Biorestorative Therapies, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017; filed August 14, 2017. Unaudited consolidated financial statements.
Business context
The company develops cell- and tissue-based therapies, principally adult stem-cell programs. Its lead Disc/Spine candidate is BRTX-100; ThermoStem is a preclinical program focused on brown adipose tissue and metabolic disorders. It also licenses a curved needle device and sells Stem Pearls skincare products. Revenue remains minimal and is concentrated in royalties from one sublicense agreement.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $20,000 | $16,155 | $27,000 | $25,280 |
| Operating expenses | $2,589,015 | $2,159,230 | $5,085,386 | $4,235,479 |
| Operating loss | $(2,569,015) | $(2,143,146) | $(5,058,386) | $(4,210,280) |
| Net loss | $(2,747,183) | $(2,258,415) | $(5,532,937) | $(4,745,743) |
| Net loss per share, basic and diluted | $(0.51) | $(0.56) | $(1.06) | $(1.26) |
- Cost of sales was nil in 2017, so reported gross profit equaled revenue; this is not a meaningful indicator of the economics of the development-stage business.
- For the first half, operating cash use was $1,984,928, versus $2,735,405 in 2016. Investing cash flow was nil, while financing provided $1,954,997, compared with $3,236,240 in 2016.
- Cash fell to $1,891 at June 30, 2017 from $31,822 at year-end 2016. Current assets were $46,551 and current liabilities $6,994,188; working-capital deficiency was $6,947,637. Stockholders’ deficiency was $5,715,044.
- Gross notes payable were $2,654,062 at June 30, 2017; reported notes payable, net of debt discounts, totaled $2,553,451. Debt carried rates of 0%–15% and was due on various dates through February 2018.
Material changes and unusual items
- First-half revenue increased modestly, while net loss increased by about $787,000 year over year. Operating expenses rose about $850,000, including higher consulting and general and administrative costs; research and development expense declined about $58,000.
- Consulting expense rose primarily due to stock-based compensation. First-half stock-based compensation was $2,283,111. The company also repriced options and granted 850,000 options in June with a stated grant-date value of $2,391,900.
- Interest expense more than doubled in the first half as short-term borrowings increased. Debt discount amortization declined versus 2016, partly offsetting the increase in other expense.
- During the first half, the company raised $994,000 from common stock and warrant sales and received $175,000 from warrant exercises. It also exchanged or converted debt and accrued amounts into equity, and extended certain maturities.
- At June 30, 5,491,605 common shares were outstanding; 5,571,678 were outstanding as of August 11. The filing identifies 6,888,474 potentially dilutive shares from options, warrants and convertible notes, excluded from diluted loss per share as anti-dilutive.
Outlook, liquidity and risks
- Management stated that available cash was expected to fund operations only through September 2017 and that additional financing was required. The filing says there is substantial doubt about the company’s ability to continue as a going concern within twelve months from the filing date.
- Subsequent to quarter-end, the company received $250,000 of debt proceeds, converted or exchanged $120,963 of debt and $7,006 of accrued interest into equity, and extended $1,007,250 of debt maturities. At the filing date, $382,500 of notes were past due; the filing-date debt table reports total principal of $2,791,433.
- Management estimated it would need approximately $10 million to commence and complete a Phase 2 BRTX-100 trial and approximately $30 million in further funding to complete BRTX-100 clinical trials, assuming no revenue. These are estimates, not assured financing or formal operating guidance.
- Management warned that failure to raise capital or obtain debt extensions or conversions could force curtailment of development and marketing, or potentially discontinuation and liquidation. Subsequent borrowing also included a $175,000 related-party note secured by company equipment and intellectual property.
- The company expects research, marketing and general and administrative spending to increase as programs advance and commercialization activities expand. It reported no material legal proceedings and no material off-balance-sheet arrangements.
Investor verification priorities
- Confirm current cash, near-term cash needs and financing raised after the filing, given the stated September 2017 runway and going-concern uncertainty.
- Reconcile the filing-date debt total, past-due notes, maturity extensions, security interests and any subsequent conversions or repayments.
- Assess potential dilution from outstanding warrants, options and convertible notes, including the terms and conversion-price floors of financing instruments.
- Verify the status, funding and clinical milestones for BRTX-100 and ThermoStem; the filing provides funding estimates but no assured trial timetable or outcome.
- Review the concentration and collectability of sublicense royalty revenue and the substantial reliance on non-cash compensation and accrued liabilities.
Data note: The cash-flow statement reports first-half 2017 operating cash use of $1,984,928, while MD&A gives $1,984,931; the filing text does not explain the $3 difference.