BioRestorative Therapies, Inc. - Quarter Report: 2018 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the Quarterly Period Ended March 31, 2018

For the transition period from to

Commission file number: 000-54402

BIORESTORATIVE THERAPIES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (631) 760-8100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes [  ] No [X]

As of May 11, 2018, there were 6,558,002 shares of common stock outstanding.

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements.

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Condensed Consolidated Balance Sheets

See Notes to these Condensed Consolidated Financial Statements

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Condensed Consolidated Statements of Operations

(unaudited)

See Notes to these Condensed Consolidated Financial Statements

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Condensed Consolidated Statement of Changes in Stockholders’ Deficiency

For the Three Months Ended March 31, 2018

(unaudited)

See Notes to these Condensed Consolidated Financial Statements

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(unaudited)

See Notes to these Condensed Consolidated Financial Statements

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Condensed Consolidated Statements of Cash Flows – Continued

(unaudited)

See Notes to these Condensed Consolidated Financial Statements

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Business Organization and Nature of Operations

BioRestorative Therapies, Inc. has one wholly-owned subsidiary, Stem Pearls, LLC (“Stem Pearls”). BioRestorative Therapies, Inc. and its subsidiary are referred to collectively as “BRT” or the “Company” (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.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and disclosures required by GAAP for annual financial statements. In the opinion of management, such statements include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the unaudited condensed consolidated financial statements of the Company as of March 31, 2018 and for the three months ended March 31, 2018 and 2017. The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the operating results for the full year ending December 31, 2018 or any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related disclosures of the Company as of December 31, 2017 and for the year then ended, which were filed with the Securities and Exchange Commission on Form 10-K on April 2, 2018.

Note 2 – Going Concern and Management’s Plans

As of March 31, 2018, the Company had a working capital deficiency and a stockholders’ deficiency of $8,778,930 and $7,690,296, respectively. During the three months ended March 31, 2018, the Company incurred a net loss of $2,507,660. These conditions indicate that there is substantial doubt about the Company’s ability to continue as a going concern within the next twelve months from the filing date of this report.

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 unaudited condensed consolidated financial statements have been prepared in conformity with 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 unaudited condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 2 – Going Concern and Management’s Plans – Continued

Subsequent to March 31, 2018, the Company has received aggregate equity and debt financings with gross proceeds of $25,000 and $545,250, respectively, debt (inclusive of accrued interest) of $96,100 has been converted into or exchanged for common stock, $5,000 of debt has been repaid, and the due date for the repayment of $730,564 of debt has been extended to dates between June 2018 and December 2018. As a result, the Company expects to have the cash required to fund its operations through May 2018 while it continues 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 a note payable with a principal balance of $250,000 which is past due. The Company is currently in the process of negotiating an extension with respect to this note though there can be no assurance that the Company will be successful. See Note 9 – Subsequent Events for additional details.

Note 3 – Summary of Significant Accounting Policies

Principles of Consolidation

The unaudited condensed consolidated financial statements of the Company include the accounts of Stem Pearls. All significant intercompany transactions have been eliminated in the consolidation.

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 three months ended March 31, 2018 and 2017. See “Revenue Recognition” below.

Revenue Recognition

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 January 2012, the Company and a stem cell treatment company (“SCTC”) entered into a license agreement pursuant to which the SCTC granted to the Company a license to use certain intellectual property related to, among other things, stem cell disc procedures. Pursuant to the license agreement, the Company granted to the SCTC a non-exclusive sublicense to use certain of the licensed intellectual property in one location outside the United States. Pursuant to an amendment to the license agreement, 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 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. During the three months ended March 31, 2018 and 2017, the Company recognized $19,000 and $7,000, respectively, of revenue related to the Company’s sublicenses.

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

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:

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.

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 2017, the FASB issued Accounting Standards Update 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 within those annual periods, beginning after December 15, 2017, for share-based payment awards modified on or after the adoption date. The adoption of this standard did not have a material impact on the Company’s financial statement disclosures.

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 4 – Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities are comprised of the following:

See Note 6 - Commitments and Contingencies for additional details regarding the exchange of accrued consulting fees for common stock and a warrant.

Note 5 – Notes Payable

A summary of the notes payable activity during the three months ended March 31, 2018 is presented below:

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 5 – Notes Payable – Continued

Related Party Notes

As of March 31, 2018 and December 31, 2017, 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 serves as a trustee of Trust, which was established for the benefit of his immediate family.

During the three months ended March 31, 2018, the Company partially repaid a certain related party note in the principal amount of $25,000.

Convertible Notes and Other Notes

Issuances

During the three months ended March 31, 2018, 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 is being 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 of $2,852 was recorded as debt discount and is being amortized over the term of the note.

During the three months ended March 31, 2018, 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 180th day following the issue date until the balance has been paid in full, and (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 and the relative fair value of $19,355 was recorded as debt discount and is being amortized over the term of the note. In connection with another convertible note, the Company incurred $25,750 of debt issuance costs which was recorded as debt discount and is being amortized over the term of the note. See below within Note 5 – Notes Payable – Conversions, Exchanges and Other and Note 8 – Derivative Liabilities for additional details regarding the embedded conversion options (“ECOs”) of the convertible notes.

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 5 – Notes Payable – Continued

Convertible Notes and Other Notes - Continued

Conversions, Exchanges and Other

During the three months ended March 31, 2018, 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. The common stock had an aggregate exchange date value of $143,926 and, as a result, the Company recorded a loss on extinguishment of notes payable of $18,837.

During the three months ended March 31, 2018, 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.

During the three months ended March 31, 2018, 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 aggregate issuance date fair value of the common stock of $39,000 was recorded as debt discount and is being amortized over the term of the respective notes. Additionally, 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. See below within this Note 5 – Notes Payable – Conversions, Exchanges and Other and Note – 8 Derivative Liabilities for additional details regarding the ECOs of the convertible notes.

During the three months ended March 31, 2018, the Company repaid an aggregate principal amount of $94,583 of convertible notes payable.

During the three months ended March 31, 2018 and 2017, 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 ECO 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 three months ended March 31, 2018 and 2017, the Company recognized $21,518 and $0, respectively, related to the beneficial conversion feature as debt discount which was immediately amortized.

During the three months ended March 31, 2018, the Company determined that certain ECOs of issued or extended convertible notes to be derivative liabilities. The aggregate issuance date value of the ECOs was $235,614, which was recorded as a debt discount and is being amortized over the terms of the respective convertible notes. See Note 8 – Derivative Liabilities for additional details.

Note 6 – Commitments and Contingencies

Consulting Agreements

Business Advisory Services

In January 2018, a February 2011 agreement for business advisory services that had expired on December 31, 2017 was further amended. Pursuant to the amendment, the agreement was reinstated effective as of January 1, 2018 and provides for an expiration date of December 31, 2018. 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 30,000 shares of common stock of the Company at an exercise price of $4.00 per share. The aggregate grant date value of the warrant of $48,192 was recognized immediately as stock-based compensation expense which is reflected as consulting expense in the unaudited condensed consolidated financial statements. Concurrently, the Company and the consultant agreed to exchange $38,000 of accrued consulting fees for 19,000 shares of common stock of the Company and a two-year warrant for the purchase of 4,750 shares of common stock of the Company at an exercise price of $4.00 per share, whose combined value is consistent with the carrying value of the liabilities being satisfied.

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 6 – Commitments and Contingencies - Continued

Operating Lease

Rent expense amounted to approximately $31,000 and $32,000 for the three months ended March 31, 2018 and 2017, respectively.

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 March 31, 2018, 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

In January 2018, 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.

In March 2018, the Company and its CEO agreed to an extension of the expiration date of his 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.

As of March 31, 2018 and December 31, 2017, the Company accrued approximately $76,000 and $87,000, respectively, for 2016 bonus milestones which were achieved but remain unpaid. As of March 31, 2018, the Company’s Compensation Committee and Board of Directors had not yet set the performance goals associated with cash bonuses payable to certain officers for the year ended December 31, 2018 and the Company has accrued approximately $96,000 for 2018 bonuses based on management’s best estimates.

Note 7 – Stockholders’ Deficiency

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 three months ended March 31, 2018 and 2017. 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.

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 7 – Stockholders’ Deficiency – Continued

Stock Warrants

Warrant Compensation

See Note 6 - Commitments and Contingencies for additional details associated with the issuance of common stock and warrants in connection with a consulting agreement extension.

The Company recorded stock–based compensation expense of $48,192 and $40,763 during the three months ended March 31, 2018 and 2017, respectively, related to stock warrants issued as compensation, which is reflected as consulting expense in the unaudited condensed consolidated statements of operations. As of March 31, 2018, there was no unrecognized stock-based compensation expense related to stock warrants.

Warrant Modifications and Exercises

During the three months ended March 31, 2018, the Company issued an aggregate of 207,084 shares of the Company’s common stock pursuant to the exercise of warrants for aggregate gross proceeds of $414,168. 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 51,771 shares of common stock of the Company at an exercise price of $4.00 per share. The Company did not recognize a warrant modification charge as there was no incremental value of the modified warrants and additional warrants issued as compared to the original warrants, both valued as of the respective modification dates.

Warrant Activity Summary

In applying the Black-Scholes option pricing model to warrants granted, the Company used the following assumptions:

The weighted average estimated fair value of the warrants granted during the three months ended March 31, 2018 and 2017 was approximately $1.22 and $1.63 per share, respectively.

A summary of the warrant activity during the three months ended March 31, 2018 is presented below:

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 7 – Stockholders’ Deficiency – Continued

Stock Warrants - Continued

Warrant Activity Summary - Continued

The following table presents information related to stock warrants at March 31, 2018:

Stock Options

In applying the Black-Scholes option pricing model to stock options granted, the Company used the following assumptions:

The weighted average estimated fair value of the stock options granted during the three months ended March 31, 2018 was approximately $2.99. There were no stock options granted during the three months ended March 31, 2017.

In January 2018, the Company granted a ten-year option to a consultant of the Company to purchase 10,000 shares of the Company’s common stock at an exercise price of $3.20 per share. The shares vest ratably over three years on the issuance date anniversaries. The option had an aggregate grant date value of $33,700. During the three months ended March 31, 2018, the option was forfeited in connection with the consultant’s termination and accordingly, no expense related to the option was recognized.

In January 2018, 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 a certain performance condition. As of March 31, 2018, the achievement of such performance condition is deemed probable to occur and the aggregate grant date value of the option of $1,491,300 is being amortized over the expected vesting period of the option.

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 7 – Stockholders’ Deficiency – Continued

Stock Options - Continued

A summary of the option activity during the three months ended March 31, 2018 is presented below:

The following table presents information related to stock options at March 31, 2018:

The following table presents information related to stock option expense:

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 8 – Derivative Liabilities

During the three months ended March 31, 2018, the Company recorded derivative liabilities in the aggregate amount of $235,614 related to the ECOs of certain convertible notes payable. The Company estimated the fair value of the original derivative liabilities using the Multinomial Lattice option pricing model (Level 3 inputs) including the fair value of the Company’s freely tradable common stock as reported on the OTCQB market. See Note 5 – Notes Payable – Convertible Notes and Other Notes for additional details.

On March 31, 2018, the Company recomputed the fair value of ECOs recorded as derivative liabilities to be $214,221. The Company estimated the fair value of the original derivative liabilities using the Multinomial Lattice option pricing model (Level 3 inputs) including 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 $148,054 during the three months ended March 31, 2018.

On March 31, 2018, the Company recomputed the fair value of the derivative liabilities related to outstanding warrants to be $63,249. 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 at March 31, 2018 using the Black-Scholes model using the following assumptions: expected volatility of 100%, risk-free rates of 2.56%, contractual terms ranging between 4.57 and 4.66 years, and expected dividends of 0%. The Company recorded a gain on the change in fair value of these derivative liabilities of $16,765 during the three months ended March 31, 2018.

During the three months ended March 31, 2018, the Company reclassified an aggregate of $9,397 of derivative liabilities to equity in connection with repayments and conversions of certain convertible notes payable into shares of the Company’s common stock. See Note 5 – Notes Payable – Convertible Notes and Other Notes for additional details.

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:

BIORESTORATIVE THERAPIES, INC. & SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 9 – Subsequent Events

Common Stock and Warrant Offering

Subsequent to March 31, 2018, the Company issued 10,000 shares of common stock of the Company and a five-year immediately vested warrant to purchase 10,000 shares of common stock of the Company at an exercise price of $3.50 per share to an investor for gross proceeds of $25,000.

Notes Payable

Subsequent to March 31, 2018, the Company issued certain lenders convertible notes payable in the aggregate principal amount of $602,500 for aggregate cash proceeds of $545,250. The difference of $57,250 was recorded as a debt discount and is being amortized over the term of the respective notes. The convertible notes bear interest at a rate of 12% per annum payable at maturity with maturity dates ranging between October 2018 to April 2019. The principal amount of convertible notes and the respective interest are convertible into shares of the Company’s common stock at the election of the holders after the 180^th day following the respective issuance dates until the balance has been paid in full, at a price equal to the lower of (a) the closing sale price of the Company’s common stock on the trading day immediately preceding the closing date, as defined, or (b) 58% of the lowest closing sale price of the Company’s common stock on the principal market on which such stock trades during the ten consecutive trading days including and immediately preceding the conversion date. In the event that the Company prepays any of the notes during the first ninety-day period following the issue date, the respective holder is entitled to receive a prepayment premium of up to 25%, depending on the note, on the then outstanding principal balance including accrued interest. In the event that the Company prepays any of the notes during the second ninety-day period following the issue date, the respective holder is entitled to receive a prepayment premium of up to 35%, depending on the note, on the then outstanding principal balance including accrued interest. In connection with certain note issuances, the respective holder may demand in writing, prepayment of the note in cash in an amount equal to 135% of the then outstanding principal and balance and accrued interest during the period between 150 days to 179 days following the respective issuance date. In connection with certain note issuances, piggyback registration rights were granted to the lenders. Additionally, in connection with other certain note issuances the Company issued the lenders an aggregate of 8,000 shares of the Company’s common stock. Furthermore, in connection with a certain note issuance, the Company incurred $5,000 of debt issuance costs. The issuance date fair value of the common stock and the debt issuance costs will be recorded as debt discount and will be amortized over the term of the respective notes.

Subsequent to March 31, 2018, the Company elected to convert certain convertible notes with an aggregate principal balance of $40,143 and aggregate accrued interest of $5,957 into an aggregate of 23,416 shares of the Company’s common stock at conversion prices ranging from $1.74 to $2.38.

Subsequent to March 31, 2018, the Company and a certain lender agreed to exchange a certain note payable with a principal balance of $50,000 for 33,333 shares of the Company’s common stock at a price of $1.50 per share.

Subsequent to March 31, 2018, the Company and certain lenders agreed to extend certain notes payable with an aggregate principal balance of $590,564 from maturity dates ranging between June 2015 to October 2018 to new maturity dates ranging between June 2018 to December 2018. In consideration of certain note extensions, the Company and the lender agreed to add an aggregate of $177,283 of incurred interest to the principal of the respective notes.

Subsequent to March 31, 2018, the Company and certain related party lenders agreed to extend certain related party notes payable with an aggregate principal balance of $140,000 from maturity dates ranging between August 2016 to February 2018 to new maturity dates ranging from July 2018 to December 2018. Concurrent with one of the extensions, the Company partially repaid a certain related party note in the principal amount of $5,000.

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the results of operations and financial condition of BioRestorative Therapies, Inc. (together with its subsidiary, “BRT”) for the three months ended March 31, 2018 and 2017 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations to “us,” “we,” “our,” and similar terms refer to BRT. This Quarterly 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 Quarterly 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, which may influence the accuracy of the statements and the projections upon which the statements are based. Factors that may affect our results include, but are not limited to, the risks and uncertainties discussed in Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Factors That May Affect Results and Financial Condition”) of our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission (the “SEC”) on April 2, 2018.

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.

This Quarterly Report on Form 10-Q includes references to our federally registered trademarks, BioRestorative Therapies, BRTX, brtxDISC, ThermoStem and Stem Pearls. This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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.

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 therapeutic product being called BRTX-100. 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 clinical trial related activities during the third or fourth quarter of 2018 (assuming the receipt of necessary funding). We have obtained a license to use technology for 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 legs and feet. 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. 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.

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.

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 March 31, 2018, our accumulated deficit was $53,912,113, our stockholders’ deficiency was $7,690,296 and our working capital deficiency was $8,778,930. 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. These conditions indicate that there is substantial doubt about our ability to continue as a going concern within one year after the financial statement issuance date.

Based upon our working capital deficiency as of March 31, 2018, and our forecast for continued operating losses, we require equity and/or debt financing to continue our operations. As of March 31, 2018, our outstanding debt of $4,156,214, together with interest at rates ranging between 0% and 15% per annum, was due on various dates through December 2018. Subsequent to March 31, 2018, we have received aggregate equity and debt financings with gross proceeds of $25,000 and $545,250, respectively, debt (inclusive of accrued interest) of $96,100 has been converted into or exchanged for common stock, $5,000 of debt has been repaid, and the due date for the repayment of $730,564 of debt has been extended to dates between June 2018 and December 2018. Giving effect to the above actions, we currently have a note payable in the principal amount of $250,000 which is past due. Based upon our working capital deficiency and outstanding debt, we expect to be able to fund our operations through May 2018 while we continue to apply efforts to raise additional capital. We anticipate that we will require approximately $20,000,000 in financing to commence and complete a Phase 2 clinical trial with regard to our Disc/Spine Program. We anticipate that we will require approximately $45,000,000 in further additional funding to complete our clinical trials using BRTX-100 (assuming the receipt of no revenues). We will also require a substantial amount of additional funding if we determine to establish a manufacturing operation with regard to our Disc/Spine Program (as opposed to utilizing a third party manufacturer) and to implement our other programs, including our metabolic ThermoStem Program. 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 are currently seeking several different financing alternatives to support our future operations and are currently in the process of negotiating extensions or discussing conversions to equity with respect to our outstanding indebtedness. If we are unable to obtain such additional financing on a timely basis or, notwithstanding any request we may make, our debt holders do not agree to convert their notes into equity or extend the maturity dates of their notes, we may have to curtail our development, marketing and promotional activities, which would have a material adverse effect on our business, financial condition and results of operations, and ultimately we could be forced to discontinue our operations and liquidate. See “Liquidity and Capital Resources” below.

Consolidated Results of Operations

Three Months Ended March 31, 2018 Compared with Three Months Ended March 31, 2017

The following table presents selected items in our unaudited condensed consolidated statements of operations for the three months ended March 31, 2018 and 2017, respectively: