BioRestorative Therapies, Inc. — Q3 2012 Form 10-Q
Business context and reporting period
Development-stage company focused on adult stem-cell therapies, including disc and spine and brown-fat programs, and Stem Pearls skincare products. This unaudited quarterly report covers the three and nine months ended September 30, 2012; balance-sheet comparisons are with December 31, 2011.
Financial performance and position
| Metric | Three months ended September 30, 2012 | Nine months ended September 30, 2012 | Comparable 2011 period |
|---|---|---|---|
| Revenue | $5,225 | $15,225 | $0 |
| Gross profit | $3,955 | $13,955 | $0 |
| Operating expenses | $1,209,137 | $3,936,202 | $853,005 / $2,908,841 |
| Operating loss | $(1,205,182) | $(3,922,247) | $(853,005) / $(2,908,841) |
| Net loss | $(1,477,094) | $(4,617,627) | $(1,013,385) / $(3,331,322) |
| Operating cash used | — | $(2,101,468) | $(1,695,321) |
The statements show gross margin of approximately 76% for both 2012 periods, but revenue was very small relative to expenses. The notes separately state Q3 skincare revenue of $5,255, rather than the $5,225 shown in the statements; investors should verify this discrepancy. Nine-month revenue comprised $10,000 of sublicense fees and $5,255 of skincare sales, according to the notes.
At September 30, cash was $104,065; current assets were $129,298 and current liabilities were $6,475,337, producing a $6,346,039 working-capital deficit. Total assets were $1,397,485, total liabilities $6,475,337, and stockholders’ deficiency $5,077,852. Notes payable, net of discount, were $4,642,968 on the balance sheet; gross current notes were reported as $4,781,685. Cash increased from $71,508 at year-end. Nine-month investing cash use was $1,002,533, principally the $1 million license payment; financing provided $3,136,558.
Changes versus prior comparable periods
- Revenue began at a low level in 2012 versus none in 2011; the company continued to report substantial losses.
- Nine-month net loss widened by about $1.29 million. Payroll and benefits rose to $1.37 million from $1.08 million, consulting expense to $1.25 million from $582,165, and R&D expense reached $246,383 from zero.
- Interest expense rose to $463,569 from $158,209 over nine months, mainly because of increased short-term borrowings. Marketing and promotion and general and administrative expenses declined.
- Intangible assets increased to $1,194,810, primarily from the SCTC license. Common shares outstanding rose to 689,829,411 from 607,683,811 at year-end; the company also issued substantial options and warrants.
Outlook, risks, and unusual items
- Management said available cash was expected to fund operations only until November 2012 and that additional financing would be required. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- After quarter-end, the company raised $575,000 through equity financing and exchanged $154,500 of note principal for equity. It reported past-due notes of $268,500 in one discussion and $281,000 in a note; extensions or conversions were being negotiated, with no assurance of success.
- During the nine months, the company issued $925,000 of equity financing and received $2,241,685 of new notes. Notes generally carried interest of 14% or 15% in the described financings; overall outstanding debt rates ranged from 8% to 15%. Debt maturities, defaults or extensions remain important risks.
- The SCTC agreement provided exclusive licenses for disc/spine-related technology, subject to milestones or minimum payments. The company paid $1 million net of a $10,000 sublicense fee and issued a warrant for up to 50 million shares; later warrant tranches depend on performance criteria.
- A university research agreement calls for $500,000 per year for three years, plus a 5% royalty on qualifying net sales. Management expected R&D spending to increase, along with payroll, marketing and infrastructure spending as programs develop.
- Management reported no material pending legal proceedings, no off-balance-sheet arrangements, effective disclosure controls, and no material change in internal control over financial reporting during the quarter. No formal financial guidance was provided.
Key facts for investors to verify
- Reconcile the Q3 revenue difference ($5,225 in the statements versus $5,255 in the notes) and confirm the reported revenue mix.
- Confirm current cash runway, subsequent financing proceeds, and the amount and status of past-due notes; the filing gives differing past-due balances.
- Assess the company’s ability to raise further capital or secure debt conversions/extensions in light of the going-concern warning and large working-capital deficit.
- Review debt maturity terms, interest costs, and any financing-linked royalties or prepayment obligations.
- Evaluate potential dilution from outstanding options and warrants, including performance-based awards, against the reported share count.
- Track spending commitments, license milestones, university research costs, and progress toward regulatory and commercial development.