Biorestorative Therapies, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016. Financial statements are unaudited. The company develops cell- and tissue-based therapies, including its BRTX-100 Disc/Spine candidate and preclinical ThermoStem program; it also sells skincare products and develops a needle device.
Financial performance and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $16,155 | $148,764 | $25,280 | $333,666 |
| Gross profit | $16,084 | $74,119 | $25,199 | $182,589 |
| Operating expenses | $2,159,230 | $1,336,923 | $4,235,479 | $3,071,359 |
| Operating loss | $(2,143,146) | $(1,262,804) | $(4,210,280) | $(2,888,770) |
| Net loss | $(2,258,415) | $(1,420,298) | $(4,745,743) | $(3,180,419) |
| Basic and diluted loss per share | $(0.56) | $(0.64) | $(1.26) | $(1.60) |
At June 30, 2016, cash was $516,190, current assets $546,212, total assets $2,195,793, and total liabilities $6,200,666. Working capital deficit was $5,151,918 and stockholders’ deficit was $4,004,873. Gross notes payable were $1,917,565, with stated interest rates from 0% to 15% and maturities through July 2017.
For the first six months, operating cash use was $2,735,405, investing cash use was $151,200, and financing cash provided was $3,236,240. Cash increased by $349,635 from year-end 2015. No positive operating cash flow or profitability was reported.
Material changes versus prior periods
- Revenue fell sharply because research and development agreement work ended in 2015; there were no new such agreements as of the filing. 2016 revenue was principally sublicense royalties, with a small amount from skincare sales.
- Six-month operating expenses rose 38% to $4.24 million. R&D increased 72%, including higher payroll and third-party laboratory costs; consulting and G&A also rose, substantially reflecting noncash stock compensation.
- Six-month net loss increased to $4.75 million. Debt-discount amortization rose to $402,469 from $140,884, including expense associated with beneficial conversion features.
- Financing supported liquidity: the company raised $2.23 million from stock and warrants, received $980,000 in notes, and received $212,898 from warrant exercises. Common shares outstanding were 4,144,566 at June 30 and 4,283,635 as of August 12, 2016.
Outlook, risks, and unusual items
- Management states that substantial doubt exists about the company’s ability to continue as a going concern. It expected available cash to fund operations only through September 2016 and was negotiating additional financing and debt extensions or conversions. Failure to secure financing could force reductions in development activities or cessation of operations.
- Management estimated that $7.5 million–$8.5 million would be needed to commence and complete a Phase 2 Disc/Spine trial, with a further $20 million–$30 million for subsequent clinical trials. These are estimates, not assured funding or clinical milestones.
- After June 30, the company reported $340,000 of equity financing and $300,000 of debt financing, repaid $288,000 of principal and $14,954 of interest, and converted $55,000 of principal and $3,195 of interest into shares. As of the filing, $157,500 of notes were past due; extensions or conversions were not assured.
- Notable noncash items include $1,318,244 of stock-option compensation for the first six months and $402,469 of debt-discount amortization. A related-party trust loaned the company $500,000 at 10% interest, due July 2017, and received a five-year warrant.
- Management expects R&D, marketing, and G&A costs to increase as programs and operations expand. The company’s programs remain development-stage; clinical, regulatory, commercialization, and financing outcomes are uncertain.
Key facts for investors to verify
- Whether the company obtained sufficient financing after September 2016 and extended, repaid, or converted the past-due notes.
- Cash runway, operating cash burn, and the terms and dilution effects of subsequent debt and equity financings.
- Progress, funding needs, and regulatory status of the BRTX-100 clinical program and ThermoStem research.
- Revenue prospects following the end of research and development agreements, and the company’s ability to generate recurring commercial revenue.
- The continuing impact of option and warrant awards, debt discounts, and other noncash financing costs on reported losses and share dilution.