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, 2022, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 27, 2023, 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 complete our clinical trials and implement our business plan; ● our ability to successfully develop and commercialize BRTX-100, our lead product candidate for the treatment of chronic lumbar disc disease, as well as our metabolic ThermoStem Program; ● 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 Nevada 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. 16 Intellectual Property This report includes references to our federally registered trademarks, BioRestorative Therapies and Dragonfly design, BRTX-100, ThermoStem, and BRTX . The Dragonfly logo is also registered with the U.S. Copyright Office. This report may also include 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 Our offices are located in Melville, New York where we have established a laboratory facility in order to increase our capabilities for the further development of possible cellular-based treatments, products and protocols, stem cell-related intellectual property and translational research applications. As of September 30, 2023, our accumulated deficit was $164,231,163. We have historically only generated a modest amount of revenue, and our losses have principally been operating expenses incurred in research and development, marketing and promotional activities in order to commercialize our products and services, plus costs associated with meeting the requirements of being a public company. We expect to continue to incur substantial costs for these activities over at least the next year. 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 . In March 2022, a United States patent was issued in our Disc/Spine Program . 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 and have commenced such clinical trial through the execution of a CRO agreement with Professional Research Consulting, Inc., d/b/a PRC Clinical (“PRC”), the execution of clinical trial site agreements, patient enrollment, the commencement of patient procedures, the purchase of manufacturing equipment and the expansion of our laboratory to include capabilities for clinical production. We have received a license from the New York State Department of Health to act as a tissue bank for mesenchymal stem cell processing. In June 2023, we received a unanimous recommendation from the Data Safety Monitoring Board (“DSMB”) to continue our Phase 2 clinical trial without any changes. We have obtained a worldwide (excluding Asia and Argentina) exclusive 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 investigating the expansion of the clinic application of BRTX-100 to other indications within the body. 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, July 2021, and June 2023; Australian patents related to the ThermoStem Program were issued in April 2017, October 2019, and August 2021; Japanese patents related to the ThermoStem Program were issued in December 2017, June 2021, February 2022 and June 2023; Israeli patents related to our ThermoStem Program were issued in October 2019, May 2020, and March 2022; and European patents related to the ThermoStem Program were issued in April 2020, January 2021, and July 2023. We have obtained a license for 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 Phase 2 clinical trial with regard to BRTX-100 . In September 2023, we announced that we had entered into a supply agreement with a supplier of biologic-based cosmetics pursuant to which we will manufacture tissue-based biologics for use in the production of cosmetic and aesthetic applications. 17 Revenue We derived all of our revenue pursuant to a license agreement with the SCTC entered into in January 2012, as amended in November 2015 and November 2022. Pursuant to the license agreement, the SCTC granted to us an exclusive license to use certain intellectual property related to, among other things, stem cell disc procedures and we have 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 us royalties on a per disc procedure basis. Results of Operations Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022 Our financial results for the three months ended September 30, 2023 are summarized as follows in comparison to the three months ended September 30, 2022: For the Three Months Ended, September 30, 2023 September 30, 2022 (unaudited) Revenues $ 30,700 $ 29,000 Operating expenses: Research and development 874,824 989,170 General and administrative 2,260,319 3,649,530 Total operating expenses 3,135,143 4,638,700 Loss from operations (3,104,443 ) (4,609,700 ) Other (income) expense: Interest (income) expense (61,667 ) 28,841 Grant income, net (83,333 ) - Other income, net (33,951 ) 17,284 Total other (income) expense (178,951 ) 46,125 Net loss $ (2,925,492 ) $ (4,655,825 ) Revenues For the three months ended September 30, 2023 and 2022, we generated $30,700 and $29,000, respectively, of royalty revenue in connection with our sublicense agreement. 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 September 30, 2023, research and development expenses decreased by $114,346, or 11.6%, compared to the three months ended September 30, 2022. The decrease was primarily the result of a decrease in contract research fees of $228,683 and a decrease in other fees of $117,138 that were the result of start-up and execution expenses incurred during the three months ended September 30, 2022 that did not occur in the same period of 2023, offset by an increase in salaries and wages of $214,021 due to salary increases. We expect that our research and development expenses will increase in subsequent fiscal periods. General and Administrative General and administrative expenses consist primarily of salaries, bonuses, payroll taxes and stock-based compensation to employees, as well as corporate expenses such as legal and professional fees, investor relations and occupancy-related expenses. For the three months ended September 30, 2023, general and administrative expenses decreased by $1,389,211, or 38.1%, as compared to the three months ended September 30, 2022, primarily driven by a $1,580,822 decrease in stock-based compensation. Interest (income) expense For the three months ended September 30, 2023, interest income was $61,667 compared to interest expense of $28,841 for the three months ended September 30, 2022. The change was primarily due to our investments in marketable securities during the three months ended September 30, 2023, which generated interest income. During the three months ended September 30, 2022, we did not have any such investments and only incurred interest expense. Grant income Grant income of $83,333 during the three months ended September 30, 2023 consists of funding received under a National Institutes of Health Small Business Technology Transfer (STTR) Phase 1 grant, offset by related expenses. There was no grant income received during the three months ended September 30, 2022. Other income, net For the three months ended September 30, 2023, Other income, net primarily relates to an Employee Retention Tax Credit (“ERTC”), gains from settlements of certain accrued expenses and realized and unrealized gain on investments. 18 Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022 Our financial results for the nine months ended September 30, 2023 are summarized as follows in comparison to the nine months ended September 30, 2022: For the Nine Months Ended, September 30, 2023 September 30, 2022 (unaudited) Revenues $ 126,500 $ 116,100 Operating expenses: Research and development 3,353,960 2,839,731 General and administrative 8,772,632 11,568,490 Total operating expenses 12,126,592 14,408,221 Loss from operations (12,000,092 ) (14,292,121 ) Other (income) expense: Interest (income) expense (176,070 ) 104,465 Gain on PPP loan forgiveness - (250,000 ) Grant income (83,333 ) (16,654 ) Other (income) expense, net (150,423 ) 17,284 Total other income (409,826 ) (144,905 ) Net loss $ (11,590,266 ) $ (14,147,216 ) Revenues For the nine months ended September 30, 2023 and 2022, we generated $126,500 and $116,100, respectively, of royalty revenue in connection with our sublicense agreement. 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 nine months ended September 30, 2023, research and development expenses increased by $514,229 or 18.1%, compared to the nine months ended September 30, 2022. The increase was primarily driven by increased salaries and wages of $1,050,221 due to salary increases and bonuses, increased lab site fees of $104,000, and increased consulting fees of $93,000, offset by a decrease in PRC service expenses of $733,000 as the result of non-recurring start-up and execution expenses incurred during the nine months ended September 30, 2022. We expect that our higher level of research and development expenses will continue in subsequent fiscal periods. General and Administrative General and administrative expenses consist primarily of salaries, bonuses, payroll taxes and stock-based compensation to employees, as well as corporate expenses such as legal and professional fees, investor relations and occupancy-related expenses. For the nine months ended September 30, 2023, general and administrative expenses decreased by $2,795,858, or 24.2%, compared to the nine months ended September 30, 2022. The decrease was primarily driven by a $3,236,017 decrease in stock-based compensation, offset by an increase in salaries and wages of $235,000 due to salary increases and bonuses paid during the nine months ended September 30, 2023. We expect that our general and administrative expenses will increase as we expand our staff, develop our infrastructure and incur additional costs to support the growth of our business. Interest (income) expense For the nine months ended September 30, 2023, interest income was $176,070 compared to interest expense of $104,465 for the nine months ended September 30, 2022. The change was primarily due to our investments in marketable securities during the nine months ended September 30, 2023, which generated interest income. During the nine months ended September 30, 2022, we did not have any such investments and only incurred interest expense. 19 Other income, net For the nine months ended September 30, 2023, Other income, net primarily relates to the ERTC refundable tax credit, gains from settlements of certain accrued expenses and realized and unrealized gain on investments. Gain on PPP loan forgiveness Under the terms of the U.S. Small Business Administration’s Paycheck Protection Program (“PPP”), our $250,000 PPP loan was forgiven during the nine months ended September 30, 2022. Grant income Grant income of $83,333 during the nine months ended September 30, 2023 consists of funding received under a National Institutes of Health Small Business Technology Transfer (STTR) Phase 1 grant, offset by related expenses. Grant income of $16,654 during the nine months ended September 30, 2022 consists of funding received under a $256,000 National Institutes of Health Small Business Technology Transfer (STTR) Phase 1 grant, which we were awarded in September 2021. Liquidity and Capital Resources Liquidity We measure our liquidity in a number of ways, including the following: September 30, December 31, 2023 2022 Cash, Cash Equivalents, and Investments $ 12,238,706 $ 14,749,408 Working Capital $ 11,671,318 $ 14,688,188 Working capital decreased by $3,016,870 primarily due to the $4,656,785 of cash used to fund our operations. Availability of Additional Funds Based upon our accumulated deficit of $164,231,163 as of September 30, 2023, along with our forecast for continued operating losses and our need for financing to fund our current and contemplated clinical trials, we will eventually require additional equity and/or debt financing to continue our operations. However, based on cash on hand and investments as of September 30, 2023, we believe we have sufficient cash to fund operations for the twelve months subsequent to the filing date of this Form 10-Q. Our operating needs include the planned costs to operate our business, including amounts required to fund our clinical trials, 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. 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. “At-the-Market” Offering In April 2023, we entered into a Capital on Demand Sales Agreement with JonesTrading Institutional Services LLC (the “Sales Agent”) under which we currently have the ability to issue and sell shares of our Common Stock, from time to time, through the Sales Agent, up to an aggregate offering price of approximately $5,486,000 in what is commonly referred to as an “at-the-market” (“ATM”) program. During the nine months ended September 30, 2023, we sold 93,551 shares of our Common Stock under the ATM program with the Sales Agent at a weighted-average gross price of approximately $5.74 per share and raised approximately $536,600 of gross proceeds. The total commissions and related legal fees were approximately $125,000, and we received net proceeds of approximately $412,000. As of September 30, 2023, we had remaining capacity to sell up to an additional $3,663,407 of Common Stock under the ATM program. During October 2023, we sold an additional 39,276 shares of our Common Stock at an average price of $2.17 per share and raised approximately $86,000 in gross proceeds under the ATM program. 20 Registered Direct Offering In July 2023, we sold an aggregate of 685,033 shares of our Common Stock in a registered direct offering. We received net proceeds of approximately $1,831,000 from the offering. Cash Flows During the nine months ended September 30, 2023 and 2022, our sources and uses of cash were as follows: Nine Months Ended September 30, 2023 2022 Net cash used in operating activities $ (4,656,785 ) $ (4,297,412 ) Net cash provided by (used in) investing activities 3,151,377 (10,156,204 ) Net cash provided by financing activities 2,265,700 - Net increase (decrease) in cash $ 760,292 $ (14,453,616 ) Operating Activities Net cash used in operating activities was $4,656,785 for the nine months ended September 30, 2023, primarily due to cash used to fund the net loss of $11,590,266, which was partially offset by non-cash expenses of $6,547,216 related primarily to stock-based compensation. Cash flows were also impacted by routine fluctuations in our operating assets and liabilities. Net cash used in operating activities was $4,297,412 for the nine months ended September 30, 2022, primarily due to cash used to fund the net loss of $14,147,216 and a non-cash gain of $250,000 on forgiveness of our PPP loan , which was partially offset by non-cash expenses of $9,554,582 related primarily to stock-based compensation and $349,543 of cash provided by changes in operating assets and liabilities. Investing Activities Net cash provided by investing activities increased by $13,307,581 for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, primarily due to the initial purchase of investments held in marketable securities of $9,933,562 made in the prior year, compared to sales of marketable securities of $3,690,238 in the current year. Financing Activities Net cash provided by financing activities increased by $2,265,700 for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, due to the net proceeds from the ATM and registered direct offerings of the Company’s Common Stock. Effects of Inflation We do not believe that inflation had a material impact on our business, revenues or operating results during the periods presented. 21 Critical 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 September 30, 2023, and in the notes to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 27, 2023. 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.