Business context and reporting period
BioRestorative Therapies, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2014. The company is developing adult-stem-cell treatments, including brtxDISC for disc and spine conditions and preclinical ThermoStem for metabolic disorders. It also sells skincare products and has begun earning revenue from research and development agreements.
Financial results and liquidity
| Metric | Three months ended June 30, 2014 | Six months ended June 30, 2014 |
|---|---|---|
| Revenue | $175,941 | $176,316 |
| Gross profit | $133,575 | $133,890 |
| Operating expenses | $1,415,062 | $2,843,795 |
| Operating loss | $(1,281,487) | $(2,709,905) |
| Net loss | $(1,333,139) | $(3,002,815) |
| Net loss per share, basic and diluted | $(0.06) | $(0.14) |
- Most reported revenue came from R&D services: $175,025 for the six-month period. Skincare sales were $1,291. Six-month gross margin was approximately 76%.
- Cash was $59,163 at June 30, 2014, down from $201,098 at December 31, 2013. Working capital deficiency was $8,163,102; stockholders’ deficiency was $7,148,786.
- Six-month operating cash outflow was $1,759,925, compared with $1,474,259 in 2013. Financing provided $1,617,010; investing provided $980.
- Gross notes payable principal was $6,029,727, with stated interest rates generally 8%–15%. About 75% of face value was owed to one lender at June 30. Current notes payable, net of discount, were $5,905,552.
Changes versus the prior comparable period
- Six-month revenue rose from $1,555 in 2013 to $176,316 in 2014, primarily due to new R&D agreements; revenue remained modest relative to operating costs.
- Six-month net loss increased from $2,817,193 to $3,002,815, while operating expenses increased from $2,414,816 to $2,843,795. Consulting expense rose substantially, largely because of noncash stock-based compensation.
- Six-month R&D expense was nearly flat year over year at $787,071 versus $773,358. Marketing and G&A expenses declined.
- Financing included $945,000 from stock and warrant sales and $80,000 from warrant exercises. The company also exchanged or converted debt for equity and extended certain maturities.
Outlook, risks and unusual items
- Management reported substantial doubt about the company’s ability to continue as a going concern. It expected available funds to support operations only through October 2014 and was seeking additional financing and debt extensions or conversions. Failure to secure funding could require curtailing development and marketing, or discontinuing operations.
- After quarter-end, the company raised $205,000 in equity, received $89,063 in R&D payments, extended $4 million of debt to December 31, 2014 in exchange for 550,000 shares, and exchanged $76,669 of debt plus $2,992 accrued interest for shares. The $89,063 payment triggered a mandatory prepayment of the Bermuda Lender note; the filing said that prepayment remained unpaid. Management still reported $244,063 of notes past due or payable on demand.
- A $166,668 gain on settlement of payables related primarily to an amended University of Utah research agreement that cancelled fees. Six-month results also included $244,435 of debt-discount amortization, a $49,094 loss on debt extinguishment, and $30,128 of warrant-modification expense.
- A former consultant’s lawsuit seeks unspecified damages, including at least approximately $193,000 in cash and warrants for 80,000 shares. The company denied the allegations, intends to defend the case, and recorded no loss accrual because it considers the claims without merit.
- Management said R&D, marketing and G&A spending could rise as programs advance and the business expands. No specific revenue or earnings guidance was provided.
Important facts for investors to verify
- Whether the company obtained sufficient financing after the stated October 2014 runway and addressed past-due or demand debt.
- Debt maturity, repayment and conversion terms, including the concentration of borrowing with the Bermuda Lender and the status of the triggered $89,063 prepayment.
- Whether R&D agreements deliver additional payments and revenue, and whether such revenue can become material relative to operating expenses.
- The development, regulatory and funding progress of brtxDISC and ThermoStem, and the company’s ability to establish its planned laboratory capabilities.
- The outcome of the former-consultant litigation and the effects of stock, warrant and option issuances on dilution.