BioRestorative Therapies, Inc. — Q3 2013 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2013. The company describes itself as a development-stage enterprise; interim financial statements are unaudited.
Business context
BioRestorative develops adult-stem-cell-based therapies. Its brtxDISC and ThermoStem programs remained in nonclinical research, while its brtx-C program concerns a stem-cell-derived cosmetic ingredient. The company also sells Stem Pearls skincare products online. Reported 2013 revenue came from Stem Pearls sales; the filing reports no significant revenue base.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $125 | $5,225 | $1,680 | $15,225 |
| Gross profit | $115 | $3,955 | $1,472 | $13,955 |
| Operating expenses | $1.129 million | $1.209 million | $3.544 million | $3.883 million |
| Net loss | $1.303 million | $1.477 million | $4.120 million | $4.618 million |
| Operating cash used | — | $1.909 million | $2.101 million |
For the nine-month comparison, research and development expense rose 165% to $1.188 million, while consulting expense fell 54% to $553,404 and general and administrative expense fell 19% to $1.719 million. Management attributed much of the consulting decrease to lower noncash stock-based compensation; R&D growth reflected program activity and related compensation. Revenue fell 89% year over year, partly because 2012 included sublicense fees. The lower net loss reflected lower operating costs and interest expense, partly offset by higher debt-discount amortization.
At September 30, cash was $642; current assets were $66,313 and current liabilities were $7.858 million, producing a $7.792 million working-capital deficit. Total assets were $1.224 million, total liabilities $7.858 million, and stockholders’ deficiency $6.634 million. Gross notes payable principal was $5.306 million, reported as current; the balance sheet showed $4.966 million net of debt discount. Operating cash use was partly offset by noncash expenses and increased payables and accruals. Financing provided $1.909 million, including $905,000 from equity sales and net debt proceeds of approximately $975,000.
Changes, outlook, and key risks
- The nine-month net loss improved by about 11% versus 2012, but revenue remained minimal and the company continued to rely on debt and equity financing.
- Management said post-quarter debt financing of $350,000 was expected to fund operations only through December 2013. Additional capital is required; management was negotiating financing and possible debt extensions or conversions. The filing states that failure to obtain funding could force cuts to development and marketing or cessation and liquidation.
- The company reported substantial doubt about its ability to continue as a going concern. It had $305,000 of notes past due or payable on demand as of the filing date, and reported total debt principal of $5.661 million then. Debt maturities, interest rates, and repayment terms create refinancing and liquidity risk.
- Approximately 75% of the face value of September 30 notes payable was sourced from one lender. A $4 million zero-coupon note to that lender was due July 31, 2014. Multiple financings included warrants, equity-linked conversion terms, or other conditions that may create dilution.
- Management expected R&D, marketing, and general and administrative spending to increase as programs progress and the company expands commercialization and infrastructure; timing and scale depend on available funding.
- A former consultant’s claim sought approximately $218,000 and 93,912 shares. A related lawsuit was filed November 8, 2013; the company said it had not been served, considered the claims without merit, and intended to defend them.
- During the nine months, the company implemented a 1-for-50 reverse stock split, with share and per-share amounts retrospectively adjusted. It reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Whether the company raised enough capital after the filing date to fund operations beyond December 2013, and the terms and dilution of that financing.
- Current cash, cash burn, accounts payable and accrued liabilities, and the status of past-due or on-demand notes and upcoming maturities.
- Whether debt holders extended or converted obligations, particularly the concentrated lender exposure and the $4 million note.
- Progress, clinical or regulatory requirements, and funding needs for the nonclinical brtxDISC and ThermoStem programs; prospects for meaningful product revenue.
- The status and potential financial or share impact of the RAK Enterprises litigation and any subsequent developments.
- Share count and potential dilution from outstanding options, warrants, and convertible notes; the filing reported 17,109,778 common shares outstanding at September 30 and 17,159,778 at November 14, 2013.