BioRestorative Therapies, Inc. — Q3 2014 Form 10-Q
Business context and period: Unaudited results for the quarter and nine months ended September 30, 2014. The company is developing adult stem-cell therapies, including brtxDISC for disc conditions and the pre-clinical ThermoStem program for metabolic disorders; it also has cosmetic products and research agreements. It planned to relocate corporate and laboratory operations from Florida to Melville, New York.
Financial highlights
| Metric | Three months ended Sept. 30, 2014 | Nine months ended Sept. 30, 2014 | Prior-year comparable |
|---|---|---|---|
| Revenue | $159,930 | $336,246 | $125; $1,680 |
| Gross profit (margin) | $93,815 (58.7%) | $227,705 (67.7%) | $115; $1,472 |
| Operating expenses | $989,822 | $3,833,617 | $1,129,117; $3,543,933 |
| Operating loss | $(896,007) | $(3,605,912) | $(1,129,002); $(3,542,461) |
| Net loss | $(1,100,454) | $(4,103,269) | $(1,303,008); $(4,120,201) |
| Net loss per share, basic and diluted | $(0.04) | $(0.18) | $(0.08); $(0.25) |
| Operating cash used | — | $(2,593,593) | $(1,908,651) |
At September 30, cash was $373,970, versus $201,098 at year-end 2013. Working capital deficiency was $7,006,146, improved from $7,262,748 at December 31, 2013. Total liabilities were $8,054,301 and stockholders’ deficiency was $6,458,125. Notes payable had a carrying amount of $5,794,040, including $5,171,355 current; gross debt was $5,870,558. About 77% of face-value debt was owed to one Bermuda lender. Financing activities provided $2,767,011 in the nine-month period, primarily from equity and debt issuance.
Changes versus prior comparable periods
- Revenue rose sharply from a negligible base, mainly from two pharmaceutical research and development agreements; those agreements contributed $334,401 of nine-month revenue. The filing says two pharmaceutical clients comprised substantially all 2014 revenue.
- Quarterly net loss narrowed by about $203,000, while nine-month net loss improved by about $17,000. Nine-month operating loss widened by about $63,000 as operating expenses increased approximately $290,000.
- Nine-month consulting expense increased $425,851, primarily from higher non-cash stock-based compensation. Research and development expense decreased $110,498, partly due to lower University of Utah costs and reclassification of salary to cost of sales.
- Operating cash use increased by approximately $685,000 year over year. The company raised $2,105,001 gross from common stock and warrants during the nine months and issued additional shares for services, lease concessions, and debt-related transactions.
Outlook, risks, contingencies, and unusual items
- Going concern and liquidity: Management reported substantial doubt about the company’s ability to continue as a going concern. It expected available cash to fund operations only through December 2014 and needed additional debt or equity financing. Without financing or creditor extensions/conversions, it could curtail development and marketing, or discontinue operations and liquidate.
- Debt maturities: As of the filing date, $344,063 of notes were past due or payable on demand. The company was negotiating extensions or conversions. Subsequent to quarter-end it reported $50,000 of equity financing, $75,000 of debt financing, $89,063 of R&D receipts, repayment of $139,063 of debt, and extension of $392,685 of debt. A mandatory $89,063 debt prepayment triggered by an R&D receipt remained unpaid as of the filing date.
- Business spending: Management expected research and development, marketing, and general and administrative costs to increase as programs continue and infrastructure expands. The filing provides no quantified revenue or earnings guidance.
- Research agreements: A Japanese agreement runs for one year and provides up to $250,000; a U.S. brown-fat agreement runs for two years and provides up to $775,000. Payments are partly milestone-based, and revenue is recognized over the agreement terms, subject to deliverables.
- Unusual items: Nine-month other expense included $381,602 of debt-discount amortization, a $49,094 loss on debt extinguishment and $30,128 warrant-modification expense, partly offset by a $183,768 gain on settlements, including a $166,668 University of Utah agreement gain.
- Contingency: A former consultant sued over an alleged 2009 loan and agreement, seeking at least approximately $193,000 and warrants for 80,000 shares. The company denied the allegations, intends to defend the case, and recorded no accrual, stating it believes the claims lack merit.
- Share-based compensation and dilution: Shares outstanding were 31,018,928 at September 30 and 31,457,869 as of November 11. At September 30, 8,784,000 options and 7,408,683 warrants were outstanding, in addition to convertible notes; these securities were excluded from diluted loss per share as anti-dilutive. Subsequent option grants and plan expansion were also disclosed.
- Management concluded disclosure controls were effective at quarter-end and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether additional financing was secured after the filing and whether the company maintained operations beyond its stated December 2014 cash runway.
- Current status, maturity terms, extensions, repayments, and any defaults relating to the Bermuda lender and other notes, including the unpaid mandatory prepayment.
- Milestone achievement, termination provisions, collections, and revenue concentration under the two pharmaceutical agreements.
- Progress and costs for the Melville laboratory relocation and brtxDISC and ThermoStem development programs.
- Resolution and potential financial exposure of the former consultant lawsuit, and the effect of ongoing share, warrant, and option issuance on dilution.