Biorestorative Therapies, Inc. — Q1 2012 Form 10-Q
Business context and period: Unaudited results for the three months ended March 31, 2012, compared with Q1 2011. The company described itself as a development-stage enterprise focused on regenerative cell therapies, related infrastructure and a skincare subsidiary. It had generated no revenue since inception.
Financial results and position
| Metric | Q1 2012 / March 31, 2012 | Q1 2011 / December 31, 2011 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1,324,225 | $1,017,606 |
| Operating loss | $(1,324,225) | $(1,017,606) |
| Net loss | $(1,494,382) | $(1,113,097) |
| Cash used in operating activities | $(393,895) | $(849,911) |
| Cash | $3,113 | $71,508 |
| Working capital deficiency | $(4,402,371) | $(3,788,947) |
| Gross current notes payable | $3,165,500 | $3,190,000 |
| Total assets | $88,070 | $220,973 |
| Total liabilities | $4,413,935 | $3,907,370 |
| Stockholders’ deficiency | $(4,325,865) | $(3,686,397) |
There was no meaningful gross margin because the company had no revenue. The filing reports basic and diluted loss per share of $(0.00) for both quarters. Q1 2012 cash provided by financing was $325,500; there was no investing cash flow.
Material changes versus Q1 2011
- Operating expenses rose about 30%, and net loss widened about 34%.
- Consulting expense increased $223,108 (114%), primarily due to higher stock-based compensation. General and administrative expense rose $125,292 (54%), mainly from legal and accounting fees.
- Interest expense rose $102,693 (421%), which management attributed mostly to increased short-term borrowings. Marketing expense fell $4,818 (11%); payroll and benefits fell $39,013 (7%).
- Operating cash use improved by $456,016 year over year, with the filing attributing the Q1 2012 result in part to higher accounts payable and accrued liabilities. Cash nevertheless fell by $68,395 during the quarter.
Liquidity, outlook and risks
Management said available cash was expected to fund operations only until May 2012 and that further capital was required. The filing identifies substantial doubt about the company’s ability to continue as a going concern; it warns that failure to secure financing or obtain debt extensions or conversions could force cutbacks, discontinuation of operations or liquidation. The company expected development, marketing and promotional costs to continue, and anticipated higher marketing and general and administrative expenses as it pursued commercialization and infrastructure development. No quantified revenue or earnings guidance was provided.
- At March 31, 2012, gross debt of $3,165,500 bore interest rates of 10%–15% and was due between February 2012 and March 2013. Management reported that $435,000 of notes had matured by the filing date; it had received no notices of default and was negotiating extensions or conversions.
- After quarter-end, the company reported $1,500,000 of new debt financing and $375,000 of equity financing, extensions of $1,112,500 of notes, and debt exchanges into equity. It reported outstanding debt of $4,415,500 as of the filing date.
- The license agreement with Regenerative Sciences became effective April 6, 2012. It provided exclusive, royalty-bearing rights to specified cell-therapy technologies, subject to milestones or minimum royalties to maintain exclusivity. The company paid a net license fee of $990,000 and issued a warrant for 50,000,000 shares.
- Potential dilution is significant: Q1 included grants of 114,000,000 options and 6,500,000 warrants. The company also had 40,000,000 non-vested stock awards at quarter-end; some awards vested after quarter-end.
- Shareholders increased authorized common shares to 1.5 billion and approved a possible 1-for-10 to 1-for-150 reverse split; the board had not approved a split as of the filing.
Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter. The filing reported no material pending legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether financing after the reported May 2012 runway was obtained, and whether the company continued as a going concern.
- The status, maturities, extensions, defaults or equity conversions of the notes, including the $435,000 reported past maturity and the reported $4,415,500 post-quarter debt balance.
- The subsequent-event debt-conversion amount: the filing’s disclosures refer to exchanges of $250,000, while another passage refers to $175,000; confirm the amount and timing.
- The license agreement’s milestone and minimum royalty obligations, commercialization progress, and the economic effect of the $990,000 fee and 50,000,000-share warrant.
- Actual cash burn, unpaid obligations, and dilution from options, warrants, awards, financing and any reverse split.