BioRestorative Therapies, Inc. — Form 10-Q Summary
Reporting period: Quarter ended March 31, 2020; financial statements are unaudited. The filing was signed March 29, 2021. The company develops cell-based therapies, including BRTX-100 for disc and spine conditions and a preclinical brown-fat platform. Its reported revenue came from royalties under a sublicense agreement.
Financial results and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $26,000 | $29,000 |
| Operating expenses | $844,989 | $2,357,336 |
| Operating loss | $818,989 | $2,328,336 |
| Net loss | $7,550,772 | $3,883,172 |
| Net loss per share, basic and diluted | $0.01 | $0.28 |
| Cash used in operating activities | $448,646 | $1,980,162 |
| Cash at period end | $4,780 | $496,279 |
Operating expenses fell largely because the company reduced consulting, research and development, and general and administrative spending as it prepared for Chapter 11. Revenue was nearly all royalty income. No meaningful operating margin is evident given the very low revenue and continuing losses.
At March 31, 2020, total assets were $1.38 million, current liabilities were $18.42 million, total liabilities including lease liabilities were $18.91 million, and stockholders’ deficit was $17.54 million. Working capital deficiency was $18.36 million. Notes payable were reported at $8.02 million, with $962,602 of accrued interest and $4.38 million of derivative liabilities. Cash flow from financing was $451,762, mainly from $441,762 of debt proceeds. The company had no cash interest payments in the quarter.
Material changes, bankruptcy and capital structure
- The company filed for Chapter 11 on March 20, 2020. Its reorganization plan was confirmed October 30, 2020 and became effective November 16, 2020.
- The filing says approximately $14.7 million of debt and other liabilities were exchanged for common shares, new convertible notes, or notes and warrants. The plan also provided financing, including $3.5 million from Auctus and approximately $348,000 from other lenders; further Auctus funding was subject to conditions, including becoming current with SEC reporting.
- Plan-related financing instruments included secured convertible notes bearing 7% interest and unsecured convertible notes bearing 5%, generally convertible at a recent volume-weighted average price. Auctus’ funding was secured by substantially all company assets. The plan also issued warrants with very low exercise prices.
- Common shares outstanding rose from 77.9 million at December 31, 2019 to 1.595 billion at March 31, 2020, primarily through debt exchanges. The filing reports 3.025 billion shares outstanding as of March 26, 2021; subsequent plan distributions and potential conversions or warrant exercises create substantial dilution risk.
- Noncash interest, debt-discount amortization, extinguishment losses and derivative remeasurement materially increased the reported quarterly net loss. The $2.14 million derivative fair-value loss was based on Level 3 valuations and was noncash.
Outlook, risks and other disclosures
- Management expected to resume development activity after emergence from Chapter 11 and targeted commencement of a Phase 2 BRTX-100 trial in Q3 2021, subject to funding. The filing estimates at least $12 million to commence and complete the Phase 2 study and approximately $45 million in additional funding to complete clinical trials using BRTX-100, assuming no revenue.
- Management stated that post-reorganization funding and potential additional Auctus financing supported its belief that cash would fund operations for 12 months after the filing. That funding was conditional, and the filing cautions that financing may not be available; failure to raise funds could force the company to curtail development or cease operations.
- The company reported an accumulated deficit of approximately $86.1 million and ongoing operating losses and negative operating cash flows. The statements were prepared on a going-concern basis and do not include adjustments that might be required if the company could not continue operations.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at March 31, 2020. Identified material weaknesses included inadequate segregation of duties, insufficient formal policies and procedures, and lack of timely internal-control risk assessment. The filing also indicates the company had not completed its controls evaluation.
- The filing’s cover-page checkboxes indicate the company had not filed all required reports and had not submitted every required Interactive Data File during the preceding 12 months. Common stock had been moved from OTCQB to the Pink Market in February 2020.
- Other risks include clinical and regulatory uncertainty, dependence on external financing, potential dilution, secured claims on company assets, and possible disruption from COVID-19. The filing reports no litigation believed to have a material adverse effect.
Key investor verification points
- Confirm the current cash position, availability and conditions of remaining Auctus funding, and actual cash runway relative to clinical-trial funding needs.
- Review post-reorganization debt balances, security interests, conversion terms, warrants, share reservations and fully diluted share count.
- Verify the Phase 2 trial’s funding, regulatory and operational status and whether the stated timing and cost estimates remain current.
- Assess remediation of the disclosed control weaknesses and the company’s SEC reporting compliance.
- Reconcile the filing’s inconsistent 2019 net-loss figure: the financial statements show $3,883,172, while one MD&A table shows $3,883,836.