BioRestorative Therapies, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2020. The filing was signed April 12, 2021. The statements are unaudited and reflect the Company as debtor-in-possession during its Chapter 11 case.
Business context
The Company develops cell- and tissue-based therapies. Its lead candidate, BRTX-100, is being developed for chronic lower back pain related to degenerative disc disease; ThermoStem is a preclinical program focused on brown-fat therapies for metabolic disorders. Revenue came solely from royalties under a sublicense agreement, based on disc procedures.
Financial performance and position
| Metric | Q2 2020 / June 30, 2020 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $19,000 for Q2; $45,000 for first half | $31,000 for Q2 2019; $60,000 for first half 2019 |
| Operating expenses | $480,588 for Q2; $1,325,577 for first half | $2,159,804 for Q2 2019; $4,517,140 for first half 2019 |
| Operating loss | $461,588 for Q2; $1,280,577 for first half | $2,128,804 for Q2 2019; $4,457,140 for first half 2019 |
| Net income (loss) | $2,875,660 for Q2; $(4,675,112) for first half | $(4,157,190) for Q2 2019; $(8,040,362) for first half 2019 |
| Cash and operating cash flow | $298,097 cash at June 30; $(869,084) operating cash flow for first half | $1,664 cash at December 31, 2019; $(3,397,117) operating cash flow for first half 2019 |
| Liquidity and liabilities | $15,237,364 working-capital deficiency; $14,700,000 liabilities subject to compromise; $713,575 DIP financing | $13,651,716 working-capital deficiency at December 31, 2019 |
| Total assets / liabilities | $1,613,150 / $16,054,331 | $1,466,323 / $14,242,469 at December 31, 2019 |
Gross margin was not separately reported. Q2 net income reflected a $3,361,416 net reorganization gain, chiefly the noncash write-off of derivative liabilities; it did not represent operating profitability. First-half loss included a $2,141,069 loss from derivative fair-value changes, debt-related charges and reorganization items.
Changes versus prior comparable periods
- First-half revenue decreased 25% year over year. Management attributed the sharp reductions in marketing, consulting, research and development, and general and administrative expenses to spending cuts before and during Chapter 11.
- First-half operating cash use improved to $869,084 from $3,397,117, while financing provided $1,165,517, primarily from debt and DIP financing.
- Common shares outstanding increased from 77,851,633 at December 31, 2019 to 1,594,651,383 at June 30, 2020, principally through exchanges of debt and accrued interest for equity. The filing reports 3,175,977,710 shares outstanding as of April 7, 2021.
Outlook, material events and risks
- The Company filed for Chapter 11 on March 20, 2020. The reorganization plan was confirmed October 30 and became effective November 16, 2020. Approximately $14.7 million of prepetition liabilities were addressed through common stock and new convertible notes, with warrants also issued under the plan.
- Management stated it expected to have sufficient cash for the 12 months after the filing, relying on reorganization financing and additional Auctus funding subject to conditions, including becoming current in SEC reporting. The filing cautions that funding may be insufficient and that failure to raise more capital could force curtailment or cessation of operations.
- Management expected to begin the BRTX-100 Phase 2 study in the third quarter of 2021, assuming funding. It estimated at least $12 million to commence and complete the study and approximately $45 million in additional funding to complete the clinical trials, assuming no revenue.
- Management expected research and development and general and administrative expenses to rise as activities resumed and the business expanded. No profitability guidance was provided.
- Going-concern uncertainty is material: accumulated deficit was approximately $83.2 million, first-half operating cash flow was negative, and the Company expected continued operating losses and negative operating cash flows.
- Disclosure controls were deemed ineffective; management cited inadequate segregation of duties, adherence to formal post-bankruptcy policies and procedures, and timely internal-control risk assessment. Management also stated it had not completed the required evaluation.
- The filing checked “No” for having filed all required reports during the preceding 12 months and for submitting every required Interactive Data File. It also describes a Coventry Enterprises court dispute and a temporary order that was not continued; the filing says the Company was not then involved in litigation believed to have a material adverse effect.
Important facts for investors to verify
- Whether the promised or conditional post-reorganization funding was available, and whether it covers operating needs and the stated clinical-trial funding requirements.
- The precise terms, security, conversion mechanics and potential dilution from the plan’s secured and unsecured convertible notes and warrants.
- The status, funding and regulatory milestones for BRTX-100 and ThermoStem, including whether the stated Phase 2 timing was achieved.
- The resolution of the identified material weaknesses, the Company’s SEC-reporting compliance, and the effect of the substantial increase in shares outstanding.
- The DIP proceeds are stated as $713,575 in the balance sheet and note, but the cash-flow discussion gives $713,715 of net proceeds and the cash-flow statement lists $713,755; reconcile these figures against the filed statements.