July 27, 2020
OBJECTION OF JOHN M. DESMARAIS TO DISCLOSURE STATEMENT
WITH RESPECT TO JOINT PLAN OF REORGANIZATION FILED
BY AUCTUS FUND, LLC AND BIORESTORATIVE THERAPIES, INC.
Excerpts.....
the Disclosure Statement does not contain “adequate information” to allow a “hypothetical investor” to make an “informed judgment” about whether to vote for or against the proposed Plan, as required by 11 U.S.C. § 1125(a).
The Declaration of Mark Weinreb (“Mr. Weinreb”), the Debtor’s Chief
Operating Officer, under Local Bankruptcy Rule 1007-4, filed with this Court on March 20 (ECF no. 3)(the “Declaration”) explains the nature of the Debtor’s business, as follows:
BRT develops therapeutic products and medical therapies
using cell and tissue protocols, primarily involving adult
stem cells. It is currently pursuing its Disc/Spine Program
with an initial investigational therapeutic product called
BRTX-100. In February 2017, the Debtor received
authorization from the Federal Drug Administration (the
“FDA”) to commence a Phase 2 clinical trial investigating
the use of BRTX-100, the Debtor’s lead cell therapy
candidate, in the treatment of chronic lower back pain
arising from degenerative disc disease. Prior to the
bankruptcy filing, we intended to commence such clinical
trial and made numerous attempts at raising sufficient
funding in order to start such trial. The funding necessary
to start that trial is approximately $10MM – 12MM
with additional substantial funding necessary to
complete it.
In developing BRTX-100, BRT obtained a license to use
patent-pending 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. Moreover, that license also
includes a patented investigational curved needle device
that is a needle system designed to deliver cells and/or
other therapeutic products or materials to the spine and
discs. Also as part of that license, the Debtor sublicenses
a part of the licensed intellectual property back to the
licensor which results in yearly revenues (“Cash
Collateral”) which in 2019 totaled $130,000. All other
monies necessary for the operations of the Debtor have
come through debt and/or equity financings throughout
the years.
Auctus and its advisors have prepared projections
(collectively the “Projections”) for the anticipated postEffective Date operating costs, attached as Exhibit B and
for the clinical trials for the ThermoStem™ Program and
BRTX-100 program, attached as Exhibit C-1 and Exhibit
C-2, respectively. The projections for the post-confirmation
Effective Date period include projected payments under the
Plan, other than the payments due on or about the Effective
Date, which are estimated to be approximately $684,500,
consisting of: (a) payments to the Convenience Class,
which are estimated to be not more than $70,000, (b) cure
claims for assumed leases and contracts, which are
estimated to be not more than $65,000, (c) Professional Fee
Claims, in the estimated amount of approximately $82,500
of fees and expenses that will be incurred by the Debtor’s
retained professionals through August 31, 2020, net of
retainer monies funded or to be funded under the DIP
Facility and held or to be held by the Debtor for the
payment of allowed professional fees., (d) Priority Claims,
estimated to be not more than $110,000, and (e) a
contingent amount of approximately $357,000 to the holder
of the Class 1 Allowed Secured Claim, the payment of
which is contingent on the treatment the holder of such
claim receives under the Plan.
The Reorganized Debtor’s operations following the
Effective Date will be funded by the financing obtained
pursuant to Sections 4.3(c)(ii) and 5.2 of the Plan, both
before and after confirmation of the Plan. Provided that at
least $2,000,000 in other financing is raised prior to
confirmation of the Plan, Auctus has agreed to provide
financing of $3,000,000, less the DIP Obligation and the
Plan Costs. After the payment of amounts due on the
Effective Date (detailed above), the Proponents project
that the Reorganized Debtor will have at least
approximately $3,000,000 to fund its post-Effective Date
operations, which will provide funding for the
Reorganized Debtor to operate for more than a year. . .
Accordingly, the Proponents submit that the Plan is
feasible.
Thus, the commitment being made by Auctus, to fund the Total
Plan/Operating/Trial Costs is (a) expressly conditioned on at least $2,000,000 in other financing being raised PRIOR TO CONFIRMATION OF THE PLAN (the “Auctus Funding Condition”) before Auctus will invest any more money into the Debtor, and (b) if, and only if, this funding condition is somehow satisfied, Auctus is limited to providing up to $3 million
additional financing less (a) the DIP Obligation (defined in § 1.30 of the Plan to mean “all amounts, including principal, interest, costs and fees, owed to Auctus on account of the debtorin-possession loans made to the Debtor by Auctus during the Bankruptcy Case), and (b) Plan Costs (defined in § 1.56 of the Plan to mean “the costs incurred by Auctus to be a proponent of the Plan, including, without limitation, attorneys’ fees and costs, consultants’ fees and costs, and out of pocket costs and expenses).
During the past year, the Debtor directly and through
retained professionals reached out to numerous persons and
entities, including individuals, medical device companies,
healthcare funds, cell therapy companies, and
pharmaceutical companies, in an attempt to summon
interest by these entities to make a financial commitment to
our programs through primarily licensing or purchasing
structures. The discussions targeted a plethora of industries
and the full range of company sizes and value. There was
no interest in acquiring outright any of the Debtor’s
programs or technology, or the Company itself. In
addition, the Debtor was advised that any potential interest
in the technology would only occur after a successful
clinical trial of BTRX-100 (which the Debtor has yet to
start and is unable to commence due to a lack of
funding). After contacting over 70 parties involved in
degenerative disc disease, back pain, devices to treat the
spine and general regenerative medicine, no parties
expressed adequate interest to offer any indication to
partner, acquire or license the Debtor’s programs.
Indeed, Objectant, who was a member of the Debtor’s Board of Directors
until resigning on January 10, 2020, understands that the Phase 2 trial, which will take approximately a year and a half to complete and will ultimately cost around $15 million. Further, if the Phase 2 trial is successful, the Debtor will then have to go through a Phase 3 trial,
which requires many more patients, will take approximately two more years, and will cost at least $100 million. The Debtor concedes it does not have the funds needed to pay for Phase 2 trial on its own and says those funds will be raised under Section 5.2 of the Plan discussed above. When the $10-$12 million to fund the Phase 2 trial is added to the First Year Projected Operating Costs and the Effective Date payments, the total needed to be raised by Debtor is between
$13,078,934 and $15,078,934 (the “Total Plan/Operating/Trial Costs”).
The Plan is highly speculative, to say the least, and the Disclosure
Statement offers no reason why Debtor should be any more successful now in raising $2.0 million before Confirmation from third parties, or the additional $10 million to $12 million needed for Phase 2 trials when the Debtor has been unable to raise any funds for several years, despite exhaustive efforts.
WHEREFORE, for the foregoing reasons, Objectant respectfully requests that the Disclosure Statement not be approved by the Court, and that the Court grant such other, further relief as this Court deems just and proper.
AI
