BioDrain Medical, Inc. — Form 10-Q Summary
Period: Quarter ended March 31, 2013. The filing identifies the registrant as BioDrain Medical, Inc., not Axe Compute Inc.; investors should verify the company and filing identity. BioDrain is a development-stage medical-device company selling its STREAMWAY fluid-management system and disposable cleaning kits.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Revenue | $127,727 | $22,635; up approximately 464% |
| Cost of goods sold / gross profit | $41,604 / $86,123 | $13,806 / $8,829 |
| Gross margin | Approximately 67% | Approximately 39% based on reported amounts; MD&A says approximately 67% for both periods |
| Net loss | $2,101,525 | $713,367 |
| Operating cash used | $940,285 | $250,249 |
| Cash at period end | $372,854 | $22,393 at March 31, 2012 |
The gross-margin comparison in the filing is inconsistent: the reported revenue and cost figures imply a Q1 2012 margin of approximately 39%, while MD&A says margins were approximately 67% in both periods. The filing does not reconcile this discrepancy.
- At March 31, 2013, current assets were $667,022 and current liabilities were $3,007,826, implying a working-capital deficit of approximately $2.34 million. Total assets were $810,820; stockholders’ deficit was $2,844,665.
- Current convertible debt, net of discounts, was $378,599; related-party convertible notes payable were $597,282. The balance sheet also reported $497,902 in long-term accrued expenses and a $149,757 liability for equity-linked instruments.
- Q1 financing provided $1.3 million: $1 million from stock issuance and $300,000 from convertible debt. Cash increased from $13,139 at year-end to $372,854.
- Shares outstanding were 120,303,418 at quarter-end and 122,152,832 as of May 7, 2013. Options and warrants outstanding at quarter-end totaled approximately 84.2 million shares.
Changes and operating developments
- Revenue rose from a small base. The company reported sales of five STREAMWAY systems and disposables totaling $54,500 in Q1 2013; it also said three additional units moved from trials to sales in April.
- Net loss increased by approximately $1.39 million year over year. General and administrative expense rose by approximately $1.26 million, driven in part by stock-based compensation and investor stock compensation. Stock-option vesting expense was $1,329,735, compared with $60,463 in Q1 2012.
- Operations expense increased to $204,467 from $69,737, including $58,277 of research and development expense versus none in the prior-year quarter. Sales and marketing expense rose to $83,969 from $31,900.
- Interest expense increased to $95,552 from $55,488. A $19,422 gain from revaluing equity-linked instruments partly offset expenses.
Outlook, risks and unusual items
- Management said operating costs were approximately $125,000 per month and estimated a need for at least $1 million of additional financing to fund operations for the next six to nine months. The company said cash was expected to last approximately through June 30, 2013.
- The filing reports recurring losses and a stockholders’ deficit and states that these conditions raise substantial doubt about the company’s ability to continue as a going concern. Management warned that failure to obtain financing or extend, convert, settle, or reduce obligations could force significant curtailment, bankruptcy, or cessation of operations.
- Management cited approximately $3.454 million of debts, liabilities, and cash obligations due in the second and third quarters of 2013. Certain related-party notes were extended to August 31, 2013; nonpayment could trigger default and secured-creditor remedies, including potential seizure of company assets.
- In January 2013, the company issued $300,000 of 8% convertible notes with warrants. It also raised $500,000 in equity in private placements, including a March sale with additional warrants. These financings increased potential dilution.
- On May 7, 2013, noteholders converted $156,243 of principal and $11,169 of interest into 1,116,082 shares at $0.15 per share, including shares issued to a related-party noteholder.
- Product adoption remained dependent on hospital evaluations converting to paid orders. Management expected sales and operating costs to rise as it expanded manufacturing and sales capacity, but cautioned that revenue growth might initially trail cost increases.
- The filing reports no legal proceedings and no material changes to internal control over financial reporting during the quarter. Management concluded disclosure controls were effective as of March 31, 2013.
Important facts for investors to verify
- Confirm the registrant identity: the supplied filing is for BioDrain Medical, Inc., despite the request metadata naming Axe Compute Inc.
- Reconcile the conflicting gross-margin statements and confirm revenue composition, including equipment sales, trials, and disposable kits.
- Verify the status, maturity dates, security interests, and payment or conversion terms of debt, especially related-party notes and obligations due in 2013.
- Assess whether the company obtained the additional financing needed to operate and whether its going-concern risk changed after March 31, 2013.
- Review dilution from shares issued, outstanding options and warrants, and subsequent note conversions.