Business context and reporting period
BioRestorative Therapies, Inc. (BRT) filed this unaudited Form 10-Q for the quarter ended March 31, 2017. The company develops cell-based therapies, principally its BRTX-100 Disc/Spine candidate and preclinical ThermoStem program, and sells Stem Pearls skincare products. Its reported revenue was primarily royalties from a sublicense; it remains a development-stage business with substantial operating losses.
Key financial metrics
| Metric | Q1 2017 / March 31, 2017 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $7,000 | $9,125 in Q1 2016 |
| Operating expenses | $2,496,371 | $2,076,249 in Q1 2016 |
| Operating loss | $2,489,371 | $2,067,134 in Q1 2016 |
| Net loss | $2,785,754; $0.56 per share | $2,487,328; $0.69 per share in Q1 2016 |
| Operating cash flow | $(1,218,965) | $(1,717,835) in Q1 2016 |
| Cash | $8,857 | $31,822 at December 31, 2016 |
| Gross notes payable | $2,159,565 | $2,336,565 at December 31, 2016 |
| Working capital | Deficit of $6,020,915 | Deficit of $5,771,460 at December 31, 2016 |
| Total liabilities | $6,202,211 | $6,580,297 at December 31, 2016 |
| Stockholders’ deficiency | $4,721,666 | $5,000,282 at December 31, 2016 |
Financing activities provided $1,196,000 in Q1 2017, versus $1,994,240 in Q1 2016; investing activities used no cash in Q1 2017. No meaningful operating margin is indicated by the filing given the minimal revenue and continued losses.
Material changes versus Q1 2016
- Revenue decreased by $2,125, or about 23%, and consisted of $7,000 of sublicense royalty revenue; skincare sales were zero in Q1 2017.
- Operating expenses increased by $420,122, about 20%. General and administrative expense rose 33% to $1,197,313, and consulting expense rose substantially, while R&D declined 7% to $805,853.
- Net loss increased by $298,426, about 12%, despite lower total other expense, chiefly because of higher operating expenses. Interest expense increased, while debt-discount amortization declined.
- Operating cash use improved by $498,870, but cash fell to $8,857. The quarter included $910,000 of stock-and-warrant proceeds, $175,000 from warrant exercises, and $200,000 cash proceeds from a note with $242,000 principal.
- Common shares outstanding increased from 4,699,035 at year-end to 5,331,047 at quarter-end. The company also reported 3,513,956 warrants and 2,168,950 options outstanding at March 31.
Outlook, risks, contingencies and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern within twelve months from the filing date. It expected available cash to fund operations only through mid-June 2017 and said further financing is required. Failure to raise funds or obtain lender extensions/conversions could force cuts to development and marketing or cessation of operations.
- Funding needs: BRT estimated it would need $8 million–$10 million to commence and complete a Phase 2 BRTX-100 trial, and a further $20 million–$30 million to complete clinical trials, assuming no revenue. These estimates are not guarantees; the company said financing availability and terms are uncertain.
- Debt and liquidity: Gross debt was $2,159,565 at March 31, with stated interest rates of 0%–15% and maturities through October 2017. After quarter-end, the company reported additional borrowings and equity proceeds, debt conversions/exchanges, and maturity extensions. It still reported $252,500 of past-due notes as of the filing date and was negotiating further extensions or conversions.
- Equity-related charges: Q1 included $955,393 of stock-based compensation, a $61,340 loss on debt extinguishment, and $98,704 of loss on settlement of payables. The company repriced options covering 1,219,450 shares to $4.70; incremental value of $430,394 is to be recognized over vesting periods. Such arrangements may increase dilution and reported expense.
- Data inconsistency: The MD&A narrative/table gives Q1 2017 consulting expense as $494,135, while the financial statements and expense-category discussion give $464,135. The latter agrees with the reported total operating expenses; the filing does not explain the discrepancy.
- The company reported no material off-balance-sheet arrangements, no applicable legal proceedings, and effective disclosure controls; it referred investors to its 2016 Form 10-K for risk factors. No conventional revenue or earnings guidance was provided.
Important facts for investors to verify
- Whether BRT obtained sufficient post-quarter financing to fund operations beyond the stated mid-June 2017 runway, and whether subsequent financing terms materially affected dilution or debt obligations.
- Status of the $252,500 in past-due notes and the remaining debt maturity, extension, and conversion arrangements.
- Actual clinical-development progress, trial timing, and funding requirements for BRTX-100 and ThermoStem.
- The consulting-expense discrepancy and the extent to which stock compensation and other noncash charges affect reported operating costs.
- Potential dilution from outstanding options, warrants, convertible notes, and subsequent share issuances.