BioRestorative Therapies, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparative period is Q1 2020. The company develops cell-based therapies, with BRTX-100 as its lead investigational candidate for chronic lower-back pain associated with degenerative disc disease. It also has a preclinical brown-fat program, ThermoStem. The financial statements are unaudited.
Financial highlights
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | $18,000 | $26,000 |
| Operating expenses | $15.073 million | $845,000 |
| Operating loss | $15.055 million | $819,000 |
| Net loss | $15.653 million | $7.551 million |
| Net cash used in operations | $814,000 | $449,000 |
| Cash at period end | $2.501 million | $3.065 million at Dec. 31, 2020 |
| Working capital surplus | $1.303 million | $2.142 million at Dec. 31, 2020 |
Revenue was royalty income under a sublicense agreement. No meaningful operating margin is presented given the small revenue base and development-stage losses. Q1 2021 loss per share was $0.01, basic and diluted.
- Net loss more than doubled year over year, while revenue declined about 31%.
- General and administrative expense rose to $14.896 million from $603,000, mainly because of $14.077 million of stock-based compensation. The company recorded $14.077 million of total stock-based compensation, versus $222,000 in Q1 2020.
- Cash operating outflow increased to $814,000 from $449,000. The reported loss substantially exceeded cash burn, chiefly because of noncash stock compensation and debt-discount amortization.
- At March 31, notes payable were $4.476 million net of a $4.950 million debt discount; gross convertible notes were $9.426 million. A separate $250,000 PPP loan was outstanding. The balance sheet also included $212,793 of accrued interest. Most reorganization-related notes bear 5%–7% interest and mature in November 2023; the PPP loan bears 1% interest and matures in 2026.
- Total assets were $3.701 million and total liabilities were $6.396 million; stockholders’ deficit was $2.694 million. The company reported a $105.496 million accumulated deficit.
Material changes and unusual items
- The large quarterly loss was principally associated with executive and research leadership equity awards: the company granted options for approximately 2.348 billion shares and 1.174 billion restricted stock units. The options’ grant-date fair value was reported as $27.736 million.
- Other expense fell to $599,000 from $6.732 million in Q1 2020. Q1 2021 had no reported reorganization expense, loss on debt extinguishment, or derivative fair-value loss; all were present in the prior-year quarter.
- During Q1, 19.410 million shares were issued in exchange for notes and accrued interest, and 294.328 million shares were issued through cashless warrant exercises. Shares outstanding reached 3.176 billion at March 31 and were reported as 3,175,977,710 at May 14, 2021.
- At March 31, 14.689 billion warrants and 2.353 billion options were outstanding, alongside 1.174 billion unvested RSUs. Potential shares were excluded from diluted EPS as antidilutive. These securities represent substantial potential dilution.
Outlook, liquidity and risks
Management said cash on hand of approximately $2.248 million as of May 11, 2021, together with financing available under the reorganization plan, was expected to fund operations for the twelve months after filing. This is management’s assessment, not a guarantee; the filing emphasizes continued losses, negative operating cash flow, and uncertainty about obtaining further financing.
- The company intends to begin a Phase 2 BRTX-100 clinical study in 2021, subject to funding. It estimated at least $12 million to complete the Phase 2 study and approximately $45 million in additional funding to complete BRTX-100 clinical trials, assuming no revenue.
- Auctus is required, subject to plan conditions, to provide additional loans under the reorganization plan. The company also stated that it was seeking further funding. No assurance was given that financing would be available on acceptable terms or that available funds would complete development.
- Management warned that insufficient financing could force the company to curtail development or other activities, or discontinue operations. Secured lenders have liens on substantially all company assets, which may constrain further borrowing.
- Exclusive disc/spine technology rights depend on completing the Phase 2 clinical trial by February 2022, according to the filing. Failure to satisfy the milestone could affect those rights.
- Management concluded disclosure controls and internal control over financial reporting were ineffective as of March 31, citing limited segregation of duties, insufficient formal policies and procedures after bankruptcy, and inadequate risk assessment procedures. Management had not completed its evaluation of disclosure controls.
- The company emerged from Chapter 11 reorganization in November 2020. It reported no current litigation believed likely to have a material adverse effect, but disclosed a potential contingency involving shares requested in connection with pre-bankruptcy note exchanges. It also described prior Coventry-related court orders; the ordered reverse split had not been effected as of the report date.
Investor verification priorities
- Verify actual cash runway, the conditions and remaining availability of Auctus financing, and the timing and terms of any additional capital raises.
- Track whether the Phase 2 BRTX-100 study starts on schedule, its funding status, and progress toward the February 2022 license milestone.
- Assess the scale and vesting terms of options, RSUs and warrants, and their potential effect on common-share dilution.
- Reconcile reported stock-based compensation and executive equity awards with the company’s cash requirements and ongoing expense base.
- Monitor remediation of the disclosed material weaknesses and any developments in the potential share-related contingency.