Business context and reporting period
BioRestorative Therapies, Inc. filed this Form 10-K for the fiscal year ended December 31, 2019; it was signed March 17, 2021. The company is a development-stage regenerative medicine business with minimal royalty revenue and no approved commercial products. Its lead candidate, BRTX-100, is an autologous stem-cell therapy for degenerative disc disease; ThermoStem, a brown-fat cell program for metabolic disorders, remains preclinical.
Financial performance, cash flow and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $130,000 | $111,000 |
| Operating expenses | $8,562,005 | $7,758,652 |
| Operating loss | ($8,432,005) | ($7,647,652) |
| Net loss | ($14,647,890) | ($12,517,803) |
| Net cash used in operations | ($6,918,734) | ($5,104,629) |
| Cash at year-end | $1,664 | $117,523 |
| Gross notes payable | $8,393,327 | $5,161,916 |
| Working capital deficiency | ($13,651,716) | ($9,073,901) |
All 2019 revenue was royalty revenue under a sublicense; the filing reports no meaningful gross-margin measure. Research and development expense was $1,722,338, up 14%. Financing activities provided $6,838,505, including $10,888,339 in debt proceeds and $1,658,500 in equity proceeds, offset by debt repayments and prepayment premiums. Total assets were $1,466,323, total liabilities $14,242,469, and stockholders’ deficit $12,776,146 at year-end.
Changes versus 2018
Revenue rose 17%, but operating expenses increased 10% and net loss widened 17%. Operating cash use rose 36%. Interest expense increased 57% to $1,467,952 and debt-discount amortization rose 60% to $3,671,087. The company recorded a $1,895,116 loss on extinguishment of notes, compared with $1,415,950 in 2018. A $788,970 non-cash gain from the change in fair value of derivative liabilities partly offset other expense; 2018 had a $229,323 loss on this item.
Outlook, risks and unusual items
- Management projected at least $12 million to commence and complete the BRTX-100 Phase 2 trial and a further approximately $45 million to complete subsequent clinical trials, assuming no operating revenue. The Phase 2 study had FDA authorization but had not started; management targeted the third quarter of 2021, subject to funding. The filing states commercialization was not expected for at least five years.
- On March 20, 2020, the company filed for Chapter 11 protection; its plan was confirmed October 30 and became effective November 16, 2020. Approximately $14.7 million in debt and liabilities were restructured through equity, new convertible notes and warrants. The plan provided post-petition and effective-date financing, and conditional additional Auctus lending subject to the company becoming current in SEC filings. The filing says cash was sufficient for 12 months after filing, but additional funding remained necessary.
- Post-reorganization debt included $9,642,418 in convertible notes, generally due in three years, and substantial warrants. The company also disclosed 3,016,743,991 common shares outstanding as of March 17, 2021, versus 77,851,633 at December 31, 2019. Further conversion and warrant exercise could materially dilute shareholders.
- Key risks include financing and going-concern needs, clinical and regulatory uncertainty, manufacturing capacity and cell-supply constraints, patient enrollment, reimbursement and market acceptance, competition, intellectual-property and license-milestone exposure, and potential COVID-19 disruption. The Regenerative license required Phase 2 completion by a date the company believed to be February 2022; management said it did not expect to meet that milestone, risking loss of exclusivity.
- Management concluded internal control over financial reporting was ineffective at December 31, 2019, citing inadequate segregation of duties, policy and procedure weaknesses, and insufficient control-risk assessment. The company had not completed its disclosure-controls evaluation and had not filed its 2020 quarterly reports as of the filing. The 2019 financial statements received an unmodified audit opinion; the auditor did not opine on internal controls.
- Other unusual matters include $3,289,111 of notes in default at December 31, 2019, and significant debt-related non-cash charges. The filing also discloses no current CFO and that the CEO was serving as principal financial and accounting officer at signing.
Important facts for investors to verify
- Current cash, liquidity runway, and whether the conditional Auctus financing or other funding was actually received and remains available.
- Post-reorganization debt balances, collateral, default terms, conversion prices, warrant share counts and potential dilution.
- Whether BRTX-100 Phase 2 began, its funding and enrollment status, and progress toward the license’s exclusivity milestone.
- Whether the company caught up on SEC filings and remediated the reported material weaknesses in financial reporting controls.
- Current operating status and financing needs for ThermoStem, manufacturing plans, and prospects for reimbursement or strategic partnerships.