Biorestorative Therapies, Inc. — Q1 2018 Form 10-Q
Business context and period. This unaudited quarterly report covers the three months ended March 31, 2018, compared with Q1 2017. The company is developing BRTX-100, a cell therapy candidate for chronic lumbar disc disease, and its preclinical ThermoStem program for metabolic disorders. Revenue was royalty income from a sublicense, not product sales.
Key financial metrics
| Metric | Q1 2018 / March 31, 2018 | Comparable / prior date |
|---|---|---|
| Revenue | $19,000 | $7,000 in Q1 2017 |
| Operating expenses | $2,249,738 | $2,496,371 in Q1 2017 |
| Operating loss | $(2,230,738) | $(2,489,371) in Q1 2017 |
| Net loss | $(2,507,660); $(0.39) per share | $(2,785,754); $(0.56) per share in Q1 2017 |
| Cash used in operating activities | $(1,158,201) | $(1,218,965) in Q1 2017 |
| Cash | $8,564 | $451,680 at December 31, 2017 |
| Gross notes payable | $4,156,214 | $3,999,335 at December 31, 2017 |
| Working capital deficiency | $8,778,930 | $7,833,592 at December 31, 2017 |
| Total assets / liabilities | $1,223,222 / $8,913,518 | $1,758,607 / $8,595,175 at December 31, 2017 |
Gross margin is not meaningfully presented because reported revenue is limited royalty income and the filing does not provide a clear gross-profit measure. The company reported a stockholders’ deficiency of $7,690,296 and accumulated deficit of $53,912,113 at quarter-end.
Material changes versus Q1 2017
- Revenue increased by $12,000 but remained immaterial relative to operating costs.
- Operating expenses fell 10%, principally as research and development costs declined 49% to $407,130. Management attributed the decrease mainly to staffing changes and lower stock-based compensation and supply costs.
- General and administrative expense rose 14% to $1,368,655, primarily due to employee and senior vice president stock compensation and payroll costs. Marketing and promotion increased 41% to $41,023; consulting expense declined 7% to $432,930.
- Net loss narrowed by $278,094. Lower operating costs and a $164,820 gain from changes in derivative-liability fair value were partly offset by higher interest expense and debt-discount amortization.
- Operating cash use improved by $60,764, while financing cash provided fell to $715,085 from $1,196,000. Q1 2018 financing included $300,917 net debt proceeds and $414,168 from warrant exercises.
- Common shares outstanding increased to 6,483,253 at March 31 from 6,112,473 at year-end; the filing reports 6,558,002 shares outstanding as of May 11, 2018.
Liquidity, outlook, and risks
- Management and the auditor-related financial statement disclosures identify substantial doubt about the company’s ability to continue as a going concern. The company stated that available cash was expected to fund operations only through May 2018 and that continued operations require additional financing.
- After quarter-end, the company reported $25,000 in gross equity proceeds and $545,250 in gross debt proceeds; it also reported debt conversions or exchanges, repayments, and maturity extensions. A $250,000 note remained past due as of the filing date. The filing gives differing extension totals in separate passages ($730,564 in Note 2 versus $545,250 in MD&A); verify the reconciled amount.
- Subsequent convertible notes carry 12% interest and conversion terms based in part on 58% of the lowest closing share price over a specified period, creating potential dilution. Some notes also include substantial prepayment premiums or cash-demand provisions.
- Management estimated approximately $20 million would be needed to commence and complete a Phase 2 BRTX-100 trial and approximately $45 million in further funding to complete clinical trials, assuming no revenue. The company intended to begin Phase 2 trial-related activities in Q3 or Q4 2018, subject to necessary funding.
- Management warned that inability to raise capital or extend or convert debt could force cuts to development and promotional activity and could ultimately lead to discontinued operations and liquidation. It also said R&D, G&A, and marketing costs could increase as programs and operations expand.
- The filing states there were no legal proceedings expected to materially affect financial position, no material off-balance-sheet arrangements, and disclosure controls were effective. No new quarterly risk factors were listed; the company referred investors to its 2017 Form 10-K.
Most important facts for investors to verify
- Current cash, actual cash runway, and financing obtained after the filing date.
- Reconciliation of post-quarter debt extensions, outstanding maturities, and the past-due $250,000 note.
- Terms, conversion prices, premiums, and potential dilution from outstanding and subsequent convertible notes, warrants, and options.
- Whether funding is secured for the planned BRTX-100 Phase 2 trial and whether the stated cost estimates and timeline remain current.
- Revenue concentration: the filing says one license and related royalties accounted for all reported revenue.