BioRestorative Therapies, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. The company describes itself as a development-stage enterprise focused on adult stem-cell therapies, including brtxDISC for disc and spine conditions and ThermoStem for metabolic disorders, as well as stem-cell-related cosmetic products. Financial statements are unaudited.
Financial performance and position
| Metric | Q1 2014 | Q1 2013 / prior date |
|---|---|---|
| Revenue | $375 | $1,130 |
| Gross profit | $315 | $968 |
| Operating expenses | $1.429 million | $1.301 million |
| Operating loss | $1.428 million | $1.300 million |
| Net loss | $1.670 million | $1.566 million |
| Operating cash used | $807,000 | $772,000 |
| Cash at period end | $110,360 | $201,098 at Dec. 31, 2013 |
| Working capital deficiency | $7.789 million | $7.263 million at Dec. 31, 2013 |
| Total liabilities | $8.236 million | $8.068 million at Dec. 31, 2013 |
Revenue was from Stem Pearls skincare sales; no research and development agreement revenue was recognized in the quarter. Gross margin was about 84%, but on immaterial sales. Gross profit and revenue declined year over year, while operating expenses rose about 10% and net loss widened about 7%. R&D expense rose 23% to $494,000; consulting expense rose 16% to $267,000. Interest expense fell to $73,000 from $198,000, partly offset by higher debt-discount amortization ($99,000 versus $61,000).
At March 31, gross notes payable were $5.606 million; balance-sheet notes were reported net of discounts. Current liabilities were $7.927 million, against current assets of $137,000. Financing provided $715,000 in cash during the quarter, including $545,000 from stock and warrant sales and $80,000 from warrant exercises. The company had an accumulated development-stage deficit of $21.482 million and stockholders’ deficiency of $6.983 million.
Business developments, outlook and risks
- Two R&D agreements were signed in March: a one-year Japanese pharmaceutical agreement with a $150,000 initial payment and up to $100,000 tied to deliverables; and a two-year U.S. brown-fat agreement with an initial $250,000 payment and up to $525,000 in additional payments. The Japanese payment was recorded as deferred revenue at quarter-end; the U.S. initial payment was received in April.
- Management said available funds were expected to support operations only through June 2014. Subsequent to quarter-end and through the filing period, the company reported $530,000 of debt financing, $250,000 of R&D fee receipts, and extensions of $652,500 of debt. It was negotiating extensions or conversions for $251,750 of debt described as past due or payable on demand and seeking further capital. No assurance of financing was given.
- On May 8, a subsidiary borrowed $500,000 from Westbury (Bermuda) Ltd., a principal shareholder, at 15% interest, due May 2015. The note requires prepayment from specified R&D agreement receipts. The Bermuda lender supplied about 71% of debt face value at quarter-end and 73% as of the filing date.
- Management expects substantial ongoing costs and continued operating losses; marketing, R&D, and general and administrative expenses may increase. The company warns that failure to raise capital or obtain debt extensions/conversions could force it to curtail development and marketing, discontinue operations, or liquidate. The filing states these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- Equity financing and debt exchanges increased shares outstanding; 2.415 million employee/director options were granted during the quarter, and potentially dilutive securities were excluded from loss per share as anti-dilutive. These instruments create dilution risk.
- A former consultant’s lawsuit seeks at least approximately $193,000 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.
- The company’s programs remain development-stage, including preclinical work, and depend on research progress, financing, and regulatory milestones. The filing provides no formal revenue or earnings guidance. Management reported disclosure controls were effective and no material change in internal controls during the quarter.
Important facts for investors to verify
- Whether the company secured financing after the stated June 2014 cash runway, and whether overdue or demand debt was extended, repaid, or converted.
- Actual cash receipts, deliverable completion, and revenue recognition under both pharmaceutical R&D agreements, including the required prepayment of the $500,000 lender note.
- Debt balances, maturity schedule, interest costs, and continued concentration with the Bermuda lender, including its relationship to the company as a principal shareholder.
- Cash burn, vendor-payment deferrals, and the company’s ability to fund clinical, preclinical, and operating plans without further dilutive financing.
- Share-count and dilution effects from equity issuances, warrants, options, and convertible debt; the filing reports 21,833,014 shares outstanding at March 31 and 22,202,276 as of May 12, 2014.
- Progress and potential financial exposure from the former consultant’s lawsuit and other commitments.