PART
I
Forward-Looking
Statements
This
Annual Report contains forward-looking statements as that term is defined in the federal securities laws. The events described
in forward-looking statements contained in this Annual Report may not occur. Generally these statements relate to business plans
or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits
from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating
results. The words “may,” “will,” “expect,” “believe,” “anticipate,”
“project,” “plan,” “intend,” “estimate,” and “continue,” and their
opposites and similar expressions are intended to identify forward-looking statements. We caution you that these statements are
not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many
of which are beyond our control, that may influence the accuracy of the statements and the projections upon which the statements
are based. Factors which may affect our results include, but are not limited to, the risks and uncertainties discussed in Item
7 of this Annual Report under “Factors That May Affect Future Results and Financial Condition”.
Any
one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking
statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially
from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether from new information, future events or otherwise.
Intellectual
Property
This
Annual Report includes references to our federally registered trademarks,
BioRestorative Therapies,
the
Dragonfly Logo
,
brtxDISC, ThermoStem, Stem Pearls
and
Stem the Tides of Time.
We also own a published trademark application for
BRTX
and an allowed trademark application for
BRTX-100
. The Dragonfly Logo is also registered with the U.S. Copyright
Office. This Annual Report also includes references to trademarks, trade names and service marks that are the property of other
organizations. Solely for convenience, trademarks and trade names referred to in this Annual Report appear without the ®,
SM
or ™ symbols, and copyrighted content appears without the use of the symbol ©, but the absence of use
of these symbols does not reflect upon the validity or enforceability of the intellectual property owned by us or third parties.
As
used in this Annual Report on Form 10-K (the “Annual Report”), references to the “Company”, “we”,
“us”, or “our” refer to BioRestorative Therapies, Inc. and its subsidiaries.
We
were incorporated in Nevada on June 13, 1997. On August 15, 2011, we changed our name from “Stem Cell Assurance, Inc.”
to “BioRestorative Therapies, Inc.” Effective January 1, 2015, we reincorporated in Delaware.
In
January 2017, we announced that we had submitted an investigational new drug, or an IND, application to the U.S. Food and Drug
Administration, or the FDA, to obtain authorization to commence a Phase 2 clinical trial using our lead cell therapy candidate,
BRTX-100
, to investigate the use of the candidate in treating chronic lower back pain due to degenerative disc disease
related to protruding/bulging discs. In February 2017, we received such authorization from the FDA.
In
August 2017, an Australian patent related to the
ThermoStem Program
was issued to us. In December 2017, a Japanese patent
related to the
ThermoStem Program
was issued to us.
During
the year ended December 31, 2017, we raised an aggregate of $2,080,250 in connection with sales of common stock and warrants and
from the exercise of warrants, and an aggregate of $2,197,046 in net debt financing. As of December 31, 2017, our outstanding
debt of $3,999,335, together with interest at rates ranging between 0% and 15% per annum, was due through December 2018.
In
January 2018, we hired Adam D. Bergstein to serve as Senior Vice President, Planning and Business Development. See Item 10 (“Directors,
Executive Officers and Corporate Governance”).
Subsequent
to December 31, 2017, we have received aggregate equity financing (representing proceeds received from the exercise of common
stock purchase warrants) and debt financing of $452,168 and $420,500, respectively, debt (inclusive of accrued interest)
of $207,993 has been converted into or exchanged for common stock, $119,583 of debt has been repaid, and the due date for
the repayment of $788,982 of debt has been extended to dates between March 2018 and August 2018. Giving effect to the above
actions, we currently have notes payable aggregating $598,500 which are past due.
General
We
develop therapeutic products and medical therapies using cell and tissue protocols, primarily involving adult (non-embryonic)
stem cells. Our two core programs, as described below, relate to the treatment of disc/spine disease and metabolic disorders:
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Disc/Spine
Program (brtxDisc).
Our lead cell therapy candidate,
BRTX-100
, is a product formulated from autologous (or
a person’s own) cultured mesenchymal stem cells, or MSCs, collected from the patient’s bone marrow. We intend
that the product will be used as an alternative non-surgical treatment for protruding and bulging lumbar discs in patients
suffering from chronic lumbar disc disease. The
BRTX-100
production process involves collecting bone marrow from a
patient, isolating and culturing stem cells from the bone marrow and cryopreserving the cells. In an outpatient procedure,
BRTX-100
is to be injected by a physician into the patient’s damaged disc. The treatment is intended for patients
whose pain has not been alleviated by non-surgical procedures or conservative therapies and who potentially face the prospect
of surgery. In January 2017, we submitted an IND application to the FDA to obtain authorization to commence a Phase 2 clinical
trial using
BRTX-100
to investigate the use of the candidate in treating chronic lower back pain due to degenerative
disc disease related to protruding/bulging discs. In February 2017, we received such authorization from the FDA. We intend
to commence such clinical trial during the third or fourth quarter of 2018 (assuming the receipt of necessary funding). See
“Disc/Spine Program” below.
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Metabolic
Program (ThermoStem)
. We are developing a cell-based therapy to target obesity and metabolic disorders using brown
adipose (fat) derived stem cells, or BADSC, to generate brown adipose tissue, or BAT. We refer to this as our
ThermoStem
Program
. BAT is intended to mimic naturally occurring brown adipose depots that regulate metabolic homeostasis in humans.
Initial preclinical research indicates that increased amounts of brown fat in the body may be responsible for additional caloric
burning, as well as reduced glucose and lipid levels. Researchers have found that people with higher levels of brown fat may
have a reduced risk for obesity and diabetes. A United States patent related to the
ThermoStem Program
was issued in
September 2015, an Australian patent related to the
ThermoStem Program
was issued in August 2017, and a Japanese patent
related to the
ThermoStem Program
was issued in December 2017. See “Metabolic Brown Adipose (Fat) Program”
below.
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We
have also licensed a curved needle device designed to deliver cells and/or other therapeutic products or material to the spine
and discs (and other parts of the body). In August 2015, a United States patent for this device was issued to the licensor, Regenerative
Sciences, LLC. See “Curved Needle Device” below.
Overview
Every
human being has stem cells in his or her body. These cells exist from the early stages of human development until the end of a
person’s life. Throughout our lives, our body continues to produce stem cells that regenerate to produce differentiated
cells that make up various aspects of the body such as skin, blood, muscle and nerves. These are generally referred to as adult
(non-embryonic) stem cells. These cells are important for the purpose of medical therapies aiming to replace lost or damaged cells
or tissues or to otherwise treat disorders.
Regenerative
cell therapy relies on replacing diseased, damaged or dysfunctional cells with healthy, functioning ones or repairing damaged
or diseased tissue. A great range of cells can serve in cell therapy, including cells found in peripheral and umbilical cord blood,
bone marrow and adipose (fat) tissue. Physicians have been using adult stem cells from bone marrow to treat various blood cancers
for 60 years (the first successful bone marrow transplant was performed in 1956). Recently, physicians have begun to use stem
cells to treat various other diseases. We intend to develop cell and tissue products and regenerative therapy protocols, primarily
involving adult stem cells, to allow patients to undergo cellular-based treatments.
We
intend to concentrate initially on therapeutic areas in which risk to the patient is low, recovery is relatively easy, results
can be demonstrated through sufficient clinical data, and patients and physicians will be comfortable with the procedure. We believe
that there will be readily identifiable groups of patients who will benefit from these procedures.
Accordingly,
we have focused our initial efforts in offering cellular-based therapeutic products and clinical development programs in selective
areas of medicine for which the treatment protocol is minimally invasive. Such areas include the treatment of the disc and spine
and metabolic-related disorders. Upon regulatory approval, we will seek to obtain third party reimbursement for our products and
procedures; however; patients may be required to pay for our products and procedures out of pocket in full and without the ability
to be reimbursed by any governmental and other third party payers.
We
have obtained a patent as well as licenses for the exclusive use of a patent and a patent pending and have undertaken research
and development efforts in connection with the development of investigational therapeutic products and medical therapies using
cell and tissue protocols, primarily involving adult stem cells. See “Disc/Spine Program”, “Metabolic Brown
Adipose (Fat) Program” and “Curved Needle Device” below.
We
have established a laboratory facility and will seek to further develop cellular-based treatments, products and protocols, stem
cell-related intellectual property, or IP, and translational research applications. See “Laboratory” below.
We
have not generated any significant revenues from our operations. The implementation of our business plan, as discussed below,
will require the receipt of sufficient equity and/or debt financing to purchase necessary equipment, technology and materials,
fund our research and development efforts, retire our outstanding debt (see “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Liquidity and Capital Resources—Availability of Additional Funds”)
and otherwise fund our operations. We intend to seek such financing from current shareholders and debtholders as well as from
other accredited investors. We also intend to seek to raise capital through investment bankers and from biotech funds, strategic
partners and other financial institutions. We anticipate that we will require approximately $20,000,000 in financing to commence
and complete a Phase 2 clinical trial and we will require approximately $45,000,000 in further additional funding to complete
our clinical trials using
BRTX-100
, as further described in this Item 1 (assuming the receipt of no revenues from operations),
repay our outstanding debt ($3,999,335 as of December 31, 2017) (assuming that no debt is converted into equity) and fund general
operations. We will also require a substantial amount of additional funding to implement our other programs described in this
Item 1. No assurance can be given that the anticipated amounts of required funding are correct or that we will be able to accomplish
our goals within the timeframes projected. In addition, no assurance can be given that we will be able to obtain any required
financing on commercially reasonable terms or otherwise. We may also seek to have our debtholders convert all or a portion of
their debt into equity. No assurance can be given that we will be able to convert such debt into equity on commercially reasonable
terms or otherwise. If we are unable to obtain adequate funding, we may be required to significantly curtail or discontinue our
proposed operations. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations
– Factors That May Affect Future Results and Financial Condition – We will need to obtain a significant amount of
financing to initiate and complete our clinical trials and implement our business plan. – We will need to obtain additional
financing to satisfy debt obligations.”).
Disc/Spine
Program
General
Among
the initiatives that we are currently pursuing is our
Disc/Spine Program
, with our initial investigational product being
called
BRTX-100
. We have obtained a license (see “License” below) that permits us to use technology for adult
stem cell treatment of disc and spine conditions, including protruding and bulging discs. The technology is an advanced stem cell
culture and injection procedure into the intervertebral disc, or IVD, that may offer relief from lower back pain, buttock and
leg pain, and numbness and tingling in the legs and feet.
Lower
back pain is the most common, most disabling, and most costly musculoskeletal ailment faced worldwide. According to a recent market
report, there are nearly 25 million people in the United States with chronic lower back pain of which approximately 5 million
have pain caused by a protruding or bulging disc. We believe that between 500,000 and 1 million of these back pain sufferers will
have an invasive surgical procedure to try to alleviate the pain associated with these lower back conditions. Clinical studies
have documented that the source of the pain is most frequently damage to the IVD. This can occur when forces, whether a single
load or repetitive microtrauma, exceed the IVD’s inherent capacity to resist those loads. Aging, obesity, smoking, lifestyle,
and certain genetic factors may predispose one to an IVD injury.
While
once thought to be benign, the natural history of lower back pain is often one of chronic recurrent episodes of pain leading to
progressive disability. This is believed to be a direct result of the IVD’s poor healing capacity after injury. The IVD
is the largest avascular (having few or no blood vessels) structure in the body and is low in cellularity. Therefore, its inherent
capacity to heal after injury is poor. The clinical rationale of
BRTX-100
is to deliver a high concentration of the patient’s
own MSCs into the site of pathology to promote healing and relieve pain.
We
have developed a mesenchymal stem cell investigational product,
BRTX-100,
derived from autologous (or a person’s
own) human bone marrow, cultured and formulated to be delivered into a protruding or bulging disc.
In
January 2017, we announced that we had submitted an IND application to the FDA to obtain authorization to commence a Phase 2 clinical
trial using our lead cell therapy candidate,
BRTX-100
, to investigate the use of the candidate in treating chronic lower
back pain due to degenerative disc disease related to protruding/bulging discs. In February 2017, we received such authorization
from the FDA. We intend to commence such clinical trial during the third or fourth quarter of 2018 (assuming the receipt of necessary
funding).
In
addition to developing
BRTX-100
, we may also seek to sublicense the technology to a strategic third party, who may assist
in gaining FDA approval for our lumbar disc indication, or third parties for use in connection with cellular-based treatment programs
with regard to disc and spine related conditions.
We
have established a laboratory, which includes a clean room facility, to perform the production of cell products (possibly including
BRTX-100
) for use in our clinical trials or general research purposes. This capability may also enable us to develop our
pipeline of future products and expand our stem cell-related IP. See “Laboratory” and “Technology; Research
and Development” below.
BRTX-100
Our
lead investigational therapeutic product
, BRTX-100,
is an autologous hypoxic (low oxygen) cultured mesenchymal stem cell
product derived from a patient’s bone marrow and formulated with a proprietary carrier. The cryopreserved sterile cellular
product will be provided to the clinician in vials for injection into damaged lumbar discs. The therapeutic delivery of
BRTX-100
,
in treatment of chronic lumbar disc disease, is performed using a standard 20 gauge 3.5 inch introducer needle and a 25 gauge
6 inch needle that extends into the disc region where the product is delivered. Specific medical practitioners will be provided
training using the product with regard to the injection procedure. It is anticipated that the treatment and delivery of the product
will be a 30 minute outpatient procedure.
Mesenchymal
stem cells used in
BRTX-100
are similar to other MSCs under development by others; however, in order to enhance the survivability
of our bone marrow-derived MSCs in the avascular environment of the damaged disc,
BRTX-100
is expanded under hypoxic conditions
for a period of approximately three weeks. This process is intended to result in a cell population with enhanced viability and
therapeutic potential following injection locally into injured spinal discs. Publications and scientific literature have indicated
that MSCs preconditioned in hypoxic environment show enhanced skeletal muscle regeneration, improved blood flow and vascular formation
compared to MSCs cultured under normoxic (normal oxygen) conditions.
Production
and Delivery
The
production of
BRTX-100
begins with the physician collecting bone marrow from the patient under a local anesthesia. Peripheral
blood is also collected from the patient. The physician will then send the patient’s bone marrow and blood samples to our
laboratory (or a contract laboratory) for culturing and formulation. The hypoxic culturing process applied is intended to result
in the selection of a cell population that is suitable for an improved possibility of survival in the internal disc environment.
The cell culturing process and product formulation will take approximately three weeks, with an additional two weeks required
for quality control testing required to meet product release criteria. We will then send the therapeutic cryopreserved stem cells
(
BRTX-100
) in a sterile vial back to the physician’s offices where it will be thawed prior to the procedure. The
price structure for the procedure and our services has not been determined and no assurances can be given in this regard. The
following illustrates the process
License
Pursuant
to our license agreement with Regenerative Sciences, LLC, or Regenerative, that became effective in April 2012, we have obtained,
among other things, a worldwide (excluding Asia and Argentina), exclusive, royalty-bearing license from Regenerative to utilize
or sublicense a certain method for culturing cells for use in treating, among other things, disc and spine conditions, including
protruding and bulging discs. The technology that has been licensed is an advanced stem cell culture and injection procedure that
may offer relief from lower back pain, buttock and leg pain, and numbness and tingling in the legs and feet. Pursuant to the license
agreement, we have also obtained a worldwide, exclusive, royalty-bearing license from Regenerative to utilize or sublicense a
certain curved needle device for the administration of specific cells and/or cell products to the disc and/or spine (and other
parts of the body). It will be necessary to advance the design of this medical device to facilitate the delivery of substances,
including living cells, to specific locations within the body and minimize the potential for damage to nearby structures.
The
license agreement provides for the requirement that we achieve certain milestones or pay certain minimum royalty amounts in order
to maintain the exclusive nature of the licenses. The license agreement also provides for a royalty-bearing sublicense of certain
aspects of the technology to Regenerative for use for certain purposes, including in the United States and the Cayman Islands.
Further, the license agreement requires that Regenerative furnish certain training, assistance and consultation services with
regard to the licensed technology.
Animal
Study
The
efficacy and safety of
BRTX-100
has been tested in a degenerative intervertebral rabbit disc model. In this study, 80 rabbits
underwent surgery to create a puncture in the discs. Four weeks post surgery, each rabbit had either contrast, a biomaterial carrier
or
BRTX-100
injected into the discs. In order to study the biodistribution and efficacy of
BRTX-100
, the rabbits
were evaluated at day 56 and day 120.
The
key safety findings of the animal study are as follows:
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There
was no evidence or observation of gross toxicity related to the administration of
BRTX-100
at either time point. The
clinical pathology across both groups and time points were within expected normal historical ranges and under the conditions
of the test. No abnormalities (including fractures or overt signs of lumbar disc disease) were identified after review of
the radiographic images taken at both endpoints for both groups. No toxicity or adverse finding was evident in the systemic
tissues or the discs of animals receiving
BRTX-100
.
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There
was no detectable presence of human cells (
BRTX-100
) observed at the day 56 interim time point. This is consistent
with the proposed mechanism of action that
BRTX-100
acts through a paracrine effect of secreted growth and immunomodulation
factors.
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The
key efficacy findings of the animal study are as follows:
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BRTX-100
showed a statistically significant DHI (disc height increase) over the control group at day 120.
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BRTX-100
showed a statistically significant improvement in disc histology over the control group at day 120 as graded by a validated
histology scale.
BRTX-100
showed a significant improvement in the cellularity and matrix of the disc when compared
to the control at day 120.
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Clinical
Trial
In
December 2014, we held a pre-IND meeting with the FDA’s Office of Cellular Tissue and Gene Therapies within the FDA’s
Center for Biologics, Evaluation and Research. At the meeting, representatives of the FDA commented on our plans for an IND submission
and a clinical trial with regard to the disc program. The FDA representatives identified certain necessary pre-clinical research
and data as well as various suggestions to modify the clinical trial design. In January 2017, we announced that we had submitted
an IND application to the FDA to obtain authorization to commence a Phase 2 clinical trial using our lead cell therapy candidate,
BRTX-100
, to investigate the use of the candidate in treating chronic lower back pain due to degenerative disc disease
related to protruding/bulging discs. In February 2017, we received such authorization from the FDA. We intend to commence such
clinical trial during the third or fourth quarter of 2018 (assuming the receipt of necessary funding).
The
following describes the Phase 2 clinical trial authorized by the FDA:
A
Phase 2 Prospective, Double-Blinded, Placebo Controlled, Randomized Study
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72
patients; randomized 2:1,
BRTX-100
to control
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10-20
clinical trial sites
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Primary
efficacy endpoint at 6 months
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Patient
follow up at 12 and 24 months
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Primary
Efficacy Endpoint
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Responder
endpoint - % of patients that meet the improvement in function and reduction in pain threshold
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Improvement
in function defined as at least a 30% increase in function based on the Oswestry questionnaires (ODI)
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Reduction
of pain defined as at least a 30% decrease in pain as measured using the Visual Analogue Scale (VAS)
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Additional
or Secondary Endpoints
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Quality
of life assessment
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Evolution
of affected disc(s) by magnetic resonance imaging (MRI)
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The
FDA approval process can be lengthy, expensive and uncertain and there is no guarantee that the clinical trial(s) will be commenced
or completed or that the product will ultimately receive approval or clearance. See “Government Regulation” below
and Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors
That May Affect Future Results and Financial Condition – Risks Related to Our Cell Therapy Product Development Efforts;
and – Risks Related to Government Regulation”).
As
an alternative to undertaking the Phase 2 clinical trial ourselves, we are exploring the possible licensing of our rights with
respect to
BRTX-100
to a strategic partner. Such an arrangement could possibly eliminate or significantly reduce the need
to raise the substantial capital needed to commence and complete the clinical trials and undertake the commercialization of
BRTX
-100
and would provide licensing-related revenue to us. Such possible licensing efforts are first being explored by us and
no assurance can be given that any licensing agreement will be entered into, whether upon commercially reasonable terms or otherwise.
Metabolic
Brown Adipose (Fat) Program
Since
June 2011, we have been engaging in pre-clinical research efforts with respect to a platform technology utilizing brown adipose
(fat) derived stem cells for therapeutic purposes. We have labeled this initiative our
ThermoStem Program
.
Brown
fat is a specialized adipose (fat) tissue found in the human body that plays a key role in the evolutionarily conserved mechanisms
underlying thermogenesis (generation of non-shivering body heat) and energy homeostasis in mammals - long known to be present
at high levels in hibernating mammals and
human newborns.
Recent studies have demonstrated
that brown fat is present in the adult human body and may be correlated with the maintenance and regulation of healthy metabolism,
thus potentially being involved in caloric regulation. The pre-clinical
ThermoStem Program
involves the use of a cell-based
(brown adipose tissue) treatment for metabolic disease, such as type 2 diabetes, obesity, hypertension and other metabolic disorders
and cardiac deficiencies. We have had initial success in transplanting the tissue in animals, and we are currently exploring ways
to deliver the brown fat tissue into humans. Even though present, BAT mass is very low in healthy adults and even lower in obese
populations. Therefore, it may not be sufficient to either naturally impact whole body metabolism, or to be targeted by drugs
intended to increase its activity in the majority of the population. Increasing BAT mass is crucial in order to benefit from its
metabolic activity and this is what our
ThermoStem Program
seeks to accomplish. We may also identify other naturally occurring
and chemically engineered molecules that may enhance brown adipose tissue performance.
Obesity,
the abnormal accumulation of white fat tissue, leads to a number of metabolic disorders and is the driving force behind the rise
of type 2 diabetes and cardiovascular diseases worldwide. Pharmacological efforts to alter metabolic homeostasis through modulating
central control of appetite and satiety have had limited market penetration due to significant psychological and physiological
safety concerns directly attributed to modulating these brain centers. Adipose tissue is one of the largest organs in the human
body and plays a key role in central energy balance and lipid homeostasis. White and brown adipose tissues are found in mammals.
White adipose tissue’s function is to store energy, whereas BAT specializes in energy expenditure. Recent advancements in
unraveling the mechanisms that control the induction, differentiation, proliferation, and thermogenic activity of BAT, along with
the application of imaging technologies for human BAT visualization, have generated optimism that these advances may provide novel
strategies for targeting BAT activation/thermogenesis, leading to efficacious and safe obesity targeted therapies.
We
are developing a cell-based therapy to target obesity and metabolic disorders using BADSC. Our goal is to develop a bioengineered
implantable brown adipose tissue intended to mimic ones naturally occurring in the human body. We have isolated and characterized
a human multipotent stem cell population that resides within BAT depots. We have expanded these stem cells to clinically relevant
numbers and successfully differentiated them into functional brown adipocytes. We intend to use adult stem cells that may be differentiated
into progenitor or fully differentiated brown adipocytes, or a related cell type, which can be used therapeutically in patients.
We are focusing on the development of treatment protocols that utilize allogeneic cells (i.e., stem cells from a genetically similar
but not identical donor).
In
order to deliver these differentiated cells into target locations
in vivo
, we seeded BADSC onto 3-dimensional biological
scaffolds. Pre-clinical animal models of diet-induced obesity, that were transplanted with differentiated BADSC supported by a
biological scaffold, presented significant reductions in weight and blood glucose levels compared to saline injected controls.
We are identifying technology for
in vivo
delivery in small animal models. Having completed our proof of concept using
our BAT in small animals, we are currently developing our next generation BAT. It is anticipated that this next version will contain
a higher purity of BADSC, which is expected to increase the therapeutic effect compared to our first generation product. In addition,
we are exploring the delivery of the therapeutic using encapsulation technology, which will only allow for reciprocal exchange
of small molecules between the host circulation and the BAT implant. We expect that encapsulation may present several advantages
over our current biological scaffolds, including prevention of any immune response or implant rejection that might occur in an
immunocompetent host and an increase in safety by preventing the implanted cells from invading the host tissues and forming tumors.
We have developed promising data on the loading of human stem cell-derived tissue engineered brown fat into an encapsulation device
to be used as a cell delivery system for our metabolic platform program for the treatment of type 2 diabetes, obesity, hyperlipidemia
and hypertension. This advancement may lead to successful transplantation of brown fat in humans. By successfully seeding human
BADSC into an encapsulation device, we are advancing the development of our cell therapy program to treat metabolic disorders.
This data is expected to progress our program to enable transplanted brown adipose cells to effectively maintain or regulate normal
metabolism in humans. We are evaluating the next generation of BAT constructs that will first be tested in small animal models.
No assurance can be given that this delivery system will be effective
in vivo
in animals or humans. Our allogeneic brown
adipose derived stem cell platform potentially provides a therapeutic and commercial model for the cell-based treatment of obesity
and related metabolic disorders.
In
June 2012, we entered into an Assignment Agreement with the University of Utah Research Foundation, or the Foundation, and a Research
Agreement with the University of Utah, or the Utah Research Agreement. Pursuant to the Assignment Agreement, which provides for
royalty payments, we acquired the rights to two provisional patent applications that relate to human brown fat cell lines. No
royalty amounts are payable to date. The applications have been converted to a utility application in the United States and several
foreign jurisdictions. Pursuant to the Utah Research Agreement, the University of Utah, or the University, provided research services
relating to the identification of brown fat tissue and the development and characterization of brown fat cell lines. The Utah
Research Agreement provides that all inventions, discoveries, patent rights, information, data, methods and techniques, including
all cell lines, cell culture media and derivatives thereof, are owned by us.
In
February 2014, our research with regard to the identification of a population of brown adipose derived stem cells was published
in
Stem Cells
, a respected stem cell journal.
In
March 2014, we entered into a Research Agreement with Pfizer Inc., or the Pfizer Research Agreement, a global pharmaceutical company.
Pursuant to the Pfizer Research Agreement, we were engaged to provide research and development services with regard to a joint
study of the development and validation of a human brown adipose cell model. The Pfizer Research Agreement provided for an initial
payment to us of $250,000 and the payment of up to an additional $525,000 during the two-year term of the Agreement, all of which
has been received.
In
August 2015, we entered into a one year research collaboration agreement with the University of Pennsylvania with regard to the
understanding of brown adipose biology and its role in metabolic disorders. No amounts are payable by or to us pursuant to this
agreement.
In
September 2015, a United States patent related to the
ThermoStem Program
was issued to us.
In
August 2017, an Australian patent related to the
ThermoStem Program
was issued to us.
In
December 2017, a Japanese patent related to the
ThermoStem Program
was issued to us.
Following
our research activities, we intend to undertake preclinical animal studies in order to determine whether our proposed treatment
protocol is feasible. Such studies are planned to begin by the third quarter of 2018. Following the completion of such studies,
we intend to file an IND with the FDA and initiate a clinical trial. See “Government Regulation” below and Item 7
(“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors That May Affect
Future Results and Financial Condition – Risks Related to Our Cell Therapy Product Development Efforts; and – Risks
Related to Government Regulation”). The FDA approval process can be lengthy, expensive and uncertain and there is no guarantee
of ultimate approval or clearance.
We
anticipate that much of our development work in this area will take place at our laboratory facility, outside core facilities
at academic, research or medical institutions, or contractors. See “Laboratory” below.
Curved
Needle Device
Pursuant
to the Regenerative license agreement discussed under “Disc/Spine Program-License” above, we have licensed and further
developed a curved needle device, or CND, that is a needle system with a curved inner cannula to allow access to difficult-to-locate
regions for the delivery or removal of fluids and other substances. The CND is intended to deliver stem cells and/or other therapeutic
products or material to the interior of a human intervertebral disc, the spine region, or potentially other areas of the body.
The device relies on the use of pre-curved nested cannulae that allow the cells or material to be deposited in the posterior and
lateral aspects of the disc to which direct access is not possible due to outlying structures such as vertebra, spinal cord and
spinal nerves. We anticipate that the use of the CND will facilitate the delivery of substances, including living cells, to specific
locations within the body and minimize the potential for damage to nearby structures. The device may also have more general use
applications. In August 2015, a United States patent for the CND was issued to the licensor, Regenerative Sciences, LLC. We anticipate
that FDA approval or clearance will be necessary for the CND prior to commercialization. See “Government Regulation”
below and Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors
That May Affect Future Results and Financial Condition – Risks Related to Our Cell Therapy Product Development Efforts;
and – Risks Related to Government Regulation”). The FDA review and approval process can be lengthy, expensive and
uncertain and there is no guarantee of ultimate approval or clearance.
Laboratory
We
have established a laboratory in Melville, New York for research purposes and have built a cleanroom within the laboratory for
the possible production of cell-based therapies, such as
BRTX-100
, for use in a clinical trial or general research purposes.
As
operations grow, our plans include the expansion of our laboratory to perform cellular characterization and culturing, protocol
and stem cell-related IP development, translational research and therapeutic outcome analysis. As we develop our business and
additional stem cell treatments are approved, we will seek to establish ourselves as a key provider of adult stem cells for therapies
and expand to provide cells in other market areas for stem cell therapy. We may also use outside laboratories specializing in
cell therapy services and manufacturing of cell products.
Technology;
Research and Development
We
intend to utilize our laboratory or a third party laboratory in connection with cellular research activities. We also intend to
seek to obtain cellular-based therapeutic technology licenses and increase our IP portfolio. We intend to seek to develop potential
stem cell delivery systems or devices. The goal of these specialized delivery systems or devices is to deliver cells into specific
areas of the body, control the rate, amount and types of cells used in a treatment, and populate these areas of the body with
sufficient stem cells so that there is a successful therapeutic result.
We
also intend to perform research to develop certain stem cell optimization compounds, media to enhance cellular growth and regeneration
for the purpose of improving pre-treatment and post-treatment outcomes.
We
have three pending United States patent applications with regard to two patent families. We have been issued a United States patent
with regard to one of the two patent families. Patent applications with regard to one patent family have been filed in five foreign
jurisdictions (of which two applications have granted as foreign patents and one application has become inactive). In addition,
a Patent Cooperation Treaty, or PCT, application has been filed with regard to a second patent family and such PCT application
has been filed in four foreign jurisdictions. Regenerative has filed two patent applications with regard to the technology that
is the subject of the license agreement between us (see “Disc/Spine Program-License” above). A second application
(U.S. Patent Application No. 15/891,852) was recently filed and claims priority to one of the Regenerative patent applications.
Regenerative has been issued a patent with regard to its curved needle therapeutic delivery device. Our patent applications and
those of Regenerative are currently in prosecution (i.e., we and Regenerative are seeking issued patents). A description of the
patent applications and issued patents is set forth below:
Program
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I.D.
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Jurisdiction
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Title
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Disc/Spine
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13/132,840*
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US
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Methods
and compositions to facilitate repair of avascular tissue
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15/891,852
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US
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Surgical
methods and compositions to facilitate repair of avascular tissue
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U.S.
Patent No. 9,113,950 B2**
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US
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Therapeutic
delivery device
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Metabolic
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U.S.
Patent No. 9,133,438
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US
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Brown
fat cell compositions and methods
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13/932,468
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US
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15/910,625
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US
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AU
Patent No. 2012275335
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Australia
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12743811.7
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Europe
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230237
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Israel
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JP
Patent No. 6243839
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Japan
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14/255,595
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US
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Human
brown adipose derived stem cells and uses
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PCT/US2014/034540
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Patent
Cooperation Treaty
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2014253920
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Australia
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14729769.1
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Europe
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242150
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Israel
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2016-509105
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Japan
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*Patent
application filed by licensor, Regenerative Sciences, LLC
**Patent
issued to licensor, Regenerative Sciences, LLC
In
March 2014, we entered into a Research and Development Agreement with Rohto Pharmaceutical Co., Ltd., a Japanese pharmaceutical
company. Pursuant to the Rohto Research and Development Agreement, we were engaged to provide research and development services
with regard to stem cells.
In
March 2014, we entered into the Pfizer Research Agreement, as discussed above under “Metabolic Brown Adipose (Fat) Program”.
We
have secured registrations in the U.S. Patent and Trademark Office for the following trademarks:
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THERMOSTEM
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STEM
PEARLS, and
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STEM
THE TIDES OF TIME.
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We
own a published application in the U.S. Patent and Trademark Office for the trademark
BRTX
and an allowed application in
the U.S. Patent and Trademark Office for the trademark
BRTX-100
.
We
also have federal common law rights in the trademark BioRestorative Therapies and other trademarks and trade names used in the
conduct of our business that are not registered.
Our
success will depend in large part on our ability to develop and protect our proprietary technology. We intend to rely on a combination
of patent, trade secret and know-how, copyright and trademark laws, as well as confidentiality agreements, licensing agreements,
non-compete agreements and other agreements, to establish and protect our proprietary rights. Our success will also depend upon
our ability to avoid infringing upon the proprietary rights of others, for if we are judicially determined to have infringed such
rights, we may be required to pay damages, alter our services, products or processes, obtain licenses or cease certain activities.
We conduct prior rights searches before launching any new product or service to put us in the best position to avoid claims of
infringement.
During
the years ended December 31, 2017 and 2016, we incurred $2,152,433 and $2,883,563, respectively, in research and development expenses.
Scientific
Advisors
We
have established a Scientific Advisory Board whose purpose is to provide advice and guidance in connection with scientific matters
relating to our business. Our four Scientific Advisory Board members are Dr. Wayne Marasco, Chairman, Dr. Naiyer Imam, Dr. Wayne
Olan and Dr. Joy Cavagnaro. See Item 10 (“Directors, Executive Officers and Corporate Governance – Scientific Advisors”)
for a listing of the principal positions for Drs. Marasco, Imam, Olan, and Cavagnaro.
Competition
We
will compete with many pharmaceutical, biotechnology and medical device companies, as well as other private and public stem cell
companies involved in the development and commercialization of cell-based medical technologies and therapies.
Regenerative
medicine is rapidly progressing, in large part through the development of cell-based therapies or devices designed to isolate
cells from human tissues. Most efforts involve cell sources, such as bone marrow, adipose tissue, embryonic and fetal tissue,
umbilical cord and peripheral blood and skeletal muscle.
Many
of our competitors and potential competitors have substantially greater financial, technological, research and development, marketing
and personnel resources than we do. We cannot, with any accuracy, forecast when or if these companies are likely to bring their
products and therapies to market in competition with those that we are pursuing.
With
the enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, an abbreviated pathway for the approval
of biosimilar and interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority
for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable”
based on its similarity to an existing reference product. Under the BPCIA, an application for a biosimilar product cannot be approved
by the FDA until 12 years after the original branded product is approved under a biologics license application, or BLA. Although
the FDA has approved several biosimilar products, complex provisions of the law are still being implemented by the FDA and interpreted
by the federal courts. As a result, the ultimate impact, implementation, and meaning of the BPCIA are still subject to some uncertainty
and FDA actions and court decisions concerning the law could have a material adverse effect on the future commercial prospects
for our biological products.
We
believe that, if any of our product candidates are approved as a biological product under a BLA, it should qualify for the 12-year
period of exclusivity. However, there is a risk that the FDA could permit biosimilar applicants to reference approved biologics
other than our therapeutic candidates, thus circumventing our exclusivity and potentially creating the opportunity for competition
sooner than anticipated. Additionally, this period of regulatory exclusivity does not apply to companies pursuing regulatory approval
via their own traditional BLA, rather than via the abbreviated pathway. Moreover, the extent to which a biosimilar, once approved,
will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological
products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
Customers
Our
cell and tissue therapeutic products are intended to be marketed to physicians, other health care professionals, hospitals, research
institutions, pharmaceutical companies and the military. It is anticipated that physicians who are trained and skilled in performing
spinal injections will be the physicians most likely to treat discs with injections of
BRTX-100
. These physicians would
include interventional physiatrists (physical medicine physicians), pain management anesthesiologists, interventional radiologists
and neurosurgeons.
Governmental
Regulation
U.S.
Government Regulation
The
health care industry is highly regulated in the United States. The federal government, through various departments and agencies,
state and local governments, and private third-party accreditation organizations regulate and monitor the health care industry,
associated products, and operations. The following is a general overview of the laws and regulations pertaining to our business.
FDA
Regulation of Stem Cell Treatment and Products
The
FDA regulates the manufacture of human stem cell treatments and associated products under the authority of the Public Health Service
Act, or PHSA, and the Federal Food, Drug, and Cosmetic Act, or FDCA. Stem cells can be regulated under the FDA’s Human Cells,
Tissues, and Cellular and Tissue-Based Products Regulations, or HCT/Ps, or may also be subject to the FDA’s drug, biological
product, or medical device regulations, each as discussed below.
Human
Cells, Tissues, and Cellular and Tissue-Based Products Regulation
Under
Section 361 of the PHSA, the FDA issued specific regulations governing the use of HCT/Ps in humans. Pursuant to Part 1271 of Title
21 of the Code of Federal Regulations, or CFR, the FDA established a unified registration and listing system for establishments
that manufacture and process HCT/Ps. The regulations also include provisions pertaining to donor eligibility determinations; current
good tissue practices covering all stages of production, including harvesting, processing, manufacture, storage, labeling, packaging,
and distribution; and other procedures to prevent the introduction, transmission, and spread of communicable diseases.
The
HCT/P regulations strictly constrain the types of products that may be regulated solely under these regulations. Factors considered
include the degree of manipulation, whether the product is intended for a homologous function, whether the product has been combined
with noncellular or non-tissue components, and the product’s effect or dependence on the body’s metabolic function.
In those instances where cells, tissues, and cellular and tissue-based products have been only minimally manipulated, are intended
strictly for homologous use, have not been combined with noncellular or nontissue substances, and do not depend on or have any
effect on the body’s metabolism, the manufacturer is only required to register with the FDA, submit a list of manufactured
products, and adopt and implement procedures for the control of communicable diseases. If one or more of the above factors has
been exceeded, the product would be regulated as a drug, biological product, or medical device rather than an HCT/P.
Because
we are an enterprise in the early stages of operations and have not generated significant revenues from operations, it is difficult
to anticipate the likely regulatory status of the array of products and services that we may offer. We believe that some of the
adult autologous (self derived) stem cells that will be used in our cellular therapy products and services, including the brown
adipose (fat) tissue that we intend to use in our
ThermoStem Program
, may be regulated by the FDA as HCT/Ps under 21 C.F.R.
Part 1271. This regulation defines HCT/Ps as articles “containing or consisting of human cells or tissues that are intended
for implantation, transplantation, infusion or transfer into a human recipient.” However, the FDA may disagree with this
position or conclude that some or all of our stem cell therapy products or services do not meet the applicable definitions and
exemptions to the regulation. If we are not regulated solely under the HCT/P provisions, we would need to expend significant resources
to comply with the FDA’s broad regulatory authority under the FDCA. Third party litigation concerning the autologous use
of a stem cell mixture to treat musculoskeletal and spinal injuries has increased the likelihood that some of our products and
services are likely to be regulated as a drug or biological product and require FDA approval. In past litigation, the FDA asserted
that the defendants’ use of cultured stem cells without FDA approval is in violation of the FDCA, claiming that the defendants’
product is a drug. The defendants asserted that their procedure is part of the practice of medicine and therefore beyond the FDA’s
regulatory authority. The District Court ruled in favor of the FDA, and in February 2014 the Circuit Court affirmed the District
Court’s holding.
If
regulated solely under the FDA’s HCT/P statutory and regulatory provisions, once our laboratory in the United States becomes
operational, it will need to satisfy the following requirements, among others, to process and store stem cells:
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registration
and listing of HCT/Ps with the FDA;
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donor
eligibility determinations, including donor screening and donor testing requirements;
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current
good tissue practices, specifically including requirements for the facilities, environmental controls, equipment, supplies
and reagents, recovery of HCT/Ps from the patient, processing, storage, labeling and document controls, and distribution and
shipment of the HCT/Ps to the laboratory, storage, or other facility;
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tracking
and traceability of HCT/Ps and equipment, supplies, and reagents used in the manufacture of HCT/Ps;
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adverse
event reporting;
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FDA
inspection; and
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abiding
by any FDA order of retention, recall, destruction, and cessation of manufacturing of HCT/Ps.
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Non-reproductive
HCT/Ps and non-peripheral blood stem/progenitor cells that are offered for import into the United States and regulated solely
under Section 361 of the PHSA must also satisfy the requirements under 21 C.F.R. § 1271.420. Section 1271.420 requires that
the importer of record of HCT/Ps notify the FDA prior to, or at the time of, importation and provide sufficient information for
the FDA to make an admissibility decision. In addition, the importer must hold the HCT/P intact and under conditions necessary
to prevent transmission of communicable disease until an admissibility decision is made by the FDA.
If
the FDA determines that we have failed to comply with applicable regulatory requirements, it can impose a variety of enforcement
actions including public warning letters, fines, consent decrees, orders of retention, recall or destruction of product, orders
to cease manufacturing, and criminal prosecution. If any of these events were to occur, it could materially adversely affect us.
To
the extent that our cellular therapy activities are limited to developing products and services outside the United States, as
described in detail below, the products and services would not be subject to FDA regulation, but will be subject to the applicable
requirements of the foreign jurisdiction. We intend to comply with all applicable foreign governmental requirements.
Drug
and Biological Product Regulation
An
HCT/P product that does not meet the criteria for being solely regulated under Section 361 of the PHSA will be regulated as a
drug, device or biological product under the FDCA and/or Section 351 of the PHSA, and applicable FDA regulations. The FDA has
broad regulatory authority over drugs and biologics marketed for sale in the United States. The FDA regulates the research, clinical
testing, manufacturing, safety, effectiveness, labeling, storage, recordkeeping, promotion, distribution, and production of drugs
and biological products. The FDA also regulates the export of drugs and biological products manufactured in the United States
to international markets in certain situations.
For
products that are regulated as drugs, an investigational new drug, or IND, application and an approved new drug application, or
NDA, are required before marketing and sale in the United States pursuant to the requirements of 21 C.F.R. Parts 312 and 314,
respectively. An IND application notifies the FDA of prospective clinical testing and allows the test product to be shipped in
interstate commerce. Approval of an NDA requires a showing that the drug is safe and effective for its intended use and that the
methods, facilities, and controls used for the manufacturing, processing, and packaging of the drug are adequate to preserve its
identity, strength, quality, and purity. If regulated as a biologic, the product must be subject to an IND to conduct clinical
trials and a manufacturer must obtain an approved biologics license application, or BLA, before introducing a product into interstate
commerce. To obtain a BLA, a manufacturer must show that the proposed product is safe, pure, and potent and that the facility
in which the product is manufactured, processed, packed, or held meets established quality control standards.
Drug
and biological products must also comply with applicable registration, product listing, and adverse event reporting requirements
as well as the FDA’s general prohibition against misbranding and adulteration. Additionally, the FDA actively enforces regulations
prohibiting marketing and promotion of drugs and biologics for indications or uses that have not been approved by the FDA (i.e.,
“off label” promotion).
In
the event that the FDA does not regulate our services in the United States solely under the HCT/P regulation, our products and
activities could be regulated as drug or biological products under the FDCA. If regulated as drug or biological products, we will
need to expend significant resources to ensure regulatory compliance. If an IND and NDA or BLA are required for any of our products,
there is no assurance as to whether or when we will receive FDA approval of the product. The process of designing, conducting,
compiling and submitting the non-clinical and clinical studies required for NDA or BLA approval is time-consuming, expensive and
unpredictable. The process can take many years, depending on the product and the FDA’s requirements.
If
the FDA determines that we have failed to comply with applicable regulatory requirements, it can impose a variety of enforcement
actions from public warning letters, fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance
of approvals, seizure of our products, total or partial shutdown of our production, withdrawal of approvals, and criminal prosecutions.
If any of these events were to occur, it could materially adversely affect us.
Medical
Device Regulation
The
FDA also has broad authority over the regulation of medical devices marketed for sale in the United States. The FDA regulates
the research, clinical testing, manufacturing, safety, labeling, storage, recordkeeping, premarket clearance or approval, promotion,
distribution, and production of medical devices. The FDA also regulates the export of medical devices manufactured in the United
States to international markets.
Under
the FDCA, medical devices are classified into one of three classes, Class I, Class II, or Class III, depending upon the degree
of risk associated with the medical device and the extent of control needed to ensure safety and effectiveness. Class I devices
are subject to the lowest degree of regulatory scrutiny because they are considered low risk devices and need only comply with
the FDA’s General Controls. The General Controls include compliance with the registration, listing, adverse event reporting
requirements, and applicable portions of the Quality System Regulation as well as the general misbranding and adulteration prohibitions.
Class
II devices are subject to the General Controls as well as certain Special Controls such as 510(k) premarket notification. Class
III devices are subject to the highest degree of regulatory scrutiny and typically include life supporting and life sustaining
devices and implants. They are subject to the General Controls and Special Controls that include a premarket approval application,
or PMA. “New” devices are automatically regulated as Class III devices unless they are shown to be low risk, in which
case they may be subject to de novo review to be moved to Class I or Class II. Clinical research of an investigational device
is regulated under the investigational device exemption, or IDE, regulations of 21 C.F.R. Part 812. Nonsignificant risk devices
are subject to abbreviated requirements that do not require a submission to the FDA but must have Institutional Review Board (IRB)
approval and comply with other requirements pertaining to informed consent, labeling, recordkeeping, reporting, and monitoring.
Significant risk devices require the submission of an IDE application to the FDA and the FDA’s approval of the IDE application.
The
FDA premarket clearance and approval process can be lengthy, expensive and uncertain. It generally takes three to twelve months
from submission to obtain 510(k) premarket clearance, although it may take longer. Approval of a PMA could take one to four years,
or more, from the time the application is submitted and there is no guarantee of ultimate clearance or approval. Securing FDA
clearances and approvals may require the submission of extensive clinical data and supporting information to the FDA. Additionally,
the FDA actively enforces regulations prohibiting marketing and promotion of devices for indications or uses that have not been
cleared or approved by the FDA. In addition, modifications or enhancements of products that could affect the safety or effectiveness
or effect a major change in the intended use of a device that was either cleared through the 510(k) process or approved through
the PMA process may require further FDA review through new 510(k) or PMA submissions.
In
the event we develop processes, products or services which qualify as medical devices subject to FDA regulation, we intend to
comply with such regulations. If the FDA determines that our products are regulated as medical devices and we have failed to comply
with applicable regulatory requirements, it can impose a variety of enforcement actions from public warning letters, application
integrity proceedings, fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of approvals,
seizure of our products, total or partial shutdown of our production, withdrawal of approvals, and criminal prosecutions. If any
of these events were to occur, it could materially adversely affect us.
Current
Good Manufacturing Practices and other FDA Regulations of Cellular Therapy Products
Products
that fall outside of the HCT/P regulations and are regulated as drugs, biological products, or devices must comply with applicable
good manufacturing practice regulations. The current Good Manufacturing Practices, or cGMPs regulations for drug products are
found in 21 C.F.R. Parts 210 and 211; the General Biological Product Standards for biological products are found in 21 C.F.R.
Part 610; and the Quality System Regulation for medical devices are found in 21 C.F.R. Part 820. These cGMPs and quality standards
are designed to ensure the products that are processed at a facility meet the FDA’s applicable requirements for identity,
strength, quality, sterility, purity, and safety. In the event that our domestic United States operations are subject to the FDA’s
drug, biological product, or device regulations, we intend to comply with the applicable cGMPs and quality regulations.
If
the FDA determines that we have failed to comply with applicable regulatory requirements, it can impose a variety of enforcement
actions from public warning letters, fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance
of approvals, seizure of our products, total or partial shutdown of our production, withdrawal of approvals, and criminal prosecutions.
If any of these events were to occur, it could materially adversely affect us.
Good
Laboratory Practices
The
FDA prescribes good laboratory practices, or GLPs, for conducting nonclinical laboratory studies that support applications for
research or marketing permits for products regulated by the FDA. These regulations are published in Part 58 of Title 21 of the
CFR. GLPs are intended to assure the quality and integrity of the safety data filed in research and marketing permits. GLPs provide
requirements for organization, personnel, facilities, equipment, testing facilities operation, test and control articles, protocol
for nonclinical laboratory study, records, reports, and disqualification by the FDA. To the extent that we are required to, or
the above regulation applies, we intend that our nonclinical studies that are intended to support FDA submissions will comply
with GLPs.
Promotion
of Foreign-Based Cellular Therapy Treatment— “Medical Tourism”
We
may establish, or license technology to third parties in connection with their establishment of, adult stem cell therapy facilities
outside the United States. We also intend to work with hospitals and physicians to make the stem cell-based therapies available
for patients who travel outside the United States for treatment. “Medical tourism” is defined as the practice of traveling
across international borders to obtain health care.
The
Federal Trade Commission, or the FTC, has the authority to regulate and police advertising of medical treatments, procedures,
and regimens in the United States under the Federal Trade Commission Act, or the FTCA. Under Sections 5(a) and 12 of the FTCA
(15 U.S.C. §§45(a) and 52), the FTC has regulatory authority to prevent unfair and deceptive practices and false advertising.
Specifically, the FTC requires advertisers and promoters to have a reasonable basis to substantiate and support claims. The FTC
has many enforcement powers, one of which is the power to order disgorgement by promoters deemed in violation of the FTCA of any
profits made from the promoted business and can order injunctions from further violative promotion. Advertising that we may utilize
in connection with our medical tourism operations will be subject to FTC regulatory authority, and we intend to comply with such
regulatory régime. Similar laws and requirements are likely to exist in other countries and we intend to comply with such
requirements.
Federal
Regulation of Clinical Laboratories
Congress
passed the Clinical Laboratory Improvement Amendments, or CLIA, in 1988, which provided the Centers for Medicare and Medicaid
Services, or CMS, authority over all laboratory testing, except research, that is performed on humans in the United States. The
Division of Laboratory Services, within the Survey and Certification Group, under the Center for Medicaid and State Operations,
or CMSO, has the responsibility for implementing the CLIA program.
The
CLIA program is designed to establish quality laboratory testing by ensuring the accuracy, reliability, and timeliness of patient
test results. Under CLIA, a laboratory is a facility that does laboratory testing on specimens derived from humans and used to
provide information for the diagnosis, prevention, treatment of disease, or impairment of, or assessment of health. Laboratories
that handle stem cells and other biologic matter are, therefore, included under the CLIA program. Under the CLIA program, laboratories
must be certified by the government, satisfy governmental quality and personnel standards, undergo proficiency testing, be subject
to inspections, and pay fees. The failure to comply with CLIA standards could result in suspension, revocation, or limitation
of a laboratory’s CLIA certificate. In addition, fines or criminal penalties could also be levied. To the extent that our
business activities require CLIA certification, we intend to obtain and maintain such certification.
Health
Insurance Portability and Accountability Act—Protection of Patient Health Information
The
Health Insurance Portability and Accountability Act of 1996, or HIPAA, included the
Administrative Simplification
provisions
that required the Secretary of the Department of Health and Human Services, or HHS, to adopt regulations for the electronic exchange,
privacy, and security of individually identifiable health information that HIPAA protects (called “protected health information”).
HHS published the
Standards for Privacy of Individually Identifiable Health Information
, or the Privacy Rule, and the
Security
Standards for the Protection of Electronic Protected Health Information
, or the Security Rule, to protect the privacy and
security of protected health information. The Privacy Rule specifies the required, permitted and prohibited uses and disclosures
of an individual’s protected health information by health plans, health care clearinghouses, and any health care provider
that transmits health information in electronic format (referred to as “covered entities”). The Security Rule establishes
a national security standard for safeguarding protected health information that is held or transferred in electronic form (referred
to as “electronic protected health information”). The Security Rule addresses the technical and non-technical safeguards
that covered entities must implement to secure individuals’ electronic protected health information.
In
addition to covered entities, the Health Information Technology for Economic and Clinical Health Act, or the HITECH Act, made
certain provisions of the Security Rule, as well as the additional requirements the HITECH Act imposed that relate to security
or privacy and that are imposed on covered entities, directly applicable as a matter of law to individuals and entities that perform
permitted functions on behalf of covered entities when those functions involve the use or disclosure of protected health information.
These individuals and entities are called “business associates.” Covered entities are required to enter into a contract
with business associates, called a “business associate agreement,” that also imposes many of the Privacy Rule requirements
on business associates as a matter of contract.
Regulations
implementing the majority of the requirements created by the HITECH Act were issued in January 2013 (we refer to these regulations
as the Final Rule). Among other things, the Final Rule broadened the definition of “business associate” to include
subcontractors. As a result, a subcontractor who performs tasks involving the use or disclosure of protected health information
on behalf of a business associate must likewise comply with the same obligations as the business associate.
The
HITECH Act also established notification requirements in the event that a breach of the protected health information occurs at
a covered entity or business associate. These notification obligations mandate that each affected individual whose protected health
information was impermissibly accessed receive written notification mailed to his residence of record and that the Secretary of
HHS and potentially the media also be notified. HHS, through its Office for Civil Rights, investigates breach reports and determines
whether administrative or technical modifications are required and whether civil or criminal sanctions should be imposed. Companies
failing to comply with HIPAA and the implementing regulations may also be subject to civil money penalties or in the case of knowing
violations, potential criminal penalties, including monetary fines, imprisonment, or both. In some cases, the State Attorneys
General may seek enforcement and appropriate sanctions in federal court.
To
the extent that we are a covered entity or a business associate of a covered entity, we must comply with HIPAA and the implementing
regulations. We must also comply with other additional federal or state privacy laws and regulations that may apply to certain
diagnoses, such as HIV/AIDS, to the extent that they apply to us.
Other
Applicable U.S. Laws
In
addition to the above-described regulation by United States federal and state government, the following are other federal and
state laws and regulations that could directly or indirectly affect our ability to operate the business:
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state
and local licensure, registration, and regulation of the development of pharmaceuticals and biologics;
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and local licensure of medical professionals;
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state
statutes and regulations related to the corporate practice of medicine;
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laws
and regulations administered by U.S. Customs and Border Protection related to the importation of biological material into
the United States;
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|
other
laws and regulations administered by the FDA;
|
|
●
|
other
laws and regulations administered by HHS;
|
|
|
|
|
●
|
state
and local laws and regulations governing human subject research and clinical trials;
|
|
|
|
|
●
|
the
federal physician self-referral prohibition, also known as Stark Law, and any state equivalents to Stark Law;
|
|
|
|
|
●
|
the
federal Anti-Kickback Statute and any state equivalent statutes and regulations;
|
|
|
|
|
●
|
federal
and state coverage and reimbursement laws and regulations;
|
|
|
|
|
●
|
state
and local laws and regulations for the disposal and handling of medical waste and biohazardous material;
|
|
|
|
|
●
|
Occupational
Safety and Health Administration, or OSHA, regulations and requirements;
|
|
|
|
|
●
|
the
Intermediate Sanctions rules of the IRS providing for potential financial sanctions with respect to “excess benefit
transactions” with tax-exempt organizations;
|
|
|
|
|
●
|
the
Physician Payments Sunshine Act (in the event that our products are classified as drugs, biologics, devices or medical supplies
and are reimbursed by Medicare, Medicaid or the Children’s Health Insurance Program); and
|
|
|
|
|
●
|
state
and other federal laws addressing the privacy of health information.
|
Foreign
Government Regulation
In
general, we will need to comply with the government regulations of each individual country in which our therapy centers are located
and products are to be distributed and sold. These regulations vary in complexity and can be as stringent, and on occasion even
more stringent, than FDA regulations in the United States. Due to the fact that there are new and emerging cell therapy regulations
that have recently been drafted and/or implemented in various countries around the world, the application and subsequent implementation
of these new and emerging regulations have little to no precedence. Therefore, the level of complexity and stringency is not always
precisely understood for each country, creating greater uncertainty for the international regulatory process. Furthermore, government
regulations can change with little to no notice and may result in up-regulation of our product(s), thereby creating a greater
regulatory burden for our cell processing technology products. We have not yet thoroughly explored the applicable laws and regulations
that we will need to comply with in foreign jurisdictions. It is possible that we may not be permitted to expand our business
into one or more foreign jurisdictions.
We
do not have any definitive plans or arrangements with respect to the establishment by us of stem cell therapy clinics in any country.
We intend to explore any such opportunities as they arise.
Offices
Our
principal executive offices are located at 40 Marcus Drive, Melville, New York, and our telephone number is (631) 760-8100. Our
website is www.biorestorative.com. Our internet website and the information contained therein or connected thereto are not intended
to be incorporated by reference into this Annual Report.
Employees
We
currently have nine employees all of whom are full-time employees. We believe that our employee relations are good.
Not
applicable. See, however, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations
- Factors That May Affect Future Results and Financial Condition”).
ITEM
1B
.
|
UNRESOLVED
STAFF COMMENTS
.
|
Not
applicable.
Our
principal executive offices and laboratory are located at 40 Marcus Drive, Melville, New York. We occupy 6,800 square feet of
space at the premises pursuant to a lease that was entered into in August 2014 and expires in March 2020; we have an option to
extend the term of the lease for five years. The lease provides for an annual base rental during the initial term ranging between
$132,600 and $149,260. Our premises are suitable and adequate for our current operations.
ITEM
3.
|
LEGAL
PROCEEDINGS
.
|
Not
applicable.
ITEM
4.
|
MINE
SAFETY DISCLOSURES.
|
Not
applicable.
Notes
to Consolidated Financial Statements
Note
1 – Business Organization and Nature of Operations
BioRestorative
Therapies, Inc. has one wholly-owned subsidiary, Stem Pearls, LLC (“Stem Pearls”). Stem Cell Cayman Ltd. (“Cayman”),
which was formed in the Cayman Islands as a wholly-owned subsidiary of the Company, was dissolved in March 2017. BioRestorative
Therapies, Inc. and its subsidiary are referred to collectively as “BRT” or the “Company” (See Note 3
– Summary of Significant Accounting Policies – Principles of Consolidation). 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 protruding and bulging lumbar discs in patients
suffering from chronic lumbar disc disease. 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. Through the program, BRT is developing a cell-based therapy to target type 2 diabetes, obesity
and other metabolic disorders using brown adipose (fat) derived stem cells to generate brown adipose tissue (“BAT”).
BAT is intended to mimic naturally occurring brown adipose depots that regulate metabolic homeostasis in humans. 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.
Note
2 – Going Concern and Management’s Plans
As
of December 31, 2017, the Company had a working capital deficiency and a stockholders’ deficiency of $7,833,592 and $6,836,568,
respectively. During the years ended December 31, 2017 and 2016, the Company incurred net losses of $9,444,655 and $8,636,292,
respectively. These conditions indicate that there is substantial doubt about the Company’s ability to continue as a going
concern within one year after the financial statement issuance date.
The
Company’s primary source of operating funds since inception has been equity and debt financings. The Company intends to
continue to raise additional capital through debt and equity financings. There is no assurance that these funds will be sufficient
to enable the Company to fully complete its development activities or attain profitable operations. If the Company is unable to
obtain such additional financing on a timely basis or, notwithstanding any request the Company may make, the Company’s debt
holders do not agree to convert their notes into equity or extend the maturity dates of their notes, 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 consolidated financial statements have been prepared in conformity with accounting principles generally accepted
in the United States of America (“U.S. 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 financial statements do not necessarily purport to represent realizable or settlement values. The
consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.
Subsequent
to December 31, 2017, the Company has received aggregate equity financings (representing proceeds received from the exercise of
common stock purchase warrants) and debt financings of $452,168 and $420,500, respectively, debt (inclusive of accrued
interest) of $207,993 has been converted into or exchanged for common stock, $119,583 of debt has been repaid, and the
due date for the repayment of $788,982 of debt has been extended to dates between March 2018 and August 2018. As a result,
the Company expects to have the cash required to fund its operations through April 2018 while we continue to apply efforts to
raise additional capital. While there can be no assurance that it will be successful, the Company is in negotiations to raise
additional capital. As of the filing date of this report, the Company has notes payable with an aggregate principal balance of
$598,500 which are past due. The Company is currently in the process of negotiating extensions or discussing conversions
to equity with respect to these notes. However, there can be no assurance that the Company will be successful in extending or
converting these notes. See Note 12 – Subsequent Events for additional details.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
3 – Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements of the Company include the accounts of Cayman and Stem Pearls. All significant intercompany
transactions have been eliminated in the consolidation. As discussed above, Cayman, which had no material assets, liabilities
or operations (other than intercompany balances) and is no longer needed to facilitate certain financings, was dissolved in March
2017.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements
and the reported amounts of revenue and expenses during the periods. The Company’s significant estimates and assumptions
include the recoverability and useful lives of long-lived assets, the fair value of the Company’s stock, stock-based compensation,
warrants issued in connection with notes payable, derivative liabilities and the valuation allowance related to the Company’s
deferred tax assets. Certain of the Company’s estimates, including the carrying amount of the intangible assets, could be
affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible
that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from
those estimates.
Concentrations
One
license and the related royalties comprised all of the Company’s revenue during the year ended December 31, 2017, and substantially
all of the Company’s revenue during the year ended December 31, 2016. See “Revenue Recognition” below.
Cash
The
Company maintains cash in bank accounts, which, at times, may exceed Federal Deposit Insurance Corporation (“FDIC”) insured
limits. The Company has not experienced any losses in such accounts, periodically evaluates the creditworthiness of the financial
institutions and has determined the credit exposure to be negligible. As of December 31, 2017, the Company had cash balances
in excess of FDIC insured limits of $205,302. The Company considers all highly liquid investments with an original maturity
of three months or less when purchased to be cash equivalents. As of December 31, 2017 and 2016 the Company did not have any cash
equivalents.
Deferred
Offering Costs
Deferred
offering costs, which primarily consist of direct, incremental professional fees incurred in connection with a financing, are
capitalized as non-current assets on the balance sheet. Upon consummation of a financing, the deferred offering costs would be
offset against the offering proceeds. If the completion of a contemplated financing was no longer probable, the related deferred
offering costs would be charged to general and administrative expense in the consolidated financial statements.
Property
and Equipment, net
Property
and equipment are stated at cost, net of accumulated depreciation which is recorded commencing at the in-service date using the
straight-line method at rates sufficient to charge the cost of depreciable assets to operations over their estimated useful lives,
which range from 3 to 5 years. Leasehold improvements are amortized over the lesser of (a) the useful life of the asset; or (b)
the remaining lease term. Maintenance and repairs are charged to operations as incurred. The Company capitalizes cost attributable
to the betterment of property and equipment when such betterment extends the useful life of the assets.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
3 – Summary of Significant Accounting Policies – Continued
Intangible
Assets
Intangible
assets are comprised of trademarks and licenses with original estimated useful lives of 10 and 17.7 years, respectively. Once
placed into service, the Company amortizes the cost of the intangible assets over their estimated useful lives on a straight-line
basis.
Impairment
of Long-lived Assets
The
Company reviews for the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to
result from the use of the asset and its eventual disposition are less than its carrying amount. While the Company’s near-term
liquidity is tight, historically the Company has been successful in raising capital as needed (although there can be no assurance
that the Company will continue to be successful in raising capital as needed). The Company continues to progress its scientific
agenda and meet related milestones. The Company has not identified any impairment losses.
Revenue
Recognition
The
Company’s policy is to recognize product sales when the risk of loss and title to the product transfers to the customer,
after estimating potential returns. During the years ended December 31, 2017 and 2016, the Company recognized revenue related
to sales of Stem Pearls skincare products of $0 and $355, respectively.
The
Company recognizes sublicensing and royalty revenue when all of the following have occurred: (i) persuasive evidence of an arrangement
exists, (ii) the service is completed without further obligation, (iii) the sales price to the customer is fixed or determinable,
and (iv) collectability is reasonably assured. In November 2015, the Company and a stem cell treatment company (“SCTC”)
entered into an amendment to a January 27, 2012 license agreement between them. Pursuant to the amendment, effective November
30, 2015, the Company granted to the SCTC a non-exclusive sublicense to use, and the right to sublicense to third parties the
right to use, in certain locations in the United States, certain intellectual property related to stem cell disc procedures (that
originally was licensed to the Company by the SCTC pursuant to the January 27, 2012 license agreement). In consideration of the
sublicense, the SCTC has agreed to pay the Company royalties on a per disc procedure basis. During the years ended December 31,
2017 and 2016, the Company recognized $81,000 and $36,000, respectively, of revenue related to the Company’s sublicense
agreement.
Income
Taxes
The
Company recognizes deferred tax assets and liabilities for the expected future tax consequences of items that have been included
or excluded in the financial statements or tax returns. Deferred tax assets and liabilities are determined on the basis of the
difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary
differences”) at enacted tax rates in effect for the years in which the temporary differences are expected to reverse.
The
Company utilizes a recognition threshold and measurement process for financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
Management
has evaluated and concluded that there were no material uncertain tax positions requiring recognition in the Company’s consolidated
financial statements as of December 31, 2017 and 2016. The Company does not expect any significant changes in its unrecognized
tax benefits within twelve months of the reporting date.
The
Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as general
and administrative expenses in the consolidated statements of operations.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
3 – Summary of Significant Accounting Policies – Continued
Net
Loss Per Common Share
Basic
loss per common share is computed by dividing net loss by the weighted average number of vested common shares outstanding during
the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other instruments to
issue common stock were exercised or converted into common stock.
The
following securities are excluded from the calculation of weighted average dilutive common shares because their inclusion would
have been anti-dilutive:
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Options
|
|
|
3,122,202
|
|
|
|
2,168,950
|
|
Warrants
|
|
|
3,435,134
|
|
|
|
2,953,651
|
|
Convertible
notes
|
|
|
1,411,762
|
|
|
|
211,162
|
|
Total
potentially dilutive shares
|
|
|
7,969,098
|
|
|
|
5,333,763
|
|
Stock-Based
Compensation
The
Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award.
For employees, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is
generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value
amount is then recognized over the period during which services are required to be provided in exchange for the award, usually
the vesting period. Since the shares underlying the Company’s 2010 Equity Participation Plan (the “Plan”) are
registered, the Company estimates the fair value of the awards granted under the Plan based on the market value of its freely
tradable common stock as reported on the OTCQB market. The fair value of the Company’s restricted equity instruments was
estimated by management based on observations of the cash sales prices of both restricted shares and freely tradable shares. Awards
granted to directors are treated on the same basis as awards granted to employees. Upon the exercise of an option or warrant,
the Company issues new shares of common stock out of its authorized shares.
Advertising
Advertising
costs are charged to operations as incurred. For the years ended December 31, 2017 and 2016, the Company incurred advertising
costs of $26,840 and $17,972, respectively. Advertising expense is reflected in marketing and promotion expenses in the consolidated
statements of operations.
Research
and Development
Research
and development expenses are charged to operations as incurred. For the years ended December 31, 2017 and 2016, the Company incurred
research and development expenses of $2,152,433 and $2,883,563, respectively.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
3 – Summary of Significant Accounting Policies – Continued
Fair
Value of Financial Instruments
The
Company measures the fair value of financial assets and liabilities based on the guidance of ASC 820 “Fair Value Measurements
and Disclosures” (“ASC 820”).
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may
be used to measure fair value:
Level
1 — quoted prices in active markets for identical assets or liabilities
Level
2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 — inputs that are unobservable (for example, cash flow modeling inputs based on assumptions)
The
carrying amounts of accrued liabilities approximate fair value due to the short-term nature of these instruments. The carrying
amounts of our short–term credit obligations approximate fair value because the effective yields on these obligations, which
include contractual interest rates, taken together with other features such as concurrent issuance of warrants, are comparable
to rates of returns for instruments of similar credit risk.
See
Note 11 – Derivative Liabilities for additional details regarding the valuation technique and assumptions used in valuing
Level 3 inputs.
Convertible
Instruments
The
Company bifurcates conversion options from their host instruments and accounts for them as free standing derivative financial
instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks
of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host
contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured
at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings
as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative
instrument. An exception to this rule is when the host instrument is deemed to be conventional.
When
the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, the Company
records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments
(the beneficial conversion feature) based upon the differences between the fair value of the underlying common stock at the commitment
date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements
are amortized over the term of the related debt to their stated date of redemption.
Reclassification
Certain
amounts in prior periods have been reclassified to conform to the current period presentation. These reclassifications had no
effect on previously reported net loss.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
3 – Summary of Significant Accounting Policies – Continued
Subsequent
Events
The
Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based
upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required
adjustment or disclosure in the consolidated financial statements, except as disclosed.
Recently
Issued Accounting Pronouncements
In
May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers
(Topic 606),” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC 605 - Revenue
Recognition (“ASC 605”) and most industry-specific guidance throughout ASC 605. The FASB has issued numerous updates
that provide clarification on a number of specific issues as well as requiring additional disclosures. The core principle of ASC
606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines
a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required
within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in
the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction
price to each separate performance obligation. The guidance also requires enhanced disclosures regarding the nature, amount, timing
and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance may be adopted
through either retrospective application to all periods presented in the financial statements (full retrospective approach) or
through a cumulative effect adjustment to retained earnings at the effective date (modified retrospective approach). The guidance
was revised in July 2015 to be effective for emerging growth companies for annual and interim periods beginning on or after December
15, 2018. The Company is currently evaluating ASU 2014-09 and its impact on its consolidated financial statements.
In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 requires
an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. ASU 2016-02 will also
require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the
amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December
15, 2019, with early adoption permitted. The Company is currently evaluating ASU 2016-02 and its impact on its consolidated financial
statements.
In
March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718)” (“ASU 2016-09”).
ASU 2016-09 requires an entity to simplify several aspects of the accounting for share-based payment transactions, including the
income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash
flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company
adopted this guidance on January 1, 2017. The adoption of this standard did not have a material impact on the Company’s
financial statement disclosures.
In
August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and
Cash Payments” (“ASU 2016-15”). The new standard will make eight targeted changes to how cash receipts and cash
payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning
after December 15, 2018. The Company will require adoption on a retrospective basis unless it is impracticable to apply, in which
case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently
evaluating ASU 2016-15 and its impact on its consolidated financial statements or disclosures.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
3 – Summary of Significant Accounting Policies – Continued
Recently
Issued Accounting Pronouncements
- Continued
In
May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718)” (“ASU 2017-09”).
ASU 2017-09 provides clarity on the accounting for modifications of stock-based awards. ASU 2017-09 requires adoption on a prospective
basis in the annual and interim periods for the Company’s fiscal year ending December 31, 2017 for share-based payment awards
modified on or after the adoption date. The Company is currently evaluating the effect that adopting this new accounting guidance
will have on its consolidated cash flows and related disclosures.
In
July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic
480); Derivatives and Hedging (Topic 815)”: (Part I) Accounting for Certain Financial Instruments with Down Round Features,
(Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities
and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11 allows
companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is
considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with
down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value
of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding
financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income
available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features
containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be
amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2019, and interim periods within
those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective
approach. The Company is currently evaluating the effect that adopting this new accounting guidance will have on its consolidated
cash flows and related disclosures.
Note
4 – Property and Equipment, net
Property
and equipment include the following:
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Office
equipment
|
|
$
|
2,848
|
|
|
$
|
2,848
|
|
Medical
equipment
|
|
|
446,506
|
|
|
|
446,506
|
|
Furniture
and fixtures
|
|
|
121,625
|
|
|
|
121,625
|
|
Computer
software and equipment
|
|
|
78,190
|
|
|
|
74,572
|
|
Leasehold
improvements
|
|
|
304,661
|
|
|
|
304,661
|
|
|
|
|
953,830
|
|
|
|
950,212
|
|
Less:
accumulated depreciation
|
|
|
(625,983
|
)
|
|
|
(441,618
|
)
|
Property
and equipment, net
|
|
$
|
327,847
|
|
|
$
|
508,594
|
|
During
the years ended December 31, 2017 and 2016, depreciation expense amounted to $184,365 and $183,529, respectively. Depreciation
expense is reflected in general and administrative expenses and research and development expenses in the consolidated statements
of operations.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
5 – Intangible Assets, net
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 SCTC, unless certain performance milestones
had been or are satisfied, the Company would have been required to pay to SCTC $150,000 by April 2017 and will be required to
pay to the SCTC an additional $250,000 by April 2019 in order to maintain its exclusive rights with regard to the disc/spine technology.
In February 2017, the Company received authorization from the Food and Drug Administration (the “FDA”) to proceed
with a Phase 2 clinical trial. Based upon such authorization, the Company believes that it satisfied a performance milestone such
that the Company was not required to pay to the SCTC a minimum amount of $150,000 by April 2017 to retain exclusive rights with
regard to the disc/spine technology. In addition, the Company believes that it has until February 2022 to complete the Phase 2
clinical trial in order to satisfy the final performance milestone such that the Company would not be required to pay the additional
$250,000 by April 2019 pursuant to the SCTC Agreement to maintain its exclusive rights.
Intangible
assets consist of the following:
|
|
Patents
and Trademarks
|
|
|
Licenses
|
|
|
Accumulated
Amortization
|
|
|
Total
|
|
Balance
as of January 1, 2016
|
|
$
|
3,676
|
|
|
$
|
1,301,500
|
|
|
$
|
(266,435
|
)
|
|
$
|
1,038,741
|
|
Amortization
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(74,896
|
)
|
|
|
(74,896
|
)
|
Balance
as of December 31, 2016
|
|
|
3,676
|
|
|
|
1,301,500
|
|
|
|
(341,331
|
)
|
|
|
963,845
|
|
Amortization
expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(74,895
|
)
|
|
|
(74,895
|
)
|
Balance
as of December 31, 2017
|
|
$
|
3,676
|
|
|
$
|
1,301,500
|
|
|
$
|
(416,226
|
)
|
|
$
|
888,950
|
|
Weighted
average remaining amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
period
at December 31, 2017 (in years)
|
|
|
3.0
|
|
|
|
11.9
|
|
|
|
|
|
|
|
|
|
Amortization
of intangible assets consists of the following:
|
|
Patents
and Trademarks
|
|
|
Licenses
|
|
|
Accumulated
Amortization
|
|
Balance
as of January 1, 2016
|
|
$
|
1,840
|
|
|
$
|
264,595
|
|
|
$
|
266,435
|
|
Amortization
expense
|
|
|
368
|
|
|
|
74,528
|
|
|
|
74,896
|
|
Balance
as of December 31, 2016
|
|
|
2,208
|
|
|
|
339,123
|
|
|
|
341,331
|
|
Amortization
expense
|
|
|
368
|
|
|
|
74,527
|
|
|
|
74,895
|
|
Balance
as of December 31, 2017
|
|
$
|
2,576
|
|
|
$
|
413,650
|
|
|
$
|
416,226
|
|
Amortization
expense is reflected in general and administrative expenses in the consolidated statements of operations. Based upon the current
intangible assets as of December 31, 2017, amortization expense is projected to be approximately $75,000 per annum through 2029.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
6 – Accrued Expenses and Other Current Liabilities
Accrued
expenses and other current liabilities are comprised of the following:
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Credit
card payable
|
|
$
|
1,010
|
|
|
$
|
1,778
|
|
Accrued
payroll
|
|
|
349,163
|
|
|
|
747,793
|
|
Accrued
research and development expenses
|
|
|
636,175
|
|
|
|
581,175
|
|
Accrued
general and administrative expenses
|
|
|
604,308
|
|
|
|
263,468
|
|
Accrued
director compensation
|
|
|
282,500
|
|
|
|
357,500
|
|
Deferred
rent
|
|
|
50,395
|
|
|
|
52,945
|
|
Total
accrued expenses
|
|
|
1,923,551
|
|
|
|
2,004,659
|
|
Less:
accrued expenses, current portion
|
|
|
1,885,551
|
|
|
|
1,574,659
|
|
Accrued
expenses, non-current portion
|
|
$
|
38,000
|
|
|
$
|
430,000
|
|
During
the year ended December 31, 2017, the Company received non-interest bearing advances in the amount of $43,515 from an officer
and a family member of an officer of the Company and repaid an aggregate of $58,515, of which $15,000 was in accounts payable
at December 31, 2016, of non-interest bearing advances from a director, an officer and a family member of an officer of the Company.
During the year ended December 31, 2016, the Company received an aggregate of $292,090 in non-interest bearing advances from an
officer, directors and a consultant of the Company and made aggregate repayments of $364,120.
Effective
March 1, 2017, the Company entered into an exchange agreement with the Chairman of the Company’s Scientific Advisory Board,
pursuant to which an aggregate of $175,000 of accrued consulting fees were exchanged for 58,334 shares of common stock of the
Company and, in consideration thereof, the Company issued to such person an immediately vested five-year warrant for the purchase
of 58,334 shares of common stock of the Company at an exercise price of $4.00 per share. The common stock and warrants had an
aggregate grant date value of $211,752 and, as a result, the Company recorded a loss on settlement of payables of $36,752 which
is reflected within general and administrative expenses in the consolidated statements of operations.
Effective
March 1, 2017, the Company entered into exchange agreements with four non-employee directors of the Company, pursuant to which
an aggregate of $265,000 of accrued director fees were exchanged for an aggregate of 88,334 shares of common stock of the Company
and, in consideration thereof, the Company issued to the directors immediately vested five-year warrants for the purchase of an
aggregate of 88,334 shares of common stock of the Company at an exercise price of $4.00 per share. The aggregate value of the
shares and warrants was $320,652, and accordingly the Company recorded a loss on settlement of payables of $55,652 which is reflected
within general and administrative expenses in the consolidated statements of operations.
Effective
July 18, 2017, the Company entered into an exchange agreement with a certain vendor of the Company, pursuant to which $17,697
of accounts payable were exchanged for 8,334 shares of common stock of the Company. In consideration thereof, the Company issued
to the vendor immediately vested five-year warrants for the purchase of 2,000 shares of common stock of the Company at an exercise
price of $4.00 per share. The aggregate value of the shares and warrants was $19,888, and accordingly the Company recorded a loss
on settlement of payables of $2,191 which is reflected within general and administrative expenses in the consolidated statements
of operations.
See Note 9 – Commitments and Contingencies – Consulting Agreements for details regarding
an additional exchange of accrued consulting fees for shares of common stock and warrants.
As
of December 31, 2017, the Company reclassified accrued expenses in the aggregate amount of $38,000 to accrued expenses, non-current
portion, on the consolidated balance sheets related to accrued consulting fees that were exchanged for shares of common stock
and warrants subsequent to December 31, 2017. See Note 12 – Subsequent Events for additional details regarding the exchange
of accrued consulting fees.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
7 – Notes Payable
A
summary of the notes payable activity during the years ended December 31, 2017 and 2016 is presented below:
|
|
Related
Party
|
|
|
Convertible
|
|
|
Other
|
|
|
Debt
|
|
|
|
|
|
|
Notes
|
|
|
Notes
|
|
|
Notes
|
|
|
Discount
|
|
|
Total
|
|
Outstanding,
January 1, 2016
|
|
$
|
150,000
|
|
|
$
|
420,000
|
|
|
$
|
900,083
|
|
|
$
|
(158,285
|
)
|
|
$
|
1,311,798
|
|
Issuances
|
|
|
697,500
|
|
|
|
530,000
|
|
|
|
724,500
|
|
|
|
-
|
|
|
|
1,952,000
|
|
Exchanges
for equity
|
|
|
-
|
|
|
|
(235,000
|
)
|
|
|
(49,018
|
)
|
|
|
-
|
|
|
|
(284,018
|
)
|
Conversions
to equity
|
|
|
-
|
|
|
|
(325,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(325,000
|
)
|
Repayments
|
|
|
(150,000
|
)
|
|
|
-
|
|
|
|
(326,500
|
)
|
|
|
-
|
|
|
|
(476,500
|
)
|
Recognition
of debt discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(604,067
|
)
|
|
|
(604,067
|
)
|
Accretion
of interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,052
|
|
|
|
40,052
|
|
Amortization
of debt discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
542,336
|
|
|
|
542,336
|
|
Outstanding,
December 31, 2016
|
|
$
|
697,500
|
|
|
|
$
390,000
|
[1]
|
|
$
|
1,249,065
|
|
|
$
|
(179,964
|
)
|
|
$
|
2,156,601
|
|
Issuances
|
|
|
175,000
|
|
|
|
1,612,333
|
|
|
|
1,033,900
|
|
|
|
-
|
|
|
|
2,821,233
|
|
Indebtedness
satisfied via settlement
|
|
|
-
|
|
|
|
637,250
|
[2]
|
|
|
(637,250
|
)
|
|
|
-
|
|
|
|
-
|
|
Exchanges
for equity
|
|
|
(97,500
|
)
|
|
|
(50,000
|
)
|
|
|
(203,750
|
)
|
|
|
-
|
|
|
|
(351,250
|
)
|
Conversions
to equity
|
|
|
-
|
|
|
|
(495,197
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(495,197
|
)
|
Repayments
|
|
|
(60,000
|
)
|
|
|
(69,176
|
)
|
|
|
(201,000
|
)
|
|
|
-
|
|
|
|
(330,176
|
)
|
Recognition
of debt discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(964,911
|
)
|
|
|
(964,911
|
)
|
Accretion
of interest expense
|
|
|
-
|
|
|
|
4,660
|
|
|
|
13,500
|
|
|
|
188,124
|
|
|
|
206,284
|
|
Amortization
of debt discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
619,266
|
|
|
|
619,266
|
|
Outstanding,
December 31, 2017
|
|
$
|
715,000
|
|
|
|
$
2,029,870
|
[1]
|
|
$
|
1,254,465
|
|
|
$
|
(337,485
|
)
|
|
$
|
3,661,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2016
|
|
$
|
697,500
|
|
|
$
|
390,000
|
|
|
$
|
1,249,065
|
|
|
$
|
(179,964
|
)
|
|
$
|
2,156,601
|
|
Less:
current portion, December 31, 2016
|
|
|
(430,000
|
)
|
|
|
(345,000
|
)
|
|
|
(1,236,565
|
)
|
|
|
152,720
|
|
|
|
(1,858,845
|
)
|
Non-current
portion, December 31, 2016 [3]
|
|
$
|
267,500
|
|
|
$
|
45,000
|
|
|
$
|
12,500
|
|
|
$
|
(27,244
|
)
|
|
$
|
297,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2017
|
|
$
|
715,000
|
|
|
$
|
2,029,870
|
|
|
$
|
1,254,465
|
|
|
$
|
(337,485
|
)
|
|
$
|
3,661,850
|
|
Less:
current portion, December 31, 2017
|
|
|
(715,000
|
)
|
|
|
(1,834,332
|
)
|
|
|
(1,254,465
|
)
|
|
|
336,229
|
|
|
|
(3,467,568
|
)
|
Non-current
portion, December 31, 2017 [3]
|
|
$
|
-
|
|
|
$
|
195,538
|
|
|
$
|
-
|
|
|
$
|
(1,256
|
)
|
|
$
|
194,282
|
|
|
[1]
|
As
of December 31, 2017, a designated portion of convertible notes with an aggregate principal balance of $1,777,788 was convertible
into shares of common stock at the election of the holder any time immediately until the balance has been paid in full. As
of December 31, 2017 and 2016, a designated portion of convertible notes with an aggregate principal balance of $252,082 and
$390,000, respectively, was convertible into shares of common stock at the election of the Company near maturity. In the event
the Company exercised or exercises that conversion right on a designated portion of such principal balance, the holder had
or has the right to accelerate the conversion of up to $196,666 and $296,250 of principal into shares of common stock at December
31, 2017 and 2016, respectively, at the same conversion price.
|
|
|
|
|
[2]
|
In
connection with certain note extensions during the year ended December 31, 2017, the Company and a certain lender agreed to
add embedded conversion options, permitting principal and the respective accrued interest to be convertible into shares of
the Company’s common stock at the election of the lender any time until the balance has been paid in full. See Note
7 – Notes Payable – Convertible Notes and Note 11 – Derivative Liabilities for additional details regarding
the embedded conversion options.
|
|
|
|
|
[3]
|
As
of December 31, 2017 and 2016, the Company reclassified principal in the aggregate amount of $194,282 and $297,756, respectively
(net of debt discount of $1,256 and $27,244, respectively), and accrued interest in the aggregate amount of $9,591 and $7,681,
respectively, to notes payable, non-current portion, net of debt discount and accrued interest, non-current portion, respectively,
on the consolidated balance sheets related to outstanding notes payable that were converted into or exchanged for shares of
common stock and warrants subsequent to December 31, 2017 and 2016, respectively. See Note 12 – Subsequent Events for
additional details regarding notes payable.
|
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
7 – Notes Payable – Continued
Related
Party Notes
As
of December 31, 2017 and 2016, related party notes consisted of notes payable issued to certain directors of the Company and the
Tuxis Trust (the “Trust”). A director and principal shareholder of the Company (the “Director/Principal Shareholder”)
serves as a trustee of Trust, which was established for the benefit of his immediate family.
During
the year ended December 31, 2016, the Company borrowed $500,000 from the Trust. The promissory note evidencing the loan provided
for the payment of the principal amount, together with interest at the rate of 10% per annum, on July 1, 2017. In July 2017, the
interest rate payable on the note was increased to 15% per annum and the maturity date was extended to December 2017. In November
2017, the maturity date of the note was further extended to December 1, 2018 as described below. In the event that, prior to maturity,
the Company receives net proceeds of $10,000,000 from a single equity or debt financing (as opposed to a series of related or
unrelated financings), the Trust has the right to require that the Company prepay the amount due under the note (subject to the
consent of the party that provided the particular financing) (a “Financing Acceleration”). In consideration of the
loan, the Company issued to the Trust a five-year, immediately vested warrant for the purchase of 40,000 shares of common stock
of the Company at an exercise price of $4.00 per share. The $55,659 relative fair value of the warrant has been recorded as debt
discount and will be amortized over the term of the note.
During
the year ended December 31, 2016, the Company issued notes payable with an aggregate principal balance of $197,500 for aggregate
cash consideration of $190,000 to directors of the Company. The notes mature on dates ranging from January 31, 2017 to February
5, 2017 and range from bearing no interest to 10% interest per annum, payable monthly. The $7,500 difference between the principal
amount of the notes and the cash received was recorded as debt discount and is being amortized to interest expense over the term
of notes. In connection with the note issuances, the Company (i) issued one of the directors a five-year, immediately vested warrant
to purchase 8,000 shares of common stock at an exercise price of $4.00 per share and (ii) extended outstanding warrants held by
a director to purchase an aggregate of 844,444 shares of common stock with exercise prices ranging from $4.50 to $5.00 per share
from expiration dates ranging from November 2017 to March 2018 to a new expiration date of December 31, 2018. The $11,959 relative
fair value of the issued warrant and the $55,028 relative fair value of the warrant modifications have been recorded as debt discount
and are being amortized over the term of their respective notes.
During
the year ended December 31, 2017, the Company issued to the Director/Principal Shareholder a note in the principal amount of $175,000,
which bears interest at a rate of 15% per annum payable and provided for a maturity date of December 1, 2017. In November 2017,
the maturity date of the note was extended to December 1, 2018 as described below (subject to a Financing Acceleration). The note
is secured by the grant of a security interest in the Company’s equipment and intellectual property. In connection with
the borrowing, the Company agreed that the payment of the Tuxis note is also secured by such security interest.
During
the year ended December 31, 2017, the Company, the Trust and the Director/Principal Shareholder agreed to extend the maturity
dates of the above notes payable with an aggregate principal balance of $675,000, that were near maturity, to December 1, 2018
(subject to a Financing Acceleration). In consideration of the note extensions, the Company reduced the exercise prices for an
aggregate of 1,219,444 previously issued five-year warrants to purchase the Company’s common stock at prices ranging from
$4.50 to $5.00 per share to a reduced exercise price of $4.00 per share. The incremental modification expense of $84,722 has been
recorded as debt discount and is being amortized over the extended term of the notes.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
7 – Notes Payable – Continued
Related
Party Notes
- Continued
During
the year ended December 31, 2017, the Company and a director of the Company agreed to extend the maturity date of a note payable
with a principal balance of $50,000 from February 2017 to February 2018. In connection with the extension, the Company issued
the director a five-year, immediately vested warrant to purchase 5,000 shares of common stock at an exercise price of $4.00 per
share. The grant date fair value of the warrant of $8,050 was recorded as debt discount and is being amortized over the remaining
term of the note.
During
the year ended December 31, 2017, the Company and certain related party lenders agreed to exchange certain related party notes
with an aggregate principal balance of $97,500 and aggregate accrued interest of $288 into an aggregate of 32,597 shares of common
stock and immediately vested five-year warrants to purchase an aggregate of 32,597 shares of common stock at an exercise price
of $4.00 per share. The common stock and warrants had an aggregate exchange date value of $118,328 and, as a result, the Company
recorded a loss on extinguishment of notes payable of $20,540.
During
the years ended December 31, 2017 and 2016, the Company repaid an aggregate principal amount of $60,000 and $150,000, respectively,
of related party notes.
Convertible
Notes
Issuances
During
the year ended December 31, 2016, the Company issued convertible notes with an aggregate principal balance of $530,000, which
provided for maturity dates ranging from September 2016 to August 2017 and interest at the rate of 10% per annum payable at maturity.
The convertible notes were convertible into shares of the Company’s stock at the election of the Company during the five
days prior to maturity and ending on the day immediately prior to maturity at a conversion price equal to the greater of (a) a
range of 60% to 62% of the fair value of the Company’s common stock or (b) $0.75, $1.00, or $2.00 per share depending on
the note. With respect to $296,250 principal amount of the issued notes, in the event that the Company elected to convert a portion
of the principal outstanding under the notes into common stock, the holder would have the right to convert up to the remaining
principal into shares of common stock at the conversion price. In connection with the issuance of convertible notes, the Company
issued five-year, immediately vested warrants to purchase an aggregate of 33,750 shares of common stock at an exercise price of
$4.00 per share. The aggregate relative fair value of the $53,150 has been recorded as debt discount and is being amortized over
the term of the convertible notes.
During
the year ended December 31, 2017, the Company issued lenders convertible notes in the aggregate principal amount of $350,000,
which bear interest at a rate of 10% per annum payable at maturity. The convertible notes provided for original maturity dates
between November 2017 and February 2018. The notes also provided that each payment of principal and the respective accrued interest
would be convertible into shares of the Company’s common stock at the election of the Company during the period beginning
five days prior to maturity and ending on the day immediately prior to maturity at a conversion price equal to between 50% to
60% of the fair market value of the Company’s stock, depending on the particular convertible note; however, in no event
could the conversion price be less than a price between $0.75 to $1.00 per share, depending on the particular convertible note.
Should the Company elect to convert any of the note principal and respective accrued interest, the holder would have the right
to accelerate the conversion of the remaining outstanding principal and accrued interest of the note at the same conversion price.
The Company will recognize the beneficial conversion feature of the notes as debt discount at the time the contingently adjustable
conversion ratio is resolved. In connection with the issuance of these convertible notes, the Company issued a certain lender
8,000 shares of common stock and a certain other lender a five-year warrant to purchase 7,500 shares of common stock at an exercise
price of $4.00 per share. The aggregate relative fair value of the common stock and warrants of $24,388 was recorded as an original
issue discount and is being amortized over the terms of the respective notes.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
7 – Notes Payable – Continued
Convertible
Notes
- Continued
Issuances
- Continued
During
the year ended December 31, 2017, the Company issued lenders convertible notes in the aggregate principal amount of $1,204,000,
for aggregate gross proceeds of $1,065,970. The difference of $138,030 was recorded as an original issue discount and is being
amortized over the terms of the respective notes. The convertible notes bear interest at rates ranging between 6% to 10% per annum
payable at maturity with maturity dates ranging between May 2018 through July 2018. Principal and the respective accrued interest
is convertible into shares of the Company’s common stock at the election of the holder at any time immediately on or after
the issue date until the balance has been paid in full. The conversion price of certain notes in the aggregate principal amount
of $905,000 is $2.75 per share, subject to adjustment under certain circumstances. With respect to the other notes, the conversion
price shall be equal to 65% of the fair market value of the Company’s stock; however, generally the conversion price shall
not be less than $1.00 per share. Additionally, in connection with the issuance of certain convertible notes, the Company issued
certain lenders five-year warrants to purchase an aggregate 54,519 shares of the Company’s common stock at an exercise price
of $4.15 per share, subject to a mandatory redemption provision. The aggregate relative fair value of the warrants was $80,014,
which was recorded as a debt discount and is being amortized over the terms of the respective convertible notes. See Note 11 –
Derivative Liabilities for details regarding the mandatory redemption provision. In connection with certain convertible notes,
the Company incurred $13,750 of debt issuance costs.
During
the year ended December 31, 2017, the Company issued a lender a note payable in the principal amount of $83,333 of which $25,000
of principal bears no interest and $58,333 of principal bears interest at 10% per annum and is convertible into common stock.
In connection with the issuance of the note, the Company received gross proceeds of $75,000, and the difference of $8,333 has
been recorded as an original issue discount and will be amortized over the term of the note. The note provided for payment as
follows: (i) $25,000 of principal, which bore no interest and was not convertible into common stock, was payable three weeks from
the issuance date, (ii) $11,667 of principal and the respective interest on such principal was payable six months from the issuance
date (the “First Maturity Date”), (iii) $11,667 of principal and the respective interest on such principal was payable
two weeks following the First Maturity Date, (iv) $11,667 of principal and the respective accrued interest on such principal was
payable four weeks following the First Maturity Date, (v) $11,667 of principal and the respective interest on such principal was
payable six weeks following the First Maturity Date, and (vi) $11,667 of principal and the respective interest on such principal
was payable eight weeks following the First Maturity Date. Excluding the $25,000 of principal that was not convertible into common
stock as described above, each payment of principal and the respective accrued interest was convertible into shares of the Company’s
common stock at the election of the Company during the period beginning five days prior to maturity and ending on the day immediately
prior to maturity at a conversion price equal to 50% of the fair market value of the Company’s stock; however, in no event
could the conversion price be less than $0.75 per share. Should the Company elect to convert any of the note principal and respective
accrued interest, the holder would have the right to accelerate the conversion of the remaining outstanding principal and accrued
interest of the note at the same conversion price. The Company will recognize the beneficial conversion feature of the note as
debt discount at the time the contingently adjustable conversion ratio is resolved. In connection with the issuance of this note,
the Company issued the lender 3,500 shares of common stock with a relative fair value of $6,458 which was recorded as an original
issue discount and is being amortized over the term of the note.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
7 – Notes Payable – Continued
Convertible
Notes
- Continued
Conversions,
Exchanges and Other
During
the year ended December 31, 2016, the Company elected to convert certain convertible notes with an aggregate principal balance
of $325,000 and aggregate accrued interest of $16,751 into an aggregate of 137,006 shares of common stock at conversion prices
ranging from $1.94 to $3.00 per share.
During
the year ended December 31, 2016, the Company and certain lenders agreed to exchange certain convertible notes with an aggregate
principal balance of $235,000, along with accrued and unpaid interest of $9,788, for an aggregate of 143,102 shares of common
stock at prices ranging from $1.50 to $2.10 per share. The common stock had an aggregate issuance date value of $298,762 and,
as a result, the Company recorded a loss on extinguishment of $53,974.
During
the year ended December 31, 2017, the Company and a certain lender agreed to exchange a certain convertible note with a principal
balance of $50,000 and accrued interest of $2,712 into 29,280 shares of common stock. The common stock had an exchange date value
of $58,560 and, as a result, the Company recorded a loss on extinguishment of notes payable of $5,848.
During
the year ended December 31, 2017, the Company and a certain lender elected to convert certain convertible notes with an aggregate
principal balance of $495,197 and aggregate accrued interest of $29,338 into an aggregate of 243,441 shares of common stock at
conversion prices ranging from $1.75 to $2.77 per share.
During
the year ended December 31, 2017, the Company and a lender agreed to multiple extensions of the maturity dates of notes payable
with an aggregate principal balance of $637,250 with maturity dates that were near or at maturity to maturity dates ranging from
December 1, 2017 through February 10, 2018. In connection with one of the note extensions, the Company issued the lender 2,500
shares of common stock. The issuance date fair value of the common stock of $5,000 has been recorded as a debt discount and is
being amortized over the term of the note. Additionally, in connection with one of the extensions, the Company incurred an extension
fee in the amount $8,500 which was accreted as interest expense and added to the principal balance of the note. Also, in connection
with the note extensions, the Company increased the effective rate at which the notes bear interest from 0% to 8% on dates effective
between August 2, 2017 and September 7, 2017. Furthermore, in connection with certain extensions, the Company and the lender agreed
to add an aggregate $4,660 of incurred interest to the principal of the respective notes. Also, in connection with the note extensions,
the Company added embedded conversion options, pursuant to which each payment of principal and the respective accrued interest
is convertible into shares of the Company’s common stock at the election of the lender at any time until the balance has
been paid in full at a conversion price equal to 80% of the fair market value of the Company’s stock (subject to reduction
to 70% under certain circumstances); however, generally the conversion price shall not be less than $1.00 per share. The embedded
conversion options of the notes were determined to be derivative liabilities. The aggregate issuance date value of the embedded
conversion options was $252,117, which was recorded as a debt discount and is being amortized over the terms of the respective
convertible notes. See Note 11 – Derivative Liabilities for additional details.
During
the year ended December 31, 2017, the Company repaid an aggregate principal amount of $69,176 of convertible notes.
During
the years ended December 31, 2017 and 2016, the contingently adjustable conversion ratio associated with certain convertible notes
was resolved and such notes became convertible during the period. The Company estimated the intrinsic value of the embedded conversion
option based upon the difference between the fair value of the underlying common stock at the commitment date of the note transaction
and the effective conversion price embedded in the convertible note. During the years ended December 31, 2017 and 2016, the Company
recognized $11,191 and $231,708, respectively, related to the beneficial conversion feature as debt discount which was immediately
amortized.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
7 – Notes Payable – Continued
Other
Notes
Issuances
During
the year ended December 31, 2016, the Company issued other notes payable with an aggregate principal amount of $724,500 for aggregate
cash consideration of $674,000. The notes issued had maturity dates ranging from September 2016 to April 2017 and interest rates
ranging from bearing no interest to 10% per annum, payable at maturity, and the $58,000 difference between the principal amount
of the notes and the cash received was recorded as debt discount and is being amortized to interest expense over the terms of
the respective notes. In connection with the issuance of the notes, the Company issued five-year, immediately vested warrants
to purchase an aggregate of 39,000 shares of common stock at an exercise price of $4.00 per share. The aggregate $61,767 relative
fair value of the warrants has been recorded as debt discount and is being amortized over the terms of the respective notes.
During
the year ended December 31, 2017, the Company issued lenders other notes in the aggregate principal amount of $1,033,900 for aggregate
gross proceeds of $915,000, and the difference of $118,900 has been recorded as an original issue discount and will be amortized
over the terms of the respective notes (inclusive of $25,000 of principal of a note payable as discussed above in Note 7 –
Notes Payable – Convertible Notes). The other notes bear interest at rates between 0% to 12% per annum payable at maturity.
The other notes matured or mature between dates in May 2017 to July 2018. In connection with the issuance of these other notes,
the Company issued to certain lenders 22,653 shares of common stock and certain other lenders five-year warrants to purchase an
aggregate of 55,000 shares of common stock at an exercise price of $4.00 per share. The aggregate relative fair value of the common
stock and warrants of $116,248 was recorded as an original issue discount and is being amortized over the terms of the respective
notes.
Exchanges
and Other
During
the year ended December 31, 2016, the Company and certain lenders agreed to exchange certain other notes with an aggregate principal
balance of $49,018 for an aggregate of 23,925 shares of common stock at prices ranging from $1.25 to $2.45 per share. The common
stock had an aggregate issuance date value of $53,831 and, as a result, the Company recorded a loss on extinguishment of $4,813.
During
the year ended December 31, 2016, the Company and a lender agreed to multiple extensions of the maturity date of a non-interest
bearing note payable in the original principal amount of $244,000 from February 5, 2016 to July 15, 2016. In connection with the
extensions, the Company (i) paid the lender an aggregate of $111,000 of which $96,000 was repayment of the principal balance and
$15,000 was a fee related to the extension which is reflected within interest expense in the consolidated statements of operations,
(ii) the lender received 6,000 shares of common stock with a fair value of $13,500 which was recorded as debt discount and amortized
over the term of the extension and (iii) the Company and the lender agreed to exchange principal in the amount of $10,000 into
8,000 shares of common stock (included within the exchanges discussed above). On July 15, 2016, the Company repaid the $138,000
outstanding principal balance.
During
the year ended December 31, 2016, excluding amounts extended as discussed above, the Company extended notes payable with an aggregate
principal balance of $567,063 from various maturity dates within October 2015 to new maturity dates ranging from August 2016 to
October 2017. In connection with one of the notes extended, the Company issued a five-year, immediately vested warrant to purchase
30,000 shares at an exercise price of $4.00 per share. The $52,800 relative fair value of the warrant has been recorded as debt
discount and is being amortized over the term of the note. Additionally, outstanding warrants to purchase an aggregate of 60,215
shares of common stock with an exercise price of $4.00 and expiration dates ranging from June 2017 to December 2020 had their
expiration dates extended to October 2021. In connection with the warrant modifications, the Company recognized $13,120 of deferred
debt discount which is being amortized over the term of the extended note.
During
the year ended December 31, 2016, excluding amounts repaid as discussed above, the Company repaid an aggregate principal amount
of $92,500 of notes payable.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
7 – Notes Payable – Continued
Other
Notes
- Continued
Exchanges
and Other - Continued
During
the year ended December 31, 2017, the Company and certain lenders agreed to exchange certain other notes with an aggregate principal
balance of $203,750 and aggregate accrued interest of $7,114 into an aggregate of 70,205 shares of common stock and immediately
vested five-year warrants to purchase an aggregate of 63,205 shares of common stock at an exercise price of $4.00 per share. In
addition, in consideration of the exchange by certain lenders, the Company agreed to extend the expiration dates of certain warrants
held by the lenders for the purchase of an aggregate of 18,000 shares of common stock of the Company at an exercise price of $4.00
per share, from expiration dates ranging from April 27, 2021 to January 31, 2022 to a new expiration date of February 8, 2022.
The common stock, warrants, and warrant modification (which represents the incremental value of the modified warrant as compared
to the original warrant value, both valued as of the modification date) had an aggregate exchange date value of $244,414 and,
as a result, the Company recorded a loss on extinguishment of notes payable of $33,550.
During
the year ended December 31, 2017, the Company and certain lenders agreed to extend other notes with an aggregate principal balance
of $984,063, that were near or at maturity, to various dates through October 2018. In consideration of the extensions, the Company
issued certain lenders an aggregate 4,300 shares of the Company’s common stock. Also, in connection with the extensions,
the Company issued certain lenders five-year, immediately vested warrants to purchase an aggregate of 56,118 shares of the Company’s
common stock at exercise prices ranging between $4.00 to $5.00 per share. The aggregate grant date fair value of the common stock
and warrants of $96,910 has been recorded as debt discount and is being amortized over the term of the note. Additionally, in
connection with one of the extensions, the Company incurred debt issuance costs in the amount $5,000 which was accreted as interest
expense and added to the principal balance of the note.
During
the year ended December 31, 2017, the Company and a lender agreed to extend other notes with an aggregate principal balance of
$637,250 such that the notes also became convertible into shares of the Company’s common stock. See Note 7 – Notes
Payable – Convertible Notes for additional details.
During
the year ended December 31, 2017, the Company repaid an aggregate principal amount of $201,000 of other notes.
As
of December 31, 2017, the holder of a certain other note is entitled to five years of royalty payments associated with cosmetic
revenues, as defined in the note, beginning when the Company first earns cosmetic revenues and ranging from 2.0% to 4.0% of cosmetic
revenues, depending on the year the cosmetic revenues are earned. Given that the Company has not yet generated any cosmetic revenues,
no royalty payments have been earned.
Note
8 – Income Taxes
United
States and foreign components of loss before income taxes were as follows:
|
|
For
The Years Ended
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
United
States
|
|
$
|
(9,444,655
|
)
|
|
$
|
(8,627,380
|
)
|
Foreign
|
|
|
-
|
|
|
|
(8,912
|
)
|
Loss
before income taxes
|
|
$
|
(9,444,655
|
)
|
|
$
|
(8,636,292
|
)
|
The
tax effects of temporary differences that give rise to deferred tax assets and liabilities are presented below:
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
8 – Income Taxes – Continued
|
|
For
The Years Ended
|
|
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred
Tax Assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
2,176,000
|
|
|
$
|
3,495,000
|
|
Stock-based
compensation
|
|
|
2,873,000
|
|
|
|
2,868,000
|
|
Accruals
|
|
|
48,000
|
|
|
|
237,000
|
|
Research
& development tax credits
|
|
|
340,000
|
|
|
|
192,000
|
|
Other
|
|
|
1,000
|
|
|
|
2,000
|
|
Gross
deferred tax assets
|
|
|
5,438,000
|
|
|
|
6,794,000
|
|
|
|
|
|
|
|
|
|
|
Deferred
Tax Liabilities:
|
|
|
|
|
|
|
|
|
Fixed
assets
|
|
|
(34,000
|
)
|
|
|
(97,000
|
)
|
Intangible
assets
|
|
|
(16,000
|
)
|
|
|
(18,000
|
)
|
Gross
deferred tax liabilities
|
|
|
(50,000
|
)
|
|
|
(115,000
|
)
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
|
5,388,000
|
|
|
|
6,679,000
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance
|
|
|
(5,388,000
|
)
|
|
|
(6,679,000
|
)
|
|
|
|
|
|
|
|
|
|
Deferred
tax asset, net of valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Changes
in valuation allowance
|
|
$
|
(1,291,000
|
)
|
|
$
|
3,271,520
|
|
The
income tax provision (benefit) consists of the following:
|
|
For
The Years Ended
|
|
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Federal:
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
1,385,000
|
|
|
|
(2,927,149
|
)
|
State
and local:
|
|
|
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
-
|
|
Deferred
|
|
|
(94,000
|
)
|
|
|
(344,371
|
)
|
|
|
|
1,291,000
|
|
|
|
(3,271,520
|
)
|
Change
in valuation allowance
|
|
|
(1,291,000
|
)
|
|
|
3,271,520
|
|
Income
tax provision (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
8 – Income Taxes – Continued
A
reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:
|
|
For
The Years Ended
|
|
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Tax
benefit at federal statutory rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State
income taxes, net of federal benefit
|
|
|
(4.0
|
)%
|
|
|
(4.0
|
)%
|
Permanent
differences
|
|
|
(0.0
|
)%
|
|
|
0.4
|
%
|
Change
in tax rates
|
|
|
24.7
|
%
|
|
|
0.0
|
%
|
Research
& development tax credits
|
|
|
(1.6
|
)%
|
|
|
(0.6
|
)%
|
Impact
of Section 382 limits
|
|
|
28.3
|
%
|
|
|
0.0
|
%
|
True-ups
and other
|
|
|
0.3
|
%
|
|
|
0.3
|
%
|
Change
in valuation allowance
|
|
|
(13.7
|
)%
|
|
|
37.9
|
%
|
Effective
income tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The
Company assesses the likelihood that deferred tax assets will be realized. To the extent that realization is not likely, a valuation
allowance is established. Based upon the Company’s history of losses since inception, management believes that it is more
likely than not that future benefits of deferred tax assets will not be realized.
At
December 31, 2017 and 2016, the Company had approximately $8,400,000 and $9,200,000, respectively, of federal net operating losses
that may be available to offset future taxable income. The usable state net operating losses are not materially different from
the federal net operating losses. The net operating loss carry forwards, if not utilized, will expire from 2029 to 2037 for federal
purposes. In accordance with Section 382 of the Internal Revenue Code, the usage of the Company’s net operating loss carry
forwards are subject to annual limitations due to several greater than 50% ownership changes. The Section 382 limitations result
in approximately $28,200,000 of federal NOLs not being realizable as of December 31, 2017 and the cumulative reversal of approximately
$9,600,000 of net operating loss deferred tax assets.
The
Company files income tax returns in the U.S. federal jurisdiction and the state of New York (also formerly Florida where the Company
filed its final return in 2015), which remain subject to examination by the various taxing authorities beginning with the tax
year ended December 31, 2014 (or the tax year ended December 31, 2009 if the Company were to utilize its NOLs). No tax audits
were commenced or were in process during the years ended December 31, 2017 and 2016.
The
Tax Cuts and Jobs Act (the “Act”) was enacted in December 2017 making significant changes to the Internal Revenue
Code. Changes include but are not limited to (a) the reduction of the U.S. corporate income tax rate from 35% to 21% for tax years
beginning after December 31, 2017; (b) the transition of U.S. international taxation from a worldwide tax system to a territorial
system; and (c) a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The latter two changes are
not expected to impact the Company as its Cayman subsidiary generated cumulative losses and was dissolved in March
2017. The change in tax law required the Company to remeasure existing net deferred tax assets using the lower rate in the period
of enactment resulting in an income tax expense of approximately $2.3 million which is fully offset by the corresponding tax benefit
of $2.3 million from the reduction in the valuation allowance in the year ended December 31, 2017. There were no specific impacts
of the Act that could not be reasonably estimated which the Company accounted for under the prior tax law. However, based on a
continued analysis of the estimates and further guidance on the application of the law, it is possible that additional revisions
may occur throughout the allowable one-year measurement period, as outlined in Staff Accounting Bulletin No. 118.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
9 – Commitments and Contingencies
Operating
Lease
The
Company is a party to a lease for 6,800 square feet of space located in Melville, New York (the “Melville Lease”)
with respect to its corporate and laboratory operations. The Melville Lease expires in March 2020 (subject to extension at the
option of the Company for a period of five years) and calls for an annual base rental during the initial term ranging between
$132,600 and $149,260. The aggregate base rent payable over the lease term will be recognized on a straight-line basis. In connection
with the operating lease, the Company paid the landlord a security deposit of $45,900, of which $11,724 was applied as rent payments
in 2017.
During
the year ended December 31, 2017 and 2016, the Company received a credit of $21,237 and $20,912, respectively, towards its rent
payments in connection with a tax rebate received by the landlord. The Company’s rent expense amounted to $115,885 and $124,038
for the years ended December 31, 2017 and 2016, respectively. Rent expense is reflected in general and administrative expenses
and research and development expenses in the consolidated statements of operations.
Future
minimum payments under this operating lease agreement is as follows:
For
the Years Ending
|
|
|
|
December
31,
|
|
Amount
|
|
2018
|
|
$
|
140,918
|
|
2019
|
|
|
148,172
|
|
2020
|
|
|
37,315
|
|
|
|
$
|
326,405
|
|
Consulting
Agreements
Business
Advisory Services
In
June 2016, a previously expired agreement for business advisory services was further amended and the agreement was reinstated
effective as of July 1, 2016 and provided for an expiration date of December 31, 2016 (the “New Business Advisory Extended
Term”). In consideration of services rendered during the New Business Advisory Extended Term, the Company agreed to pay
a cash fee of $15,000 per month and the Company granted an immediately vested five-year warrant to purchase 10,000 shares of common
stock at an exercise price of $12.00 per share and an immediately vested five-year warrant to purchase 10,000 shares of common
stock at an exercise price of $10.00 per share. The aggregate grant date value of the warrants of $74,923 was recognized immediately.
In March 2017, the New Business Advisory Extended Term expired and was further amended. Pursuant to the amendment, the agreement
was reinstated effective as of January 1, 2017 and provides for an expiration date of December 31, 2017. In consideration of the
extension of the term of the consulting agreement, the Company issued to the consultant an immediately vested five-year warrant
for the purchase of 25,000 shares of common stock of the Company. See Note 10 – Stockholders’ Deficiency – Stock
Warrants for details associated with the issuance of warrants as compensation. Concurrently, the Company entered into an exchange
agreement with the consultant pursuant to which $30,000 of accrued consulting fees were exchanged for 10,000 shares of common
stock of the Company and, in consideration thereof, the Company issued to the consultant an immediately vested five-year warrant
for the purchase of 10,000 shares of common stock of the Company at an exercise price of $4.00 per share. The aggregate value
of shares and warrant was $36,300, and accordingly the Company recorded a loss on settlement of payables of $6,300 which is reflected
within general and administrative expenses in the consolidated statements of operations. During each of the years ended December
31, 2017 and 2016, the Company recorded cash consulting fee expense of $180,000 related to the business advisory agreement.
See
Note 10 – Stockholders’ Deficiency – Warrant and Option Valuation and Note 10 – Stockholders’ Deficiency
– Stock Warrants regarding details for the valuation of warrants and the Black-Scholes valuation assumptions.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
9 – Commitments and Contingencies – Continued
Litigations,
Claims and Assessments
In
the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary
course of business, and as of December 31, 2017, none are expected to materially impact the Company’s financial position.
The
Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements.
Employment
Agreements
Chief
Executive Officer
The
Company and its Chief Executive Officer (“CEO”) are parties to an employment agreement that expires on December
31, 2019. Pursuant to the employment agreement, as amended, in the event that (a) the CEO’s employment is terminated
by the Company without cause, or (b) the CEO terminates his employment for “good reason” (each as defined in the employment
agreement), or (c) the term of the CEO’s employment agreement is not extended beyond December 31, 2019 and within
three months of such expiration date, his employment is terminated by the Company without “cause” or the CEO terminates
his employment for any reason, the CEO would be entitled to receive severance in an amount equal to his then annual base salary
and certain benefits, plus $100,000 (in lieu of bonus). Further, in the event that the CEO’s employment is terminated by
the Company without cause, or the CEO terminates his employment for “good reason”, following a “change in control”
(as defined in the employment agreement), the CEO would be entitled to receive severance in an amount equal to one and one-half
times his then annual base salary and certain benefits, plus $300,000 (in lieu of bonus). See Note 12 – Subsequent Events
for additional details regarding an amendment of the CEO's employment agreement.
Other
In
February 2017 and March 2017, the Company’s Compensation Committee and Board of Directors, respectively, approved the following
associated with performance-based cash bonuses for certain of the Company’s officers and current employees: (i) new performance-based
cash bonuses payable for the year ending December 31, 2017 such that an aggregate of up to $402,500 could be earned for such year
pursuant to the satisfaction of such goals; and (ii) the amendment of the performance-based cash bonuses for the year ended December
31, 2016 such that an aggregate of up to $322,000 could be earned for such year pursuant to the satisfaction of such goals. Also,
pursuant to the amendment of the performance-based cash bonuses, the Company’s officers and certain employees’ achievement
date of 2016 milestones was extended from January 31, 2017 to July 31, 2017. As of December 31, 2016, the Company accrued approximately
$191,000 for 2016 bonus milestones which were achieved and approximately $100,000 for 2016 bonus milestones which were probable
to be achieved. As of December 31, 2017, the Company accrued approximately $87,000 for 2016 bonus milestones which were achieved
and $0 for 2017 bonus milestones since such milestones were deemed not probable to be achieved.
As
of December 31, 2017, two employees other than the CEO have “at-will” employment agreements with the Company that
provide for aggregate cash severance payments of $175,000, payable over twelve months, upon involuntary termination.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
10 – Stockholders’ Deficiency
Authorized
Capital
As
of December 31, 2017, the Company was authorized to issue 30,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares
of preferred stock, $0.01 par value. The holders of the Company’s common stock are entitled to one vote per share. Subject
to the rights of holders of preferred stock, if any, the holders of common stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors out of legally available funds. Subject to the rights of holders of preferred
stock, if any, upon liquidation, dissolution or winding up of the Company, holders of common stock are entitled to share ratably
in all assets of the Company that are legally available for distribution. No preferred stock has been issued through December
31, 2017.
2010
Equity Participation Plan
During
the year ended December 31, 2016, the Compensation Committee and the Company’s stockholders, respectively, approved an increase
in the number of shares authorized to be issued pursuant to the Company’s 2010 Equity Participation Plan from 2,250,000
to 4,250,000.
Compensatory
Common Stock Issuances
During
the year ended December 31, 2016, the Company issued an aggregate of 54,901 shares of immediately vested common stock valued at
$116,958 to consultants pursuant to consulting agreements for services rendered during the year.
During
the year ended December 31, 2016, the Company issued an aggregate of 13,208 shares of common stock valued at $27,553 in satisfaction
of previously accrued consulting services.
See
Note 6 – Accrued Expenses and Other Current Liabilities for details regarding exchanges of accrued expenses for shares of
common stock and warrants to a consultant and certain directors of the Company. See Note 9 – Commitments and Contingencies
for details regarding an exchange of accrued consulting fees for shares of common stock and warrants.
During
the year ended December 31, 2017, the Company issued 10,000 shares of immediately vested common stock valued at $20,000 to a consultant
for services rendered during the year.
Common
Stock and Warrant Offerings
During
the year ended December 31, 2016, the Company issued an aggregate of 956,833 shares of common stock and warrants to purchase an
aggregate of 1,801,177 shares of common stock at exercise prices ranging from $4.00 to $5.00 per share to investors for aggregate
gross proceeds of $3,498,338. Of the aggregate warrants issued, warrants to purchase 444,444, 400,000 and 956,733 shares of common
stock had terms of 0.7, 1.0 and 5.0 years, respectively. The warrants had an aggregate grant date fair value of $2,054,144.
During
the year ended December 31, 2017, the Company issued an aggregate of 361,335 shares of common stock and five-year immediately
vested warrants to purchase an aggregate of 371,335 shares of common stock at an exercise price of $4.00 to investors for aggregate
gross proceeds of $1,084,000. The warrants had an aggregate grant date fair value of $601,595.
Return
of Shares to Treasury
In
June 2016, the Company and a consultant agreed that, due to the amount and nature of the services performed, the consultant would
return 7,500 shares of common stock to the Company with a fair value of $16,875. Accordingly, the Company recorded the treasury
shares at cost with a stock-based compensation credit which is reflected within consulting expense in the consolidated statements
of operations.
Retirement
of Treasury Shares
In
August 2016, the Company’s Board of Directors made a determination to retire 35,432 shares of treasury stock.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
10 – Stockholders’ Deficiency - Continued
Warrant
and Option Valuation
The
Company has computed the fair value of warrants and options granted using the Black-Scholes option pricing model. Option forfeitures
are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate will be adjusted periodically
based on the extent to which actual option forfeitures differ, or are expected to differ, from the previous estimate, when it
is material. The Company estimated forfeitures related to option grants at an annual rate ranging from 0% to 5% for options granted
during the years ended December 31, 2017 and 2016. 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
Warrants
Warrant
Compensation
During
the year ended December 31, 2016, the Company issued an immediately vested five-year warrant to purchase 40,000 shares of common
stock at an exercise price of $4.00 per share to a consultant for services rendered. The issuance date fair value of $62,908 was
immediately recognized as stock-based compensation expense which is reflected in consulting expense in the consolidated statements
of operations.
On
March 1, 2017, the Company extended a previously expired agreement with a consultant from January 1, 2017 to December 31, 2017.
In connection with this extension, the Company issued to the consultant an immediately vested five-year warrant to purchase 25,000
shares of common stock at an exercise price of $4.00 per share. The issuance date fair value of $40,763 was immediately recognized
as stock-based compensation expense which is reflected in consulting expense in the consolidated statements of operations. See
Note 9 – Commitments and Contingencies – Consulting Agreements for details associated with the issuance of warrants
as compensation.
On
April 5, 2017, the Company extended a previously expired agreement with a consultant from January 1, 2017 to June 30, 2017. In
connection with this extension, the Company issued a five-year immediately vested warrant to purchase 20,000 shares of common
stock at an exercise price of $4.50 per share. The warrant grant date fair value of $30,440 was recognized immediately as stock-based
compensation expense which is reflected as consulting expense in the consolidated statements of operations.
On
July 12, 2017, the Company issued an immediately vested five-year warrant to purchase 25,000 shares of common stock at an exercise
price of $4.00 per share to a consultant for services rendered. The warrant grant date fair value of $40,275 was recognized immediately
as stock-based compensation expense and is reflected as consulting expense in the consolidated statements of operations.
On
November 15, 2017, the Company extended a previously expired agreement with a consultant from October 1, 2017 to May 31, 2018.
In connection with this extension, the Company issued a five-year immediately vested warrant to purchase 35,000 shares of common
stock at an exercise price of $4.00 per share. The warrant grant date fair value of $56,434 was recognized immediately as stock-based
compensation expense which is reflected as consulting expense in the consolidated statements of operations.
The
Company recorded stock–based compensation expense of $167,912 and $62,908 during the years ended December 31, 2017 and 2016,
respectively, related to stock warrants issued as compensation, which is reflected as consulting expense in the consolidated statements
of operations. As of December 31, 2017, there was no unrecognized stock-based compensation expense related to stock warrants.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
10 – Stockholders’ Deficiency – Continued
Stock
Warrants
- Continued
Warrant
Modifications and Exercises
During
the year ended December 31, 2016, warrants to purchase an aggregate of 60,831 shares of common stock were exercised at a reduced
exercise price of $3.50 per share (reduced from exercises prices ranging from $4.00 to $15.00 per share) for aggregate gross proceeds
of $212,898. The Company recognized a warrant modification charge of $23,448 during the year ended December 31, 2016, which represents
the incremental value of the modified warrants as compared to the original warrants, both valued as of the respective modification
dates.
During
the year ended December 31, 2016, the Company reduced the exercise price of previously outstanding warrants to purchase an aggregate
of 44,166 shares of common stock from exercise prices ranging from $6.00 to $15.00 per share to a new exercise price of $4.00
per share and recognized $5,038 of incremental expense related to the modification of the warrants which is reflected in warrant
modification expense in the consolidated statements of operations.
During
the year ended December 31, 2017, the Company issued an aggregate of 410,625 shares of common stock pursuant to the exercise of
warrants for aggregate gross proceeds of $821,250. The shares were issued pursuant to a warrant repricing program under which
the exercise price for certain outstanding and exercisable warrants for the purchase of shares of common stock of the Company
was reduced to $2.00 per share (reduced from exercises prices ranging from $4.00 to $30.00 per share). The warrants were exercised
over a limited period of time. In connection with the share issuances, the Company issued to the purchasers of such shares
additional two-year warrants for the purchase of an aggregate of 102,656 shares of common stock of the Company at an exercise
price of $4.00 per share. The Company recognized a warrant modification charge of $6,618 during the year ended December 31, 2017,
which represents the incremental value of the modified warrants and additional warrants issued as compared to the original warrants,
both valued as of the respective modification dates.
During
the year ended December 31, 2017, with respect to a warrant held by an investor, the Company agreed that (i) the conditions to
the exercisability of the warrant for tranches to purchase an aggregate of 35,000 shares were eliminated, such that the entire
warrant to purchase 50,000 shares of common stock was exercisable, and (ii) the exercise price of the warrant was reduced from
an exercise price of $30.00 per share to $3.50 per share. Concurrent with the modification of the warrant, the investor exercised
the warrant in full for aggregate gross proceeds to the Company of $175,000. The Company recognized a warrant modification charge
of $4,500 during the year ended December 31, 2017, which represents the incremental value of the modified warrants as compared
to the original warrants, both valued as of the respective modification dates which is reflected in warrant modification expense
in the consolidated statement of operations
.
During
the year ended December 31, 2017, with respect to warrants held by certain lenders, the Company agreed to extend the expiration
dates and reduce the exercise price of certain warrants to purchase an aggregate 53,291 and 1,233,931 shares of the Company’s
common stock, respectively. The expiration dates of the warrants were extended from dates ranging between December 31, 2017 through
December 29, 2021 to new expiration dates ranging between December 31, 2019 and June 28, 2022. The exercise price of certain warrants
was reduced from an exercise price ranging between $4.50 and $10.00 per share to $4.00 per share. The Company recognized a warrant
modification charge of $18,962 during the year ended December 31, 2017, which represents the incremental value of the modified
warrants as compared to the original warrants, both valued as of the respective modification dates. The charge is reflected in
warrant modification expense in the consolidated statements of operations
.
Of the warrants with the reduced exercise prices
to purchase an aggregate 1,233,931 shares of the Company’s common stock, 1,219,444 of the warrants to purchase the Company’s
common stock were reduced as consideration of extending the maturity dates of certain related party notes payable and are reflected
as debt discount, net of notes payable in the consolidated balance sheet. See Note 7 – Notes Payable – Related Party
Notes for details.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
10 – Stockholders’ Deficiency – Continued
Stock
Warrants
- Continued
Warrant
Activity Summary
In
applying the Black-Scholes option pricing model to warrants granted, the Company used the following assumptions:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Risk
free interest rate
|
|
|
1.74%
- 2.07
|
%
|
|
|
0.44%
- 2.07
|
%
|
Contractual
term (years)
|
|
|
2.00
- 5.00
|
|
|
|
0.67
- 5.00
|
|
Expected
volatility
|
|
|
120%
- 132
|
%
|
|
|
124%
- 152
|
%
|
Expected
dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The
weighted average estimated fair value of the warrants granted during the years ended December 31, 2017 and 2016 was approximately
$1.54 and $1.18 per share, respectively.
See
Note 6 – Accrued Expenses and Other Current Liabilities for details regarding exchanges of accrued expenses for shares of
common stock and warrants to a consultant and certain directors of the Company. See Note 7 – Notes Payable for details associated
with the issuance of warrants in connection with note issuances and the exchange of notes payable. See Note 9 – Commitments
and Contingencies – Consulting Agreements for details associated with the issuance of warrants as compensation. See Note
10 – Stockholders’ Deficiency – Common Stock and Warrant Offerings for details associated with the issuance
of warrants in connection with common stock and warrant offerings.
A
summary of the warrant activity during the year ended December 31, 2017 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Warrants
|
|
|
Price
|
|
|
In
Years
|
|
|
Value
|
|
Outstanding,
December 31, 2016
|
|
|
2,953,651
|
|
|
$
|
5.40
|
[1]
|
|
|
|
|
|
|
|
|
Issued
|
|
|
1,011,598
|
|
|
|
4.01
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(460,625
|
)
|
|
|
2.16
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(69,490
|
)
|
|
|
17.19
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2017
|
|
|
3,435,134
|
|
|
$
|
4.47
|
|
|
|
2.8
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
December 31, 2017
|
|
|
3,435,134
|
|
|
$
|
4.47
|
|
|
|
2.8
|
|
|
$
|
-
|
|
|
[1]
|
Excludes
the impact of a warrant to purchase 35,000 shares of common stock that had an exercise price which was the greater of $30.00
per share or the fair market value of the common stock on the date certain performance criteria are met. Exercisability was
subject to satisfaction of certain performance criteria which had not occurred as of December 31, 2016. As discussed above
under Warrant Modifications and Exercises, on February 10, 2017, the performance criteria were eliminated and the exercise
price was reduced to $3.50 per share in consideration of the full exercise of the warrant by the holder.
|
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
10 – Stockholders’ Deficiency – Continued
Stock
Warrants
- Continued
Warrant
Activity Summary - Continued
The
following table presents information related to stock warrants at December 31, 2017:
Warrants
Outstanding
|
|
Warrants
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Exercisable
|
|
Exercise
|
|
Number
of
|
|
|
Remaining
Life
|
|
|
Number
of
|
|
Price
|
|
Warrants
|
|
|
In
Years
|
|
|
Warrants
|
|
$4.00
- $4.99
|
|
|
2,935,892
|
|
|
|
2.7
|
|
|
|
2,935,892
|
|
$5.00
- $5.99
|
|
|
369,739
|
|
|
|
3.4
|
|
|
|
369,739
|
|
$6.00
- $7.99
|
|
|
40,000
|
|
|
|
2.6
|
|
|
|
40,000
|
|
$8.00
- $9.99
|
|
|
2,500
|
|
|
|
1.9
|
|
|
|
2,500
|
|
$10.00
- $14.99
|
|
|
40,400
|
|
|
|
2.2
|
|
|
|
40,400
|
|
$15.00
- $19.99
|
|
|
35,435
|
|
|
|
1.7
|
|
|
|
35,435
|
|
$20.00
- $80.00
|
|
|
11,168
|
|
|
|
0.6
|
|
|
|
11,168
|
|
|
|
|
3,435,134
|
|
|
|
2.8
|
|
|
|
3,435,134
|
|
Stock
Options
In
applying the Black-Scholes option pricing model to stock options granted, the Company used the following assumptions:
|
|
For
the Years Ended
|
|
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Risk
free interest rate
|
|
|
1.77%
- 1.88
|
%
|
|
|
1.16%
- 1.53
|
%
|
Expected
term (years)
|
|
|
5.50
- 6.00
|
|
|
|
5.50
- 10.00
|
|
Expected
volatility
|
|
|
120%
- 130
|
%
|
|
|
124%
- 126
|
%
|
Expected
dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The
weighted average estimated fair value of the stock options granted during the years ended December 31, 2017 and 2016 was approximately
$2.75 and $3.24 per share, respectively.
In
February 2016, the Company granted a ten-year option to a director to purchase 15,000 shares of the Company’s common stock
at an exercise price of $3.70. The shares vest ratably over three years on the issuance date anniversaries. The options had an
aggregate grant date value of $52,900 which is being amortized over the vesting period of the option.
In
June 2016, the Company issued ten-year options to employees, directors and advisors to purchase an aggregate of 827,000 shares
of common stock at an exercise price of $3.73 per share, pursuant to the Plan. The shares vest as follows: (i) 192,333 shares
vest immediately, (ii) 384,667 shares vest ratably over two years on the issuance date anniversaries and (iii) 250,000 shares
vest ratably over three years on the issuance date anniversaries. The options had an aggregate grant date value of $2,682,800
which is being amortized over the vesting period of the options.
In
August 2016, the Company granted a ten-year option to the Chairman of the Company’s Scientific Advisory Board, to purchase
15,000 shares of the Company’s common stock at an exercise price of $3.10. The shares vest ratably over two years on the
issuance date anniversaries. The option had a grant date fair value of $41,000 which is being amortized over the vesting period
of the option.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
10 – Stockholders’ Deficiency – Continued
Stock
Options
- Continued
On
February 14, 2017, the Compensation Committee reduced the exercise price of outstanding options for the purchase of an aggregate
of 1,219,450 shares of common stock of the Company (with exercise prices ranging between $5.70 and $30.00 per share) to $4.70
per share, which was the closing price for the Company’s common stock on February 13, 2017, as reported by the OTCQB. The
exercise price reduction related to options held by, among others, the Company’s executive officers and directors. The incremental
value of the modified options compared to the original options, both valued as of the respective modification date, of $430,394
is being recognized over the vesting term of the options.
During
the year ended December 31, 2017, the Company issued ten-year options to employees, directors, and an advisor of the Company to
purchase an aggregate of 1,117,000 shares of common stock at exercise prices ranging between $2.80 to $3.35 per share. The options
vest as follows: (i) options for the purchase of 283,336 shares vested immediately, (ii) options for the purchase of 372,338 shares
vest on the one-year anniversary of the issuance date, (iii) options for the purchase of 372,332 shares vest on the two-year anniversary
of the issuance date and (iv) options for the purchase of 88,994 shares vest on the three-year anniversary of the issuance date.
The options had an aggregate grant date value of $3,070,600 which is being amortized over the vesting term of the respective options.
A
summary of the option activity during the year ended December 31, 2017 is presented below:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number
of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
In
Years
|
|
|
Value
|
|
Outstanding,
December 31, 2016
|
|
|
2,168,950
|
|
|
|
7.53
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,117,000
|
|
|
|
3.23
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(163,748
|
)
|
|
|
3.69
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2017
|
|
|
3,122,202
|
|
|
$
|
4.25
|
|
|
|
7.9
|
|
|
$
|
490,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
December 31, 2017
|
|
|
1,928,380
|
|
|
$
|
4.73
|
|
|
|
7.1
|
|
|
$
|
103,668
|
|
The
following table presents information related to stock options at December 31, 2017:
Options
Outstanding
|
|
|
Options
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Exercisable
|
|
Exercise
|
|
Number
of
|
|
|
Remaining
Life
|
|
|
Number
of
|
|
Price
|
|
Options
|
|
|
In
Years
|
|
|
Options
|
|
$2.00
- $2.99
|
|
|
197,000
|
|
|
|
-
|
|
|
|
-
|
|
$3.00
- $3.99
|
|
|
1,653,667
|
|
|
|
8.4
|
|
|
|
763,842
|
|
$4.00
- $4.99
|
|
|
1,194,035
|
|
|
|
6.3
|
|
|
|
1,087,038
|
|
$5.00
- $5.99
|
|
|
5,000
|
|
|
|
6.5
|
|
|
|
5,000
|
|
$6.00
- $19.99
|
|
|
37,500
|
|
|
|
6.0
|
|
|
|
37,500
|
|
$20.00
- $30.00
|
|
|
35,000
|
|
|
|
4.2
|
|
|
|
35,000
|
|
|
|
|
3,122,202
|
|
|
|
7.1
|
|
|
|
1,928,380
|
|
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
10 – Stockholders’ Deficiency – Continued
Stock
Options
- Continued
The
following table presents information related to stock option expense:
|
|
For
the Years Ended
|
|
|
Unrecognized
at
|
|
|
Weighted
Average
Remaining
Amortization
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
Period
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
(Years)
|
|
Consulting
|
|
$
|
1,558,392
|
|
|
$
|
880,288
|
|
|
$
|
1,070,059
|
|
|
|
1.2
|
|
Research
and development
|
|
|
481,041
|
|
|
|
492,061
|
|
|
|
564,486
|
|
|
|
2.0
|
|
General
and administrative
|
|
|
1,373,459
|
|
|
|
1,001,445
|
|
|
|
848,392
|
|
|
|
1.4
|
|
|
|
$
|
3,412,892
|
|
|
$
|
2,373,794
|
|
|
$
|
2,482,937
|
|
|
|
1.5
|
|
Note
11 – Derivative Liabilities
See
Note 7 – Notes Payable – Convertible Notes for additional details associated with the issuance of certain convertible
notes payable for which the embedded conversion options and mandatory redemption provisions of warrants were classified as derivative
liabilities.
During
the year ended December 31, 2017, the Company recorded derivative liabilities in the amount of $80,014 related to warrants issued
in connection with certain convertible notes payable. These warrants are redeemable for cash equal to the Black-Scholes value,
as defined, at the election of the warrant holder upon a fundamental transaction pursuant to the warrant terms. The Company has
estimated the fair value of the warrants granted using the Black-Scholes model using the following assumptions: expected volatility
of 130%, risk-free rates between 2.06% and 2.07%, contractual terms of 5 years, and expected dividends of 0%.
During
the year ended December 31, 2017, the Company recorded derivative liabilities in the amount of $252,117 related to the embedded
conversion options of convertible notes payable. The Company estimated the fair value of the original derivative liabilities using
the Multinomial Lattice option pricing model (Level 3 inputs) using the following assumptions: expected volatility ranging between
123% and 133%, risk-free rates between 1.22% and 1.53%, contractual terms ranging 0.12 and 0.91 years,
expected dividends of 0%, and the fair value of the Company’s freely tradable common stock as reported on the OTCQB market.
On
December 31, 2017, the Company’s inputs to the Multinomial Lattice option pricing model (Level 3 inputs) were as
follows: expected volatility of 129%, risk-free rates between 1.28% and 1.39%, contractual terms ranging between 0.00 and
0.11 years, expected dividends of 0%, and the fair value of the Company’s freely tradable common stock as reported on the
OTCQB market. The Company recorded a gain on the change in fair value of these derivative liabilities of $107,039 during the year
ended December 31, 2017.
During
the year ended December 31, 2017, the Company reclassified $9,019 of derivative liabilities to equity in connection with the conversion
of convertible notes payable into shares of common stock.
The
following table sets forth a summary of the changes in the fair value of Level 3 derivative liabilities that are measured at fair
value on a recurring basis:
Beginning
balance as of January 1, 2017
|
|
$
|
-
|
|
Issuance
of derivative liabilities
|
|
|
332,131
|
|
Reclassification
of derivative liabilities to equity
|
|
|
(9,019
|
)
|
Change
in fair value of derivative liabilities
|
|
|
(107,039
|
)
|
Ending
balance as of December 31, 2017
|
|
$
|
216,073
|
|
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
12 – Subsequent Events
Notes
Payable
Subsequent
to December 31, 2017, the Company issued certain lenders convertible notes payable in the aggregate principal amount of $414,000,
for aggregate cash proceeds of $396,250. The difference of $17,750 was recorded as a debt discount and will be amortized over
the terms of the respective notes. The convertible notes bear interest at rates ranging between 10% to 12% per annum payable
at maturity with maturity dates ranging between August 2018 through December 2018. The convertible notes are convertible as follows:
(i) $184,000 of aggregate principal and the respective interest is convertible into shares of the Company’s common stock
at the election of the respective holder at any time immediately on or after the issue dates until the respective balances have
been paid in full, (ii) $175,000 of principal and the respective interest is convertible into shares of the Company’s
common stock at the election of the holder after the 180
th
day following the issue date until the balance has been
paid in full, (iii) $55,000 of principal and respective interest is convertible into shares of the Company’s stock at the
election of the Company during the five days prior to maturity and ending on the day immediately prior to maturity; however, should
the Company elect to convert any portion of the $55,000 of note principal and respective accrued interest, the holder would have
the right to accelerate the conversion of the remaining outstanding principal and accrued interest of the note at the same conversion
price. The conversion prices of the convertible notes are equal to the greater of (a) a range between 50% to 65% of the fair value
of the Company’s stock or (b) $0.75 or $1.00 per share depending on the note. In connection with the issuance of
a certain convertible note, the Company issued the lender 12,000 shares of the Company’s common stock. In connection with
another convertible note, the Company incurred $25,750 of debt issuance costs. The issuance date fair value of the common stock
and debt issuance costs will be recorded as debt discount and will be amortized over the terms of the respective notes.
Subsequent
to December 31, 2017, the Company issued a lender a three-month note payable in the principal amount of $58,000, which bears no
interest, for cash proceeds of $50,000. The $8,000 difference was recorded as a debt discount and will be amortized over the term
of the note. In connection with the issuance of this promissory note, the Company issued the lender 1,500 shares of the Company’s
common stock. The issuance date fair value of the common stock will be recorded as debt discount and will be amortized over the
term of the note.
Subsequent
to December 31, 2017, the Company and certain lenders agreed to exchange certain convertible notes with an aggregate principal
balance of $117,917 and aggregate accrued interest of $7,172 for an aggregate of 71,963 shares of the Company’s common stock
at prices ranging from $1.58 to $2.11 per share.
Subsequent
to December 31, 2017, the Company elected to convert certain convertible notes with an aggregate principal balance of $77,621
and aggregate accrued interest of $5,283 into an aggregate of 39,733 shares of the Company’s common stock at conversion
prices ranging from $1.90 to $2.38 per share.
Subsequent
to December 31, 2017, the Company and certain lenders agreed to multiple extensions of the maturity dates of notes payable
with an aggregate principal balance of $788,982 from maturity dates ranging between December 2017 to March 2018 to new
maturity dates ranging from March 2018 to August 2018. In consideration of the extensions, the Company issued certain lenders
an aggregate of 19,500 shares of the Company’s common stock. The issuance date fair value of the common stock will be recorded
as debt discount and will be amortized over the terms of the respective notes. Also in connection with one of the extensions,
the Company increased the effective rate at which the note bears interest, from 0% to 8% per annum, effective February 8, 2018.
Subsequent
to December 31, 2017, the Company repaid an aggregate principal amount of $94,583 and $25,000 of convertible and related
party notes payable, respectively.
Consulting
Agreements
Subsequent
to December 31, 2017, the Company extended a previously expired agreement with a consultant from January 1, 2018 to December 31,
2018. In connection with the amendment, the Company issued to the consultant an immediately vested five-year warrant for the purchase
of 30,000 shares of the Company’s common stock at an exercise price of $4.00 per share.
BIORESTORATIVE
THERAPIES, INC. & SUBSIDIARIES
Notes
to Consolidated Financial Statements
Note
12 – Subsequent Events - Continued
Employment
Agreements
Subsequent
to December 31, 2017, the Company entered into an employment agreement with its new Senior Vice President of Planning and Business
Development (the “Senior VP”). Pursuant to the employment agreement, in the event that (a) the Senior VP’s employment
is terminated by the Company without cause, or (b) the Senior VP terminates his employment for “good reason” (each
as defined in the employment agreement), the Senior VP would be entitled to receive severance in an amount equal to three months
of his then annual base salary.
Subsequent
to December 31, 2017, the Company’s Compensation Committee approved the extension of the CEO’s employment agreement
from March 31, 2018 to December 31, 2019. In connection with the extension, the CEO is entitled to new performance-based cash
bonuses payable for the years ending December 31, 2018 and 2019, such that an aggregate of up to 50% of the CEO's then annual
base salary per annum could be earned for such year pursuant to the satisfaction of such goals.
Options
Subsequent
to December 31, 2017, the Company granted the Senior VP a ten-year option to purchase 500,000 shares of the Company’s common
stock at an exercise price of $3.40 per share. The shares vest based upon the achievement of certain performance conditions.
Stock
Warrants
Subsequent
to December 31, 2017, the Company issued an aggregate of 226,084 shares of the Company’s common stock pursuant to the exercise
of warrants for aggregate gross proceeds of $414,168 and in exchange for $38,000 of previously accrued consulting fees. The shares
were issued pursuant to a warrant repricing program under which the exercise price for certain outstanding and exercisable warrants
for the purchase of shares of common stock of the Company was reduced to $2.00 per share (reduced from exercises prices ranging
from $4.00 to $5.00 per share). The warrants were exercised over a limited period of time. In connection with the share
issuances, the Company issued to the purchasers of such shares additional two-year warrants for the purchase of an aggregate of
56,521 shares of common stock of the Company at an exercise price of $4.00 per share.