Biorestorative Therapies, Inc. quarterly report, Q3 FY2017

Business context and reporting period

BioRestorative Therapies, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2017. The company is developing adult stem-cell therapies, led by BRTX-100 for disc and spine conditions, and a preclinical brown-fat ThermoStem program for metabolic disorders. It also licenses related technology and sells Stem Pearls skincare products.

Financial results and liquidity

• Revenue was almost entirely royalty income under one sublicense agreement; no Stem Pearls product revenue was recorded in 2017. Cost of sales was zero in the periods shown for 2017.
• At September 30, cash was $734, total assets $1.42 million, total liabilities $8.11 million, and stockholders’ deficiency $6.69 million. Working capital deficiency was $8.01 million.
• Gross notes payable were $3.02 million at quarter-end, with stated interest rates ranging from 0% to 15%. Accounts payable were $2.72 million and accrued expenses and other current liabilities were $2.08 million.
• For the first nine months, operating cash use was $2.49 million, compared with $3.94 million in 2016; financing provided $2.46 million, compared with $3.96 million. Cash declined from $31,822 at year-end 2016 to $734.
• Loss per share was $0.37 for Q3 and $1.42 for the nine-month period, versus $0.43 and $1.67, respectively, in 2016.

Changes versus prior comparable periods

• Revenue rose 220% in Q3 and approximately 42% for the nine-month period, but remained immaterial relative to operating costs.
• Operating expenses increased approximately 2% in Q3 and 15% year to date. Year-to-date consulting and general and administrative costs rose, largely reflecting increased stock-based compensation; research and development costs declined, partly because of lower third-party laboratory, payroll, and supply costs.
• Net loss increased approximately 12% in Q3 and 15% year to date. Higher interest expense and, in Q3, higher debt-discount amortization and new derivative-liability and warrant-modification expenses contributed.
• Stock-based compensation was $3.08 million for the first nine months. The company granted 1.117 million options and issued shares and warrants in financings, debt exchanges, and compensation arrangements, increasing potential dilution.

Outlook, risks, and unusual items

• Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It expected available cash to fund operations only through December 2017 and said additional financing is necessary; there is no assurance financing will be available on acceptable terms.
• Management estimated that approximately $10 million would be needed to commence and complete a Phase 2 BRTX-100 trial, and approximately $30 million of further funding to complete clinical trials, assuming no revenue. It cautioned that these estimates and timelines may differ from actual requirements.
• After quarter-end and through the filing date, the company reported $30,000 of equity proceeds and $964,950 of debt proceeds; $67,527 of debt including interest was converted or exchanged for stock; and $1,088,167 of debt maturities were extended. The filing also reported $557,500 of notes past due. Subsequent debt issuance and repayment activity is disclosed in the filing.
• The company warned that failure to raise funds or obtain debt extensions or conversions could force it to curtail development and other activities, or discontinue operations and liquidate. Debt is secured in some cases by equipment and intellectual property, and certain convertible notes carry conversion-price discounts and potential dilution.
• Management expected research and development, marketing, and general and administrative expenses to increase as programs advance and the business expands. A U.S. and Australian ThermoStem patent had issued; a Japanese patent issued in October 2017.
• The filing reported no legal proceedings expected to materially affect financial position and no material off-balance-sheet arrangements. Management concluded disclosure controls were effective as of September 30, 2017.

Most important facts for investors to verify

• Whether the company raised sufficient capital after the filing and whether it could meet near-term operating costs and debt maturities.
• The status of the $557,500 in past-due notes, subsequent maturity extensions, and any further conversions, repayments, or defaults.
• Actual cash runway and funding required for BRTX-100 trials and other programs, compared with management’s estimates.
• Progress and regulatory and clinical milestones for BRTX-100 and ThermoStem, and whether royalty revenue can grow beyond its limited current level.
• The potential dilution and accounting effects of outstanding options, warrants, and convertible notes, including discounted conversion terms.