BioRestorative Therapies, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q includes a number of forward-looking statements that reflect management’s current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 30, 2021, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation: ● our ability to obtain financing needed to commence and complete our clinical trials; ● our ability to successfully develop and commercialize BRTX-100, our lead product candidate for the treatment of chronic lumbar disc disease; ● our ability to retain exclusive rights with regard to our licensed technology; ● our ability to protect our proprietary rights; ● our ability to achieve and sustain profitability of the existing lines of business; ● our ability to attract and retain world-class research and development talent; ● our ability to attract and retain key science, technology and management personnel and to expand our management team; ● the accuracy of estimates regarding expenses, future revenue, capital requirements, profitability, and needs for additional financing; ● business interruptions resulting from geo-political actions, including war and terrorism or disease outbreaks (such as the recent outbreak of COVID-19); ● our ability to attract and retain customers; and ● our ability to navigate through the increasingly complex therapeutic regulatory environment. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes in the future operating results over time, except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions. As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “Company,” “we,” “us,” and “our” refer to BioRestorative Therapies, Inc., a Delaware corporation (“BRT”), and its wholly-owned subsidiary, Stem Pearls, LLC, a New York limited liability company (“Stem Pearls”). Unless otherwise specified, all dollar amounts are expressed in United States dollars. 26 Intellectual Property This report includes references to our federally registered trademarks, BioRestorative Therapies and Dragonfly design , BRTX-100, ThermoStem and Stem Pearls . We also own an allowed trademark application for BRTX . The Dragonfly Logo is also registered with the U.S. Copyright Office. This 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 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. Corporate History BioRestorative Therapies, Inc. has one wholly-owned subsidiary, Stem Pearls. BioRestorative Therapies, Inc. and its subsidiary are referred to collectively as “BRT” or the “Company”. On March 20, 2020 (the “Petition Date”), the Company filed a voluntary petition commencing a case (the “Chapter 11 Case”) under Chapter 11 of title 11 of the U.S. Code in the United States Bankruptcy Court for the Eastern District of New York (the “Bankruptcy Court”). On August 7, 2020 the Company and Auctus Fund, LLC (“Auctus”), the Company’s largest unsecured creditor and a stockholder as of the Petition Date, filed an Amended Joint Plan of Reorganization (the “Plan”) and on October 30, 2020, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Plan, as amended. Amendments to the Plan are reflected in the Confirmation Order. On November 16, 2020 (the “Effective Date”), the Plan became effective. See Note 5 – Notes Payable in Part I, Item I of this report for additional information. Business Overview We develop therapeutic products and medical therapies using cell and tissue protocols, primarily involving adult (non-embryonic) stem cells. We are currently pursuing our Disc/Spine Program with our initial investigational therapeutic product being called BRTX-100 . We submitted an IND application to the FDA to obtain authorization to commence a Phase 2 clinical trial investigating the use of BRTX-100 , our lead cell therapy candidate, in the treatment of chronic lower back pain arising from degenerative disc disease. We have received such authorization from the FDA. We intend to commence such clinical trial during 2022 (assuming the receipt of necessary funding). We have obtained a license to use technology for investigational adult stem cell treatment of disc and spine conditions, including protruding and bulging lumbar discs. The technology is an advanced stem cell injection procedure that may offer relief from lower back pain, buttock and leg pain, and numbness and tingling in the leg and foot. We are also developing our ThermoStem Program . This pre-clinical program involves the use of brown adipose (fat) in connection with the cell-based treatment of type 2 diabetes and obesity as well as hypertension, other metabolic disorders and cardiac deficiencies. United States patents related to the ThermoStem Program were issued in September 2015, January 2019, March 2020, March 2021, and July 2021; Australian patents related to the ThermoStem Program were issued in April 2017 and October 2019; Japanese patents related to the ThermoStem Program were issued in December 2017 and May 2021; Israeli patents related to the ThermoStem Program were issued in October 2019 and May 2020; and European patents related to the ThermoStem Program were issued in April 2020 and January 2021. We have licensed a patented curved needle device that is a needle system designed to deliver cells and/or other therapeutic products or materials to the spine and discs or other potential sites. We anticipate that FDA approval or clearance will be necessary for this device prior to commercialization. We do not intend to utilize this device in connection with our contemplated Phase 2 clinical trial with regard to BRTX-100 . Revenue The Company derives all of its revenue pursuant to a license agreement between the Company and a stem cell treatment company (“SCTC”) entered into in January 2012, as amended in November 2015. Pursuant to the license agreement, the SCTC granted to the Company a license to use certain intellectual property related to, among other things, stem cell disc procedures and the Company has granted to the SCTC a sublicense to use, and the right to sublicense to third parties the right to use, in certain locations in the United States and the Cayman Islands, certain of the licensed intellectual property. In consideration of the sublicenses, the SCTC has agreed to pay the Company royalties on a per disc procedure basis. 27 Results of Operations Comparison of the Three Months Ended June 30, 2021 to the Three Months Ended June 30, 2020 Our financial results for the three months ended June 30, 2021 are summarized as follows in comparison to the three months ended June 30, 2020: For The Three Months Ended June 30, 2021 2020 Revenues $ 15,000 $ 19,000 Operating Expenses: Marketing and promotion 6,220 6,123 Consulting 1,648 33,589 Research and development 160,898 261,553 General and administrative 3,401,497 179,323 Total Operating Expenses 3,570,263 480,588 Loss From Operations (3,555,263 ) (461,588 ) Other Income (Expense): Interest expense (181,958 ) (24,168 ) Amortization of debt discount (325,374 ) - Loss on extinguishment of notes payable, net - - Change in fair value of derivative liabilities - - Reorganization items, net - 3,361,416 Total Other Income (Expense) (507,332 ) 3,337,248 Net Income (Loss) $ (4,062,595 ) 2,875,660 Revenues For the three months ended June 30, 2021 and 2020, we generated $15,000 and $19,000, respectively, of royalty revenue in connection with our sublicense agreement. Marketing and Promotion Marketing and promotion expenses include advertising and promotion, marketing and seminars, meals, entertainment and travel expenses. For the three months ended June 30, 2021 and 2020, marketing and promotion expenses remained consistent. We expect that marketing and promotion expenses will increase in the future as we increase our marketing activities following full commercialization of our products and services. Consulting Consulting expenses consist of consulting fees and stock-based compensation to consultants. For the three months ended June 30, 2021, consulting expenses decreased by $31,941, or 95%, from $33,589 to $1,648, as compared to the three months ended June 30, 2020. The decrease is primarily due to the Company’s reduced usage of consultants as the Company continues to emerge from its Chapter 11 reorganization. 28 Research and Development Research and development expenses include cash and non-cash compensation of (a) our Vice President of Research and Development; (b) our Scientific Advisory Board members; and (c) laboratory staff and costs related to our brown fat and disc/spine initiatives. Research and development expenses are expensed as they are incurred. For the three months ended June 30, 2021, research and development expenses decreased by $100,655, or 38%, from $261,553 to $160,898, as compared to the three months ended June 30, 2020. The decrease is primarily due to (i) the decrease of approximately $35,000 in stock compensation allocated to the Company’s research and development activities and (ii) a decrease of approximately $20,000 in depreciation allocated to research and development activities. We expect that our research and development expenses will increase with the recommencement of our research and development initiatives during the year ending December 31, 2021. General and Administrative General and administrative expenses consist primarily of salaries, bonuses, payroll taxes, severance costs and stock-based compensation to employees (excluding any cash or non-cash compensation of our Vice President of Research and Development and our laboratory staff), as well as corporate expenses such as legal and professional fees, investor relations and occupancy related expenses. For the three months ended June 30, 2021, general and administrative expenses increased by $3,222,174, or 1,797%, from $179,323 to $3,401,497, as compared to the three months ended June 30, 2020. The increase is primarily due to an increase of approximately $2,800,000 in stock-based compensation resulting from the issuances of 2,347,835,948 stock options and 1,173,917,974 RSUs and (ii) an increase of approximately $300,000 in legal, accounting and financial services fees. We expect that our general and administrative expenses will further increase as we expand our staff, develop our infrastructure and incur additional costs to support the growth of our business. Interest expense For the three months ended June 30, 2021, interest expense increased $157,790, or 653%, as compared to the three months ended June 30, 2020. The increase was due to the increase in outstanding notes payable as a result of our restructuring under our Chapter 11 reorganization. Amortization of debt discount For the three months ended June 30, 2021, amortization of debt discount increased $325,374, or 100%, as compared to the three months ended June 30, 2020. The increase was due to the increase in outstanding notes payable not accounted for under bankruptcy accounting as a result of our restructuring under our Chapter 11 reorganization. Reorganization items, net Reorganization items, net consists primarily of costs associated the post-petition Chapter 11 bankruptcy. For the three months ended June 30, 2021, we did not record reorganization items, net as compared to reorganization items, net of $3,361,416 for the three months ended June 30, 2020. 29 Comparison of the Six Months Ended June 30, 2021 to the Six Months Ended June 30, 2020 Our financial results for the six months ended June 30, 2021 are summarized as follows in comparison to the six months ended June 30, 2020: For The Six Months Ended June 30, 2021 2020 Revenues $ 33,000 $ 45,000 Operating Expenses: Marketing and promotion 8,820 28,131 Consulting 10,037 67,601 Research and development 326,152 447,881 General and administrative 18,297,910 781,964 Total Operating Expenses 18,642,919 1,325,577 Loss From Operations (18,609,919 ) (1,280,577 ) Other Income (Expense): Interest expense (363,472 ) (310,094 ) Amortization of debt discount (742,534 ) (1,066,526 ) Loss on extinguishment of notes payable, net - (658,152 ) Change in fair value of derivative liabilities - (2,141,069 ) Reorganization items, net - 781,306 Total Other Expense (1,106,006 ) (3,394,535 ) Net Loss $ (19,715,925 ) (4,675,112 ) Revenues For the six months ended June 30, 2021 and 2020, we generated $33,000 and $45,000, respectively, of royalty revenue in connection with our sublicense agreement. Marketing and Promotion Marketing and promotion expenses include advertising and promotion, marketing and seminars, meals, entertainment and travel expenses. For the six months ended June 30, 2021, marketing and promotion expenses decreased by $19,311, or 69%, from $28,131 to $8,820, as compared to the six months ended June 30, 2020. The decrease is primarily due to the Company’s reduced marketing plan as the Company continues to emerge from its Chapter 11 reorganization. We expect that marketing and promotion expenses will increase in the future as we increase our marketing activities following full commercialization of our products and services. Consulting Consulting expenses consist of consulting fees and stock-based compensation to consultants. For the six months ended June 30, 2021, consulting expenses decreased by $57,564, or 85%, from $67,601 to $10,037, as compared to the six months ended June 30, 2020. The decrease is primarily due to the Company’s reduced usage of consultants as the Company continues to emerge from its Chapter 11 reorganization. Research and Development Research and development expenses include cash and non-cash compensation of (a) our Vice President of Research and Development; (b) our Scientific Advisory Board members; and (c) laboratory staff and costs related to our brown fat and disc/spine initiatives. Research and development expenses are expensed as they are incurred. For the six months ended June 30, 2021, research and development expenses decreased by $121,729, or 27%, from $447,881 to $326,152, as compared to the six months ended June 30, 2020. The decrease is primarily due to the decrease of approximately $72,000 in stock compensation allocated to the Company’s research and development activities. We expect that our research and development expenses will increase with the recommencement of our research and development initiatives during the year ending December 31, 2021. 30 General and Administrative General and administrative expenses consist primarily of salaries, bonuses, payroll taxes, severance costs and stock-based compensation to employees (excluding any cash or non-cash compensation of our Vice President of Research and Development and our laboratory staff), as well as corporate expenses such as legal and professional fees, investor relations and occupancy related expenses. For the six months ended June 30, 2021, general and administrative expenses increased by $17,515,946, or 2,240%, from $781,964 to $18,297,910, as compared to the six months ended June 30, 2020. The increase is primarily due to an increase of approximately $16,700,000 in stock-based compensation resulting from the issuances of 2,347,835,948 stock options and 1,173,917,974 RSUs and (ii) an increase of approximately $850,000 in legal, accounting and financial services fees. We expect that our general and administrative expenses will further increase as we expand our staff, develop our infrastructure and incur additional costs to support the growth of our business. Interest expense For the six months ended June 30, 2021, interest expense increased $53,378, or 17%, as compared to the six months ended June 30, 2020. The increase was due to the increase in outstanding notes payable as a result of our restructuring under our Chapter 11 reorganization. Amortization of debt discount For the six months ended June 30, 2021, amortization of debt discount decreased $323,992, or 30%, as compared to the six months ended June 30, 2020. The decrease was due to a decrease in outstanding notes payable containing beneficial conversion features resulting in a debt discount. Loss on extinguishment of notes payable, net For the six months ended June 30, 2021, we did not record a gain (loss) on extinguishment of notes payable, as compared to a loss on extinguishment of notes payable of $658,152 for the six months ended June 30, 2020. Change in fair value of derivative liabilities For the six months ended June 30, 2021, we did not record a gain (loss) related to the change in fair value of derivative liabilities, as compared to a loss related to the change in fair value of derivative liabilities of $2,141,069 for the six months ended June 30, 2020. Reorganization items, net Reorganization items, net consists primarily of costs associated the post-petition Chapter 11 bankruptcy. For the six months ended June 30, 2021, we did not record reorganization items, net as compared to reorganization items, net of $781,306 for the six months ended June 30, 2020. Liquidity and Capital Resources Liquidity We measure our liquidity in a number of ways, including the following: June 30, December 31, 2021 2020 Cash $ 1,759,080 $ 3,064,610 Working Capital $ 502,457 $ 2,142,229 Notes Payable (Gross) $ 9,326,037 $ 9,637,102 31 Availability of Additional Funds Based upon our accumulated deficit and stockholders’ deficit of $109,558,758 and $3,808,941, respectively, as of June 30, 2021, along with our forecast for continued operating losses and our need for financing to fund our contemplated clinical trials, as of such date, we required additional equity and/or debt financing to continue our operations. As of June 30, 2021, our outstanding debt of $9,326,037, together with interest at a rate of between 5% and 7% per annum, has a maturity date of November 16, 2023, except for the PPP loan. As of June 30, 2021, the outstanding debt amount of $9,326,037 did not include $650,493 of DIP and Plan costs associated with the DIP Funding and the Plan (the “Auctus Costs”). Of the Auctus Costs, $500,000 and $150,493 are recorded in debt discount and accrued expenses, respectively, on the unaudited condensed consolidated balance sheets. Our operating needs include the planned costs to operate our business, including amounts required to fund working capital and capital expenditures. Our future capital requirements and the adequacy of our available funds will depend on many factors, including our ability to successfully commercialize our products and services, competing technological and market developments, and the need to enter into collaborations with other companies or acquire other companies or technologies to enhance or complement our product and service offerings. We may be unable to raise sufficient additional capital when we need it or raise capital on favorable terms. We have granted a security interest in all of our assets to certain lenders, including Auctus, in connection with our Chapter 11 plan of reorganization. This may impede our ability to raise additional debt financing. In addition, future financing may require us to pledge certain assets and enter into covenants that could restrict certain business activities or our ability to incur further indebtedness and may contain other terms that are not favorable to our stockholders or us. If we are unable to obtain adequate funds on reasonable terms, we may be required to significantly curtail or discontinue operations or obtain funds by entering into financing agreements on unattractive terms. Our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplate our continuation 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 financial statements do not include any adjustment that might result from the outcome of this uncertainty. The following events have mitigated the above factors with regards to our ability to continue as a going concern: (i) as part of our Chapter 11 reorganization approximately $14,700,000 in outstanding debt and other liabilities were exchanged for (a) shares of common stock, (b) new convertible notes with three year terms or (c) new convertible notes with three year terms and warrants to purchase shares of common stock; (ii) we secured DIP financing during our Chapter 11 reorganization in the aggregate amount of $1,189,413, and $3,848,548 in debt financing as part of our Chapter 11 reorganization to sustain operations; and (iii) pursuant to the plan of reorganization, Auctus is required to loan to us, as needed, an additional $2,100,000. As a result of the above, we have sufficient cash to fund operations for the twelve months subsequent to the filing date. The Company will need to obtain further funding of at least $12,000,000 to complete a Phase 2 clinical study of the use of BRTX-100 . Cash Flows During the six months ended June 30, 2021 and 2020, our sources and uses of cash were as follows: Six Months Ended June 30, 2021 2020 Net cash used in operating activities $ (1,555,530 ) $ (869,084 ) Net cash provided by financing activities 250,000 1,165,517 Increase (decrease) in cash $ (1,305,530 ) $ 2,96,433 32 Operating Activities Net cash used in operating activities was $1,555,530 for the six months ended June 30, 2021, primarily due to the net loss of $19,715,925 which was partially offset by non-cash expenses of $17,849,822 related to amortization of debt discount and stock-based compensation and $310,573 of cash provided by changes in the levels of operating assets and liabilities, primarily as a result of increases in accrued interest partially offset by a decrease in prepaid assets and other current assets, accounts payable, and lease liability. Net cash used in operating activities was $869,084 for the six months ended June 30, 2020, primarily due to the net loss of $4,675,112, which was partially offset by non-cash expenses of $2,829,648 related to amortization of debt discount, accretion of interest expense, stock-based compensation, change in fair value of derivative liabilities, and loss on extinguishment of notes payable and $976,380 of cash provided by changes in the levels of operating assets and liabilities, primarily as a result of increases in accounts payable, accrued interest, expenses and other current liabilities and decreases in prepaid expenses and other current assets. Financing Activities Net cash provided by financing activities for the six months ended June 30, 2021 was $250,000, which was due to $250,000 of net proceeds from a loan received under the U.S. Small Business Administration’s Paycheck Protection Program. Net cash provided by financing activities for the six months ended June 30, 2020 was $1,165,517, which was primarily due to $441,762 of net proceeds from debt financings and $713,755 of proceeds from the DIP financing. We anticipate that the costs to complete our Phase 2 clinical trials with regard to our Disc/Spine Program will be at least $12,000,000. In addition, we anticipate approximately $45,000,000 in additional funding will be needed to complete the clinical trials using BRTX-100 (assuming the receipt of no revenues). As noted above in “Availability of Additional Funds” we secured additional funding as part of Chapter 11 reorganization in the aggregate amount of $5,037,961 as well as approximately $14,700,000 in outstanding debt and other liabilities being exchanged for (a) shares of common stock, (b) new convertible notes with three year terms or (c) new convertible notes with three year terms and warrants to purchase shares of common stock. Additionally, pursuant to the plan of reorganization, Auctus is required to loan to us, as needed, an additional $2,100,000. As a result of the above, we have sufficient cash to fund operations for the twelve months subsequent to the filing date. Effects of Inflation We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented. Significant Accounting Policies and Estimates Our significant accounting policies are more fully described in the notes to our unaudited condensed consolidated financial statements included herein for the quarter ended June 30, 2021 and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on April 30, 2021. New and Recently Adopted Accounting Pronouncements Any new and recently adopted accounting pronouncements are more fully described in Note 2 to our unaudited condensed consolidated financial statements herein for the quarter ended June 30, 2021. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders. 33 Item 3. Quantitative and Qualitative Disclosures about Market Risk Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.