Business context and reporting period
BioRestorative Therapies, Inc. filed this Form 10-K for the fiscal year ended December 31, 2014. It is an annual report, not a standalone fourth-quarter report. The company is a development-stage regenerative medicine business focused mainly on adult stem cell programs, with limited cosmetic-product sales and research and development service revenue.
- brtxDISC: autologous bone-marrow stem cell candidate for chronic lumbar disc disease. Following a December 2014 FDA pre-IND meeting, management targeted an IND and Phase I trial by early 2016.
- ThermoStem: preclinical brown-fat cell program for obesity and metabolic disorders; management expected preclinical studies to begin in 2015 and Phase I trials in 2017.
- The company also licensed a curved-needle device and sells Stem Pearls skincare products. It relocated corporate and laboratory operations to Melville, New York in 2014.
Financial and operating metrics
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $415,996 | $1,680 |
| Cost of sales | $213,834 | $208 |
| Gross profit | $202,162 | $1,472 |
| Operating expenses | $5,124,668 | $4,753,742 |
| Operating loss | $(4,922,506) | $(4,752,270) |
| Net loss | $(5,587,612) | $(5,751,194) |
| Net loss per share, basic and diluted | $(0.22) | $(0.35) |
| Cash used in operating activities | $(3,227,851) | $(2,672,404) |
| Cash used in investing activities | $(167,396) | $(11,160) |
| Cash provided by financing activities | $3,285,947 | $2,884,299 |
| Cash at year end | $91,798 | $201,098 |
2014 research and development agreement revenue was approximately $413,777; skincare sales were approximately $2,219. The reported gross margin was approximately 48.6%, but revenue was modest and largely contract-based. The filing does not provide a meaningful product-commercialization margin.
At December 31, 2014, total assets were $1,691,801, total liabilities were $8,580,194, and stockholders’ deficiency was $6,888,393. Current assets were $114,313 and current liabilities were $8,524,999, implying a working capital deficiency of $8,410,686. The MD&A liquidity table separately reports a deficiency of $8,247,881; the filing text does not explain this difference. Gross notes payable were reported as $5,851,496 at year-end, with interest rates generally between 8% and 15% and maturities through October 2015. Notes payable on the balance sheet are presented net of debt discounts.
No cash dividends have been paid, and none were anticipated in the foreseeable future. The company reported no material off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Revenue increased from $1,680 to $415,996, primarily because the company began recognizing research and development agreement revenue.
- Operating expenses rose approximately 8%; consulting expense increased $530,659, while R&D expense declined $163,440 and general and administrative expense was nearly unchanged.
- Net loss narrowed by approximately 3%, despite a larger operating loss, reflecting lower total other expense, including a $183,768 gain on settlement of notes and payables.
- Operating cash use increased by approximately $555,000, and year-end cash fell by $109,300.
- Common shares issued and outstanding increased substantially during 2014, reflecting equity offerings, debt conversions, compensation and other issuances. The filing reports 33,953,179 shares outstanding at year-end and 37,149,052 as of March 30, 2015.
Outlook, commentary, risks and unusual items
- Going concern and liquidity: The auditor’s report includes an explanatory paragraph stating that recurring losses and the need for additional funding raise substantial doubt about the company’s ability to continue as a going concern. Management expected available cash to fund operations only through April 2015 and said additional financing or creditor extensions/conversions were necessary. Failure to obtain funding could force curtailment or discontinuation of operations.
- Subsequent financing: Through March 31, 2015, the company reported $801,000 in equity financing, $30,000 in debt financing, and $227,234 in R&D receipts. It also reported conversions of $50,000 of debt and $5,984 of accrued interest into shares. After these actions, it said $5,000 of notes were past due or payable on demand, while other debt remained outstanding and subject to extension or conversion discussions.
- Funding needs: Management estimated $25 million to $50 million to implement the Disc/Spine plan and repay year-end debt, assuming no operating revenue and no debt conversion; other programs would require substantial additional funding. No assurance was given that financing would be available.
- Development and regulatory risk: No product candidate had regulatory approval, and clinical trials had not begun. The FDA may regulate the programs as drugs or biologics rather than solely as HCT/Ps, requiring extensive trials and approvals. Management said no material obstacle to its brtxDISC trial plans was identified at the pre-IND meeting, but that meeting was not an approval.
- Concentration and related-party financing: Approximately 75% of the face value of year-end notes payable was owed to one Bermuda lender, also a principal shareholder. R&D revenue came almost entirely from two pharmaceutical clients. Contract receipts from Rohto and Pfizer triggered mandatory prepayments on a lender note; some required prepayments were unpaid as of the filing.
- Other unusual items: The 2014 results included $1,360,296 of stock-based compensation, $464,470 of debt-discount amortization, and the $183,768 settlement gain. The company also disclosed a former consultant’s lawsuit seeking, among other relief, at least approximately $193,000 in cash or alternative compensation and 80,000 shares or equivalent value; a settlement offer was filed in March 2015, and trial was scheduled for June 2015.
- Management targets are not assurances: Trial start dates, financing expectations and program milestones are forward-looking and subject to funding, clinical, manufacturing and regulatory uncertainty.
Important facts for investors to verify
- Reconcile the two reported working-capital-deficiency figures ($8,410,686 in the balance-sheet/going-concern disclosures versus $8,247,881 in the MD&A liquidity table).
- Confirm the amount, maturity schedule, interest and status of debt after extensions, mandatory prepayments and subsequent conversions; distinguish gross principal from balance-sheet carrying amounts net of discounts.
- Verify the company’s cash runway and whether post-year-end financing and customer receipts were sufficient to continue operations beyond the stated April 2015 estimate.
- Check progress on FDA classification, IND submission, required preclinical work, clinical-trial timing and the regulatory status of the Melville laboratory.
- Review the status and potential exposure of the former consultant litigation, as well as the terms and payment status of obligations to the related-party lender.
- Assess dilution: outstanding options, warrants and convertible instruments, subsequent share issuances, and potential debt-to-equity conversions.