Business context and reporting period
BioRestorative Therapies, Inc. is a development-stage regenerative-medicine company. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2012. Its activities included developing cell-therapy programs, raising capital, and pursuing strategic agreements; it had not generated significant revenue.
In April, the company closed a worldwide exclusive license agreement with Regenerative Sciences, LLC covering technology for cell administration to the disc and spine and certain cell-culturing methods. It also began brown-fat and disc/spine initiatives and entered into a three-year research agreement with the University of Utah.
Financial performance and position
| Metric | Q2 2012 / June 30, 2012 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $10,000 | $0 in Q2 2011 |
| Operating expenses | $1,402,840 | $1,038,230 in Q2 2011 |
| Operating loss | $1,392,840 | $1,038,230 in Q2 2011 |
| Net loss | $1,646,151 | $1,204,840 in Q2 2011 |
| Six-month revenue | $10,000 | $0 in first half 2011 |
| Six-month operating loss | $2,717,065 | $2,055,836 in first half 2011 |
| Six-month net loss | $3,140,533 | $2,317,937 in first half 2011 |
| Cash | $12,571 | $71,508 at December 31, 2011 |
| Working capital deficiency | $5,552,923 | $3,788,947 at December 31, 2011 |
| Gross current notes payable | $4,509,185 | $3,190,000 at December 31, 2011 |
| Total assets / stockholders’ deficiency | $1,342,318 / $4,257,729 | $220,973 / $3,686,397 at December 31, 2011 |
Revenue was entirely from sublicense fees, and all revenue in the quarter and first half came from one customer. Revenue is too small to make margins meaningful. The company reported an accumulated development-stage deficit of $10,665,031.
For the six months, operating cash use was $1,650,589, versus $1,420,754 in 2011; investing cash use was $1,002,533, largely the $1 million license payment; financing provided $2,594,185, including $675,000 from equity sales and net debt proceeds. The resulting cash balance fell by $58,937. The license asset was recorded at $1,226,500, including the value of the first tranche of a warrant issued to the licensor.
Material changes versus prior comparable periods
- Q2 net loss increased by $441,311 year over year; first-half net loss increased by $822,596. The company attributed higher expenses to payroll and executive compensation, stock-based compensation, consulting, and increased borrowing and interest costs.
- First-half operating expenses rose to $2,727,065 from $2,055,836. Consulting expense increased to $827,966 from $435,255; payroll and benefits to $1,041,228 from $881,775; and research and development began, totaling $56,773.
- First-half interest expense rose to $291,158 from $83,253. Debt-discount amortization decreased to $155,387 from $178,848. A $23,077 gain arose from settling a former CFO payable.
- The company issued $1,969,185 of notes in the first half and exchanged $600,000 of principal for shares and warrants, recording a $53,640 extinguishment loss. It also raised $675,000 through a common-stock-and-warrant sale. Issued common shares increased from 635.6 million at year-end to 701.0 million at June 30; outstanding shares at June 30 were 673.1 million.
Outlook, risks, contingencies, and unusual items
- Going concern and liquidity: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It expected available cash to fund operations only until September 2012 and said further financing would be needed. Without timely financing, debt extensions or conversions, it could curtail development and marketing, or discontinue operations.
- Debt pressure: At June 30, gross notes payable were $4,509,185, with stated interest rates generally between 10% and 15% and maturities from March 2012 through June 2013. The filing reported $272,500 of notes past maturity or matured between May and August 2012; management said it had received no notices of default and was discussing extensions or equity conversions.
- Subsequent financing: After June 30, the company raised $262,500 through debt and $150,000 through equity, and extended $112,500 of note maturities. The filing reported outstanding debt of $4,771,685 as of filing. Financing terms included warrants and, for certain notes, revenue-linked prepayments and royalties.
- Development and agreement obligations: The Regenerative Sciences licenses require milestones or minimum payments to preserve exclusivity and include royalty obligations. The University of Utah research agreement requires $500,000 per year for three years and provides for a 5% royalty on specified products or methods; it may be cancelled under stated conditions.
- Dilution and compensation: The filing reported 147.95 million options outstanding and 129 million warrants outstanding at June 30, in addition to common shares. It also reported $820,008 of first-half stock-based compensation. The Board had authority, approved by shareholders, to effect a reverse split within a 1-for-10 to 1-for-150 range, but had not approved one.
- Other risks and controls: Revenue concentration was 100% in one customer, and one entity provided 79% of the face value of notes payable. Management said disclosure controls were effective and reported no material change in internal control over financial reporting. The filing reported no material pending legal proceedings and no off-balance-sheet arrangements. It provided no specific revenue or earnings guidance.
Important facts for investors to verify
- Whether additional financing was secured after the filing and whether it extended the stated September 2012 cash runway.
- The status of matured notes, creditor extensions or conversions, and any default notices or changes in debt terms.
- Progress toward license milestones, regulatory permissions, research objectives, commercialization, and any recurring revenue beyond the reported $10,000 sublicense fee.
- The effect of outstanding options, warrants, subsequent share issuances, and any reverse-split action on potential dilution.
- The filing reports 673,079,411 common shares outstanding at June 30 and 684,579,411 as of August 9, 2012; investors should verify the current share count and subsequent issuances.