BioRestorative Therapies, Inc. — FY2013 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2013; it was signed April 11, 2014. The company is a development-stage stem-cell therapeutics and skincare business with no significant operating revenue. Its principal programs are brtxDISC (disc/spine treatment), preclinical ThermoStem (brown fat research for metabolic disorders), and cosmetic products. Its common stock trades on the OTC Bulletin Board.
Financial results and position
| Metric | FY2013 / December 31, 2013 | FY2012 / December 31, 2012 |
|---|---|---|
| Revenue | $1,680 | $15,589 |
| Gross profit | $1,472 | $14,282 |
| Operating expenses | $4,753,742 | $5,586,734 |
| Operating loss | $(4,752,270) | $(5,572,452) |
| Net loss | $(5,751,194); $(0.35) per share | $(6,536,722); $(0.48) per share |
| Cash from operating activities | $(2,672,404) | $(3,184,112) |
| Cash from investing activities | $(11,160) | $(1,002,533) |
| Cash from financing activities | $2,884,299 | $4,115,500 |
| Cash | $201,098 | $363 |
| Working capital deficiency | $7,262,748 | $2,784,676 |
| Stockholders’ deficiency | $6,685,069 | $5,141,693 |
Revenue in 2013 came from Stem Pearls skincare sales; 2012 included $10,000 of sublicense fees. Gross profit was positive but immaterial in scale. Research and development expense rose 111% to $1,594,054, while consulting expense fell 55% and general and administrative expense fell 23%. The lower net loss reflects reduced operating expenses, partly offset by debt-related costs, including $214,912 of warrant modification expense.
At year-end, total assets were $1,382,915 and total liabilities were $8,067,984. Debt was reported at $5,754,500 gross, with $5,514,009 of notes payable net of debt discounts on the balance sheet. Annual debt interest rates ranged from 8% to 20%. The Bermuda lender accounted for 70% of the face value of outstanding notes; its $4 million note was due July 31, 2014. The company reported no material off-balance-sheet arrangements.
Material changes and subsequent events
- Operating loss improved to $4.75 million from $5.57 million, and net loss improved to $5.75 million from $6.54 million; revenue declined sharply from an already small base.
- Financing in 2013 included $1,410,809 from equity and warrant exercises and $1,454,000 in debt proceeds. Net cash from financing was lower than in 2012.
- After year-end, the company reported $625,000 in equity financing, $140,000 in debt financing and $150,000 in R&D fees received through April 9, 2014; it also extended or exchanged some debt and repaid $25,000. The filing elsewhere gives a different post-year-end equity-financing figure, so the precise amount is unclear from the filing text.
- After those actions, $193,000 of notes remained past due or payable on demand. The company estimated its cash would fund operations only through May 2014.
- In March 2014, the company entered research agreements with Rohto Pharmaceutical (initial $150,000 received, with up to $100,000 tied to milestones) and Pfizer (initial $250,000 and up to $525,000 in additional payments, subject to terms and milestones).
Outlook, risks, contingencies and unusual items
- Management said additional financing is required to continue operations and meet debt obligations; the auditor’s report states that these conditions raise substantial doubt about the company’s ability to continue as a going concern. Management warned that failure to secure funding or obtain debt extensions/conversions could force curtailment, discontinuation or liquidation.
- The company estimated it would need approximately $25 million to $50 million to implement the brtxDISC program and repay outstanding debt, assuming no operating revenue or debt conversion; it expects substantial additional funding for other programs. No assurance is given that financing will be available.
- Development plans included a pre-IND study for brtxDISC targeted for completion by Q3 2014, an intended FDA filing and clinical-trial preparation thereafter, and ThermoStem preclinical studies expected to begin by Q4 2014, with clinical trials targeted for Q3 2015. These are plans, not assured milestones.
- A February 2014 appeals-court decision involving the company’s disc/spine licensor affirmed FDA authority over certain cultured autologous stem-cell procedures. The company noted this could make FDA drug/biologic approval requirements more likely, potentially increasing costs and delaying development.
- A former consultant’s lawsuit seeks unspecified damages, including at least approximately $193,000 and warrants for 80,000 shares. The company disputes the claims and has not accrued a loss.
- The CEO waived $240,000 of 2013 salary, a $300,000 bonus and $25,000 of vacation pay; the filing recorded $565,000 of contributed services in stockholders’ deficiency. The company also relied on equity-linked financing and conversions, creating potential shareholder dilution.
- Other key risks include clinical, scientific and commercialization uncertainty; regulatory approval and compliance; intellectual-property protection; dependence on key personnel; uncertain reimbursement; limited trading liquidity; and dependence on a small number of lenders.
Investor verification priorities
- Confirm the company’s current cash runway, financing raised after year-end and the conflicting post-year-end equity-financing disclosures.
- Verify current debt principal, accrued interest, maturity extensions, past-due amounts and the status of the Bermuda lender’s July 2014 maturity.
- Track whether additional financing or debt conversions were secured and quantify the resulting dilution and warrant obligations.
- Confirm progress and regulatory pathway for brtxDISC and ThermoStem against the projected study and filing timelines.
- Assess the economics, milestone conditions and cash receipts under the Rohto and Pfizer research agreements.
- Monitor the consultant litigation and any change to the company’s going-concern assessment.