a going concern, which contemplates realization of assets and satisfying liabilities in the normal course of business. For the nine months
ended September 30, 2022, the Company had a net loss of $14.1
million (of which, $9.6
million was attributable to non-cash stock-based
compensation) and negative cash flows from operations of $4.3
million. The Company’s operating activities
consume the majority of its cash resources. The Company anticipates that it will continue to incur net losses as it executes its development
plans for 2022 and beyond, as well as other potential strategic and business development initiatives. In addition, the Company has had
and expects to have negative cash flows from operations, at least into the near future. The Company has previously funded, and plans
to continue funding, these losses primarily through current cash on hand and additional infusions of cash from equity and debt financing.
Based on cash on
hand as of September 30, 2022, the Company believes it has sufficient cash to fund operations for the twelve months subsequent to the
filing date.
Current
funds noted above will not be sufficient to enable the Company to fully complete its development activities or attain profitable operations.
If the Company is unable to obtain such needed additional financing on a timely basis, the Company may have to curtail its development,
marketing and promotional activities, which would have a material adverse effect on the Company’s business, financial condition
and results of operations, and ultimately the Company could be forced to discontinue its operations and liquidate.
The
accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern and the
realization of assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities
presented in the unaudited condensed consolidated financial statements do not necessarily purport to represent realizable or settlement
values. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial information as of and for the three and nine months ended September 30, 2022
and 2021 has been prepared in accordance with GAAP for interim financial information and with the instructions to Quarterly Report on
Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial position at such
dates and the operating results and cash flows for such periods. Operating results for the three
and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the entire year or for
any other subsequent interim period.
Certain
information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant
to the rules of the U.S. Securities and Exchange Commission (the “SEC”). These unaudited condensed consolidated financial
statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements for the
year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2022.
Prior Period Reclassifications
Certain
prior period amounts have been reclassified for consistency with current period presentation. These reclassifications had no effect on
the condensed consolidated statements of operations or cash flows.
Principles
of Consolidation
The
unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany
accounts and transactions have been eliminated upon consolidation.
Use
of Estimates
The
preparation of the unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, equity-based transactions, revenue and expenses and disclosure
of contingent liabilities at the date of the unaudited condensed consolidated financial statements. The Company bases its estimates and
assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future
events and their effects cannot be determined with precision, actual results could differ from these estimates which may cause the Company’s
future results to be affected.
The
Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation
of the accompanying unaudited condensed consolidated financial statements. Significant estimates include the carrying value of intangible
assets, deferred tax asset and valuation allowance, and assumptions used in the Black-Scholes option pricing model, such as expected
volatility, risk-free interest rate, and expected dividend rate.
Revenue
The
Company derives all of its revenue pursuant to a license agreement between the Company and a stem cell treatment company (“SCTC”)
entered into in January 2012 and amended in November 2015. Pursuant to the license agreement, the SCTC granted to the Company a license
to use certain intellectual property related to, among other things, stem cell disc procedures, and the Company has granted to the SCTC
a sublicense to use, and the right to sublicense to third parties the right to use, in certain locations in the United States and the
Cayman Islands, certain of the licensed intellectual property. In consideration of the sublicenses, the SCTC has agreed to pay the Company
royalties on a per disc procedure basis.
The
Company’s contracted transaction price is allocated to each distinct performance obligation and recognized as revenue when, or
as, the performance obligation is satisfied. The Company’s contracts have a single performance obligation with a fixed determinable
contract value. The Company’s performance obligation is satisfied upon the transfer of risk of loss to the customer. All sales
have fixed pricing and there are currently no variable components included in the Company’s revenue. The timing of the Company’s
revenue recognition may differ from the timing of receiving royalty payments. A receivable is recorded when revenue is recognized prior
to receipt of a royalty payment and the Company has an unconditional right to the royalty payment. Alternatively, when a royalty payment
precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied.
During the three months ended September 30, 2022 and 2021, the Company recognized $29,000 and $8,000 respectively, of revenue related
to the Company’s sublicenses. During the nine months ended September 30, 2022 and 2021, the Company recognized $116,100 and $41,000,
respectively, of revenue related to the Company’s sublicenses.
Contract
Modifications
There
were no contract modifications during the three and nine months ended September 30, 2022. Contract modifications are not routine in the
performance of the Company’s contracts.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
Cash and cash equivalents held at financial institutions may at times exceed insured amounts. The
Company believes it mitigates such risk by investing in or through, as well as maintaining cash balances with, major financial institutions.
As of September 30, 2022, the Company had cash and cash equivalents totaling $16.5
million.
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. |
The
following table presents information about the Company’s assets that are measured at fair value on a recurring basis as of September
30, 2022, and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such
fair value:
SCHEDULE
OF FAIR VALUE RECURRING BASIS
| |
| | |
Fair value measurements at reporting date using: | |
Description | |
Fair Value | | |
Quoted
prices in
active
markets
for identical
liabilities
(Level 1) | | |
Significant other
observable
inputs
(Level 2) | | |
Significant
unobservable
inputs
(Level 3) | |
Assets: | |
| | | |
| | | |
| | | |
| | |
Cash equivalents as of September 30, 2022 | |
$ | 4,898,305 | | |
$ | 4,898,305 | | |
$ | - | | |
$ | - | |
Marketable securities as of September 30, 2022 | |
$ | 9,913,667 | | |
$ | 9,913,667 | | |
$ | - | | |
$ | - | |
Marketable securities as of December 31, 2021 | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
Net
Loss per Common Share
Net
loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
All vested outstanding options and warrants are considered potential common stock. The dilutive effect, if any, of stock options, warrants,
and restricted stock units (“RSUs”) are calculated using the treasury stock method. All outstanding convertible notes are
considered common stock at the beginning of the period or at the time of issuance, if later, pursuant to the if-converted method. Since
the effect of common stock equivalents is anti-dilutive with respect to losses, options, warrants, RSUs and convertible notes have been
excluded from the Company’s computation of net loss per common share for the three and nine months ended September 30, 2022 and
2021.
The
following table summarizes the securities that were excluded from the diluted loss per share calculation:
SCHEDULE OF WEIGHTED AVERAGE DILUTIVE COMMON SHARES
| |
Three Months Ended | |
| |
September 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Options | |
| 864,609 | | |
| 588,048 | |
Warrants | |
| 4,739,723 | | |
| 3,704,997 | |
Unvested RSUs | |
| 208,086 | | |
| 293,479 | |
Convertible notes – common stock (1) | |
| - | | |
| 697,582 | |
Total | |
| 5,812,418 | | |
| 5,284,121 | |
| |
Nine Months Ended | |
| |
September 30, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Options | |
| 864,609 | | |
| 588,048 | |
Warrants | |
| 4,739,723 | | |
| 3,704,997 | |
Unvested RSUs | |
| 208,086 | | |
| 293,479 | |
Convertible notes – common stock (1) | |
| - | | |
| 697,582 | |
Total | |
| 5,812,418 | | |
| 5,284,121 | |
|
(1) |
As
of September 30, 2021, all of the convertible notes had variable conversion prices and the shares issuable were estimated based on
the market conditions. Pursuant to the note agreements, there were 12,876,004 shares of common stock reserved for future note conversions
as of September 30, 2021. |
Stock-based
Compensation
The
Company applies the provisions of ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement
and recognition of compensation expense for all stock-based awards made to employees, including employee stock options, in the condensed
consolidated statements of operations.
For
stock options issued to employees and members of the board of directors for their services, the Company estimates the grant date fair
value of each option using the Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management
to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the
expected life of the option, risk-free interest rates and expected dividend yields of the common stock. For awards subject to service-based
vesting conditions, including those with a graded vesting schedule, the Company recognizes stock-based compensation expense equal to
the grant date fair value of stock options on a straight-line basis over the requisite service period, which is generally the vesting
term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised.
Pursuant
to Accounting Standards Update (“ASU”) 2018-07 Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee
Share-Based Payment Accounting, the Company accounts for stock options issued to non-employees for their services in accordance with
ASC 718. The Company uses valuation methods and assumptions to value the stock options that are consistent with the process for valuing
employee stock options noted above.
Income
Taxes
The
Company accounts for income taxes pursuant to the asset and liability method which requires the recognition of deferred income tax assets
and liabilities related to the expected future tax consequences arising from temporary differences between the carrying amounts and tax
bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are
expected to reverse. Any effects of changes in income tax rates or laws are included in income tax expense in the period of enactment.
The
Company records valuation allowances against deferred tax assets when it is more likely than not that all or a portion of a deferred
tax asset will not be realized. The Company routinely evaluates the realizability of deferred tax assets by assessing the likelihood
that deferred tax assets will be recovered based on all available positive and negative evidence, including scheduled reversals of deferred
tax liabilities, estimates of future taxable income, tax planning strategies and results of operations. Estimating future taxable income
is inherently uncertain and requires judgment. In projecting future taxable income, historical results are considered along with certain
assumptions related to future earnings. As of September 30, 2022 and December 31, 2021, the Company had a full valuation allowance applied
against its deferred tax assets.
From
time to time the Company may recognize an income tax benefit, in its consolidated statements of operations, related to uncertain tax
positions taken. For uncertain tax positions that are “more likely than not” to sustain an income tax audit, the Company
may record an allowance against certain deferred tax assets related to these positions. The Company’s practice is to recognize
interest and penalties, if any, related to uncertain tax positions in income tax expense in the unaudited condensed consolidated statements
of operations.
Research
and Development Expenses
Research
and development expenses are expensed as incurred and recorded as a component of operating expenses in the Company’s condensed
consolidated statements of operations.
NOTE
3 – INTANGIBLE ASSETS
The
Company is a party to a license agreement with the SCTC (as amended) (the “SCTC Agreement”). Pursuant to the SCTC Agreement,
the Company obtained, among other things, a worldwide (excluding Asia and Argentina), exclusive, royalty-bearing license from the SCTC
to utilize or sublicense a certain method for culturing cells and a worldwide, exclusive, royalty-bearing license from the SCTC to utilize
or sublicense a certain medical device patent for the administration of specific cells and/or cell products to the disc and/or spine
(and other parts of the body). Pursuant to the license agreement with the SCTC, certain performance milestones (or payouts in lieu of
performance milestones) had to be satisfied in order for the Company to maintain its exclusive rights with regard to the disc/spine technology
(subject to the SCTC’s compliance with its obligations under the SCTC Agreement). The Company did not timely satisfy the third
of these performance milestones (which needed to be satisfied by February 2022). Accordingly, such rights may currently be non-exclusive.
The Company and the SCTC are currently negotiating the terms of an agreement confirming the exclusive nature of the license. No assurance
can be given in this regard. In February 2017, the Company received authorization from the Food and Drug Administration (the “FDA”)
to proceed with a Phase 2 clinical trial. The Company has commenced such clinical trial. In March 2022, a United States patent relating
to the Company’s BRTX-100 clinical program was issued. The patent along with the license agreement gave rise to definite lived
intangible assets. The below table details the activity related to those intangible assets from January 1, 2021 through September 30,
2022:
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 | |
| - | | |
| - | | |
| (59,442 | ) | |
| (59,442 | ) |
Balance as of September 30, 2022 | |
$ | 3,676 | | |
$ | 1,301,500 | | |
$ | (774,878 | ) | |
$ | 530,298 | |
Weighted average remaining amortization period as of September 30, 2022 (in years) | |
| - | | |
| 7.18 | | |
| | | |
| | |
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 | |
| - | | |
| 59,442 | | |
| 59,442 | |
Balance as of September 30, 2022 | |
$ | 3,676 | | |
$ | 771,202 | | |
$ | 774,878 | |
NOTE
4 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued
expenses and other current liabilities consist of:
SCHEDULE OF ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| |
September 30,
2022 | | |
December 31,
2021 | |
| |
| | |
| |
Accrued payroll | |
$ | 26,250 | | |
$ | 28,370 | |
Accrued research and development expenses | |
| - | | |
| 29,672 | |
Accrued general and administrative expenses | |
| 88,397 | | |
| 76,928 | |
Total accrued expenses | |
$ | 114,647 | | |
$ | 134,970 | |
NOTE
5 – NOTES PAYABLE
A
summary of the notes payable activity during the nine months ended September 30, 2022 is presented below:
SCHEDULE OF NOTES PAYABLE ACTIVITY
|
|
PPP
Loan |
|
Outstanding,
January 1, 2022 |
|
$ |
250,000 |
|
Issuances |
|
|
- |
|
Forgiveness |
|
|
(250,000 |
) |
Outstanding,
September 30, 2022 |
|
$ |
- |
|
On
March 14, 2021, under the U.S. Small Business Administration’s Paycheck Protection Program (“PPP”), the Company entered
into a note payable with a financial institution for $250,000 at an interest rate of 1% per annum and a maturity date of March 14, 2026.
Pursuant to the note, principal and interest payments were deferred for ten months. At that time the Company was able to apply for loan
forgiveness. At December 31, 2021, $250,000 was outstanding. On January 5, 2022, the total amount of the PPP loan was forgiven.
NOTE
6 – STOCKHOLDERS’ EQUITY (DEFICIT)
Series
A Preferred Stock
On
November 8, 2021, in connection with the Company’s public offering, the Company’s Board of Directors adopted a resolution
allowing for the authorization and issuance of 1,543,458 shares of the Company’s Preferred Stock, $.01 par value per share,
designated as Series A Preferred Stock (“Series A”). The Series A has a liquidation preference of $0.001 per share. On September
8, 2022, the Company issued 1,543,158 shares of Series B Preferred Stock (“Series B”) to Auctus Fund, LLC (“Auctus”)
in exchange for an equal number of shares of the Company’s outstanding Series A. Simultaneously, the stock certificate representing
the Series A shares was being returned to the Company for cancellation. On such date and upon such exchange, the Company’s Board
of Directors cancelled the Series A.
Series
B Preferred Stock
Effective
September 8, 2022, the Company issued 1,543,158 shares of Series B to Auctus in exchange for an equal
number of shares of the Company’s outstanding Series A. The terms of the Series B are substantially identical to those of the Series
A, except that, among other things, the limitation on beneficial ownership of common stock of the Company upon a conversion of the Series
B into Common Stock, and the limitation on the number of votes attributable to the Series B, is 9.99% of the then outstanding Common Stock of the Company instead of 4.99% as provided for the Series A. The Company shall, at all times, reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the full conversion of the Series
B. The Series B is not subject to redemption by the Company or any Series B holder. The exchange of Series A for Series B had no impact
on the Company’s financial statements as of September 30, 2022.
On October 25, 2022, Auctus converted
25,000 shares of Series B into 25,000 shares of Common Stock at a conversion rate of $10.00 per share. The number of shares of Series
B remaining outstanding after this conversion is 1,518,158.
Dividends
Series
B holders shall be entitled to receive, when and as declared by the Board of Directors, dividends on a pari passu basis with the holders
of the shares of Common Stock based upon the number of shares of Common Stock into which the Series B is then convertible.
Voting
Rights
Series
B holders shall be entitled to vote on all matters presented to the stockholders of the Company for a vote at a meeting of
stockholders of the Company or a written consent in lieu of a meeting of stockholders of the Company, and shall be entitled to such
number of votes for each share of Series B entitled to vote at such meetings or pursuant to such consent, voting together with the
holders of shares of Common Stock and other shares of preferred stock who are entitled to vote, and not as a separate class, except
as required by law. The number of votes to which the Series B holders shall be entitled to vote for each share of Series B shall
equal the number of shares of Common Stock into which such Series B is then convertible; provided, however, that in no event shall a
Series B holder be entitled to vote more than 9.99%
of the then outstanding shares of Common Stock.
Conversion
Optional
Conversion - Each share of Series B shall be convertible, at any time and from time to time, at the option of the Series B holder,
into one share of Common Stock based upon a conversion price of $10.00
per share; provided, however, that in no event shall a Series B holder be entitled to convert
any shares of Series B to the extent that such conversion would result in beneficial ownership by such Series B holder of more than 9.99%
of the outstanding shares of common stock.
Automatic
Conversion – From time to time, in the event of that an event occurs, including adjustment due to merger, consolidation, etc.,
subdivision or combination of Common Stock, adjustment due to distribution, purchase rights, and notice of adjustments, which has the
effect of reducing a Series B holder’s beneficial ownership of shares of common stock to less than 9.5% of the then publicly disclosed
outstanding shares of Common Stock, then, within five (5) business days, the Series B holder shall provide notice to the Company to such
effect, which notice shall state the number of shares of Common Stock beneficially owned by the Series B holder and shall provide reasonable
detail with regard thereto, including the number of derivative securities compromising a portion of such beneficial share amount. Such
notice shall have the effect of a notice of conversion with respect to the conversion of such number of shares of Series B as would increase
the Series B holder’s beneficial ownership of Common Stock to 9.99% of the then publicly disclosed outstanding shares of Common Stock.
2021
Stock Incentive Plan
On
March 18, 2021, the Company’s Board of Directors adopted the BioRestorative Therapies, Inc. 2021 Stock Incentive Plan (the “2021
Plan”). Pursuant to the 2021 Plan, a total of 1,175,000 shares of Common Stock were initially authorized to be issued pursuant to the grant
of stock options, restricted stock units, restricted stock, stock appreciation rights and other incentive awards. As of September 30,
2022, based on stock options and restricted stock units currently outstanding under the 2021 Plan, no shares remained available for future
grants under the 2021 Plan.
Amendments
to 2021 Stock Incentive Plan
On
December 10, 2021, subject to stockholder approval, the Company’s Board of Directors approved amendments to the 2021 Plan to
increase the number of shares of Common Stock authorized to be issued from 1,175,000 to 2,500,000 and
to clarify certain provisions of the 2021 Plan as to the authority of the Board of Directors and the Compensation Committee to make
adjustments to, among other things, the exercise price of granted options. Concurrently, subject to stockholder approval of the amendments to the 2021 Plan, the Company’s Compensation
Committee reduced the exercise price of the outstanding options under the 2021 Plan for the purchase of an aggregate of 838,549 shares
of the Company’s common stock from $13.50 per
share to $5.08 per
share (the closing price of the Company’s common stock on the day immediately preceding the Compensation Committee
determination), including the options held by the Company’s officers and directors as follows: (i)
Lance Alstodt, the Company’s President, Chief Executive Officer and Chairman of the Board: 335,538 shares, (ii) Francisco
Silva, the Company’s Vice President of Research and Development and a director: 335,538 shares; (iii) Robert Kristal, the
Company’s Chief Financial Officer: 10,490 shares; (iv) Robert Paccasassi, the Company’s Vice President of Quality
Assurance and Regulatory Compliance: 8,277 shares; (v) Nickolay Kukekov, one of the Company’s directors: 25,236 shares; (vi)
Patrick F. Williams, one of the Company’s directors: 10,490 shares; and (vii) David Rosa, one of the Company’s
directors: 10,490 shares. On November 3,
2022, the Company’s stockholders approved the amendments to the 2021 Plan.
As of September 30, 2022, options for the purchase of 864,609 shares of Common Stock had been granted pursuant
to the 2021 Plan. In addition, as of such date, 318,356 restricted stock units (“RSUs”) had been granted pursuant to the 2021
Plan and no shares were reserved for future grants under the 2021 Plan (without giving effect to the amendment to the 2021 Plan increasing
the number of shares authorized to be issued under the 2021 Plan to 2,500,000). As a result of the November 3, 2022 stockholder approval,
the exercise price of the outstanding options under the 2021 Plan was reduced to $5.08 per share. The changes had no impact on the Company’s
financial statements at September 30, 2022.
Warrant
and Option Valuation
The
Company has computed the fair value of warrants and options granted using the Black-Scholes option pricing model. The expected term used
for warrants and options issued to non-employees is the contractual life and the expected term used for options issued to employees and
directors is the estimated period of time that options granted are expected to be outstanding. The Company utilizes the “simplified”
method to develop an estimate of the expected term of “plain vanilla” employee option grants. The Company is utilizing an
expected volatility figure based on a review of the historical volatilities, over a period of time equivalent to the expected life of
the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined
from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument
being valued.
Warrant
Activity Summary
No
warrants were granted or issued during the nine months ended September 30, 2022 and 2021.
A
summary of the warrant activity during the nine months ended September 30, 2022, is presented below:
SCHEDULE OF WARRANT ACTIVITY
| |
| | |
Weighted | |
| |
| | |
Average | |
| |
Number of | | |
Exercise | |
| |
Warrants | | |
Price | |
Outstanding, January 1, 2022 | |
| 4,739,871 | | |
$ | 11.78 | |
Granted | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | |
Expired | |
| (148 | ) | |
| 16,099.00 | |
Outstanding, September 30, 2022 | |
| 4,739,723 | | |
$ | 10.89 | |
| |
| | | |
| | |
Exercisable, September 30, 2022 | |
| 4,739,723 | | |
$ | 10.89 | |
Stock
Options
The
Company grants stock options to certain employees which are recognized as compensation expense on a straight-line basis over the vesting
term of the grants. Vesting terms are generally two years, and grants expire between five and ten years.
For
the three months ended September 30, 2022 and 2021, the Company recognized compensation expense related to stock option grants of $1.9
million and $1.7 million, respectively. For the nine months ended September 30, 2022 and 2021, the Company recognized compensation expense
related to stock option grants of approximately $6.0 million and $17.4 million, respectively.
The
Company granted options for the purchase of 25,000 shares of common stock during the nine months ended September 30, 2022, with a grant
date fair value of $4.88 per share. As of September 30, 2022, the unamortized compensation expense related to these grants was $0.09
million.
The
Company granted options for the purchase of 586,959 shares of common stock during the nine months ended September 30, 2021, with a grant
date fair value of $47.25 per share, after taking into effect the reverse stock split. At September 30, 2022, the unamortized compensation
expense related to these grants was $3.2 million.
A
summary of the stock option activity during the nine months ended September 30, 2022 is presented below:
SCHEDULE
OF STOCK OPTION ACTIVITY
| |
| | |
Weighted | |
| |
| | |
Average | |
| |
Number of | | |
Exercise | |
| |
Options | | |
Price | |
Outstanding, January 1, 2022 | |
| 839,639 | | |
$ | 18.73 | |
Granted | |
| 25,000 | | |
| 4.92 | |
Forfeited | |
| (30 | ) | |
| 3,273.00 | |
Outstanding, September 30, 2022 | |
| 864,609 | | |
$ | 18.73 | |
| |
| | | |
| | |
Exercisable, September 30, 2022 | |
| 532,045 | | |
$ | 17.50 | |
Restricted
Stock Units
Pursuant
to the 2021 Plan, the Company grants RSUs to employees, consultants and non-employee directors (“Eligible Individuals”).
The number, terms and conditions of the RSUs that are granted to Eligible Individuals are determined on an individual basis by the plan
administrator. On the distribution date, the Company shall issue to the Eligible Individual one share of the Company’s common stock
for each vested and nonforfeitable RSU.
On
March 18, 2022, the Company granted an aggregate of 24,876 RSUs to its Chief Executive Officer, President and Chairman of the Board and
its Vice President, Research and Development with a fair value of $4.21 per share. The RSUs vest in twelve equal monthly installments.
A
summary of the Company’s unvested RSUs as of September 30, 2022 is as follows:
SCHEDULE
OF UNVESTED RESTRICTED STOCK UNITS
| |
Number of | |
| |
Shares | |
Outstanding, January 1, 2022 | |
| 293,480 | |
Granted | |
| 24,876 | |
Forfeited | |
| - | |
Vested | |
| (110,270 | ) |
Outstanding, September 30, 2022 | |
| 208,086 | |
There were 2,074 restricted stock
units vested in October 2022.
For
the three months ended September 30, 2022 and 2021, the Company recognized compensation expense related to RSUs of $1.2 million and $1.2
million, respectively. For the nine months ended September 30, 2022 and 2021, the Company recognized compensation expense related to
RSUs of $3.6 million and $2.5 million, respectively.
For
the three months ended September 30, 2022 and 2021, the Company recognized compensation expense of $3.1 million and $2.9 million, respectively.
For the nine months ended September 30, 2022 and 2021, the Company recognized compensation expense of $9.6 million and $19.9 million,
respectively.
The
Company’s unrecognized compensation expense was $10.8 million as of September 30, 2022.
Note
7 - COMMITMENTS
Clinical
Services Agreement
On
December 20, 2021, the Company entered into a Master Clinical Services Agreement (the “Clinical Services Agreement”) with
Professional Research Consulting, Inc. (“PRC”) pursuant to which PRC will provide trial management services related to the
Company’s Phase 2 clinical trials. The Clinical Services Agreement has a 46-month term with an estimated budgeted cost of $5,844,380.
Upon execution of the Clinical Services Agreement, the Company made an upfront payment of $328,152 which was recorded as a prepaid expense
on the condensed consolidated balance sheet at December 31, 2021, and is being expensed over the life of the Clinical Services Agreement
as the services are rendered. During the three and nine months ended September 30, 2022, the Company incurred $0.6 million and $1.7 million,
respectively, of research and development expense related to this agreement and had a balance in prepaid expense of approximately $0.3
million as of September 30, 2022 associated with the Clinical Services Agreement.
Note
8 - LEASES
The
Company is a party to a lease for 6,800 square feet of space located in Melville, New York (the “Melville Lease”) with respect
to its corporate and laboratory operations. The Melville Lease is scheduled to expire in December 2024 and provides for an annual base
rental during the term, which commenced as of January 1, 2020, ranging between $153,748 and $173,060. The remaining term of this lease
is approximately 2.25 years as of September 30, 2022.
When
calculating the present value of lease liabilities for operating leases, the Company discounted the lease payments using its estimated
incremental borrowing rate at the inception of the term. The weighted average incremental borrowing rate applied to the Melville Lease
was 12%.
The
following table presents net lease cost and other supplemental lease information:
SCHEDULE
OF NET LEASE COST AND OTHER SUPPLEMENTAL LEASE INFORMATION
| |
Nine Months
Ended September
30,
2022 | | |
Nine Months
Ended September 30,
2021 | |
Lease cost | |
| | | |
| | |
Operating lease cost (cost resulting from lease payments) | |
$ | 122,349 | | |
$ | 118,779 | |
Net lease cost | |
$ | 122,349 | | |
$ | 118,779 | |
| |
| | | |
| | |
Operating lease – operating cash flows (fixed payments) | |
$ | 122,349 | | |
$ | 118,779 | |
Operating lease – operating cash flows (liability reduction) | |
$ | 87,945 | | |
$ | 74,749 | |
Non-current leases – right of use assets | |
$ | 270,772 | | |
$ | 386,816 | |
Current liabilities – operating lease liabilities | |
$ | 134,031 | | |
$ | 114,387 | |
Non-current liabilities – operating lease liabilities | |
$ | 198,724 | | |
$ | 332,755 | |
Future
minimum payments under non-cancelable leases for operating leases for the remaining terms of the leases as of September 30, 2022:
SCHEDULE
OF FUTURE MINIMUM PAYMENTS UNDER NON-CANCELABLE LEASES FOR OPERATING LEASES
Fiscal Year | |
Operating Leases | |
Remainder of 2022 | |
$ | 40,783 | |
2023 | |
| 168,028 | |
2024 | |
| 173,060 | |
Total future minimum lease payments | |
| 381,871 | |
Amount representing interest | |
| (49,116 | ) |
Present value of net future minimum lease payments | |
$ | 332,755 | |
NOTE
9 – SUBSEQUENT EVENTS
On November 3, 2022, BioRestorative Therapies, Inc. held its Annual Meeting of Stockholders. At the Annual Meeting,
the Company’s stockholders: (i) elected the nominees as the Class II directors, (ii) approved amendments to the Company’s
2021 Stock Incentive Plan, (iii) authorized the reincorporation of the Company from the State of Delaware to the State of Nevada, (iv)
approved, on a non-binding advisory basis, the compensation of the Company’s executive officers, (v) recommended, on a non-binding
advisory basis, that future advisory votes be held every three years with regard to the approval of the Company’s executive compensation,
and (vi) ratified the selection of Marcum LLP as the Company’s independent registered public accounting firm for the fiscal year
ending December 31, 2022.