Business context and reporting period
BioRestorative Therapies, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2013. The company describes itself as a development-stage enterprise focused on cell-based programs for disc disorders and metabolic conditions, plus cosmetic products. Its brtxDISC program remained non-clinical and investigational; revenue was limited to Stem Pearls skincare sales in 2013. The company implemented a 1-for-50 reverse stock split effective April 15, 2013; share and per-share data reflect the split.
Financial results and liquidity
- Revenue and gross profit: Second-quarter revenue was $425, versus $10,000 in 2012; six-month revenue was $1,555, versus $10,000. Gross profit was $389 for the quarter and $1,357 for six months. The corresponding gross margins were approximately 92% and 87%, respectively, on very small sales volumes. 2012 revenue came from sublicense fees; 2013 revenue came from product sales.
- Operating costs and losses: Second-quarter operating expenses were $1.114 million, down from $1.349 million; six-month expenses were $2.415 million, down from $2.673 million. Research and development rose to $372,916 for the quarter and $773,358 for six months, while consulting and general and administrative expenses declined. Net loss was $1.251 million for the quarter and $2.817 million for six months, compared with $1.646 million and $3.141 million, respectively, in 2012. Six-month basic and diluted loss per share was $0.18, versus $0.25.
- Cash flow: Operating activities used $1.474 million in cash in the first half, compared with $1.651 million in 2012. Financing activities provided $1.474 million, including $905,000 from stock and warrant sales; investing activities used no cash. Ending cash was just $119.
- Balance sheet and liquidity: At June 30, total assets were $1.250 million and total liabilities were $6.986 million. Working capital deficiency was $3.288 million, versus $2.785 million at December 31, 2012; stockholders’ deficiency was $5.736 million. Gross notes payable were reported as $5.009 million at quarter-end, with $1.009 million current; balance-sheet note amounts are net of debt discounts.
- Debt and equity: In March, the company combined prior Bermuda Lender borrowings with an additional $450,000 into a $4 million zero-coupon note due July 31, 2014, issuing shares and warrants as consideration. The filing says 80% of the face value of notes payable was sourced from this lender. The company issued $905,000 of stock and warrants for cash during the half-year and also exchanged debt for equity.
Changes, outlook, risks, and unusual items
Management attributed the lower year-over-year net loss mainly to reduced consulting and general and administrative expenses, partly offset by substantially higher research and development spending. Management expected R&D, marketing, and general and administrative expenses to increase as programs and infrastructure developed. No revenue or earnings guidance was provided.
The filing states that substantial doubt exists about the company’s ability to continue as a going concern. It had not generated significant revenue and depended on further debt or equity financing. Management expected available cash to fund operations only through September 2013 and said it was negotiating additional capital. Failure to obtain financing or extend or convert debt could force curtailment of development and marketing, or discontinuation and liquidation.
Subsequent to quarter-end and through the filing date, the company reported $171,000 of debt financing, an extension of a $25,000 note, and conversion of $80,000 principal plus $1,253 accrued interest into shares. It also reported $385,000 of principal and $35,000 of deferred interest on notes due or past due, with extensions or conversions under discussion and no assurance of success. Other subsequent borrowings included an $85,000 one-month note with $15,000 guaranteed interest and a $50,000 one-year note at 15% interest.
Other notable matters include an approximately $218,000 cash claim and a claim for 93,912 shares from an alleged former consultant, which the company said it would vigorously defend. A proposed securities offering remained under review and had not commenced; the related investment-banker agreement expired July 15, 2013. Management concluded disclosure controls were effective and reported no material changes in internal control over financial reporting.
Most important facts for investors to verify
- Whether the company secured financing after the stated September 2013 cash runway, and the actual cash balance and operating runway thereafter.
- Current status, maturity terms, and repayment or conversion outcome for the $385,000 of due or past-due principal and other outstanding debt, including the large Bermuda Lender note.
- Progress, clinical and regulatory status, and funding needs for the brtxDISC and ThermoStem programs; both remained development-stage activities.
- Whether product sales or licensing revenue increased materially from the minimal reported levels, and whether projected increases in operating costs were funded.
- Resolution and potential financial or share dilution effects of the former-consultant claim, outstanding warrants and options, and subsequent equity-linked financing.