Business Context and Reporting Period
Company: Biorestorative Therapies, Inc. (formerly Stem Cell Assurance, Inc.)
Reporting Period: Quarterly period ended June 30, 2011 (Form 10-Q)
Status: Development stage enterprise with no revenues. The company focuses on stem cell research, regenerative therapy protocols, and the development of skin care products (Stem Pearls).
Capital Structure: As of August 17, 2011, 566,828,011 shares of common stock were outstanding.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2011 | Three Months Ended June 30, 2011 | Balance Sheet (June 30, 2011) |
|---|---|---|---|
| Revenues | $0 | $0 | N/A |
| Net Loss | $(2,317,937) | $(1,204,840) | N/A |
| Operating Expenses | $2,055,836 | $1,038,230 | N/A |
| Cash and Cash Equivalents | N/A | N/A | $7,185 |
| Working Capital Deficiency | N/A | N/A | $(2,749,035) |
| Total Liabilities | N/A | N/A | $2,968,072 |
| Stockholders' Deficiency | N/A | N/A | $(2,482,501) |
| Notes Payable (Current) | N/A | N/A | $1,928,236 (net of discount) |
Note: The company reported a net loss per share of $0.00 for both periods due to the large number of shares outstanding.
Material Changes vs. Prior Period
- Operating Expenses: Total operating expenses increased significantly from $522,732 in the six months ended June 30, 2010, to $2,055,836 in the same period in 2011.
- Payroll and Benefits: Increased from $0 to $881,775 (six months), driven by the hiring of employees and stock-based compensation.
- Consulting Expenses: Increased from $184,380 to $435,255 (six months), largely due to increased stock-based compensation for consultants.
- General and Administrative: Increased from $238,230 to $676,968 (six months), primarily due to professional fees for the Form 10 registration and audit.
- Interest Expense: Increased from $151,122 to $262,101 (six months) due to higher short-term borrowings and amortization of debt discounts.
- Debt Levels: Notes payable (net) increased from $514,047 at December 31, 2010, to $1,928,236 at June 30, 2011.
- Cash Flow: Net cash used in operating activities increased to $1,420,754 (six months 2011) from $364,741 (six months 2010). Financing activities provided $1,427,637, primarily from new debt.
Outlook, Risks, and Management Commentary
- Going Concern: The filing explicitly states that the company's working capital deficiency and lack of revenues raise substantial doubt about its ability to continue as a going concern. The financial statements do not include adjustments that might result from this uncertainty.
- Liquidity: Management estimates that available cash will fund operations only until August 2011. The company requires additional equity or debt financing to continue operations and repay debt maturing between July 2011 and February 2014.
- Debt Obligations: Outstanding debt totaled approximately $2.16 million as of June 30, 2011, with interest rates ranging from 6% to 15%. Subsequent to the period end, the company secured an additional $150,000 in debt and extended maturities on $1.1 million of existing debt.
- Legal and Personnel:
- The Vice President of R&D is subject to a preliminary injunction from a former employer regarding non-competition and confidentiality, though the company is not a party to the suit.
- The CFO resigned in June 2011; the CEO assumed the role of Principal Financial Officer.
- Several settlement agreements were reached with former directors and vendors, involving cash payments and stock issuances.
- Market Status: The company's stock moved from the OTC Pink market to the OTCQB market following the filing of this report.
Investor Verification Checklist
- Cash Runway: Verify if the company has secured the necessary financing to survive past August 2011, as stated in the liquidity section.
- Debt Maturity: Confirm the status of the $125,000 in notes maturing in August 2011 and the success of extension negotiations mentioned in subsequent events.
- Stock Dilution: Review the significant issuance of shares for debt discounts, consulting services, and executive compensation, which increased outstanding shares by over 123 million in the six-month period.
- Revenue Generation: Assess the timeline for commercializing stem cell therapies or skin care products, as the company has generated zero revenue since inception.
- Internal Controls: Note the remediation of material weaknesses in internal controls reported in May 2011 following the hiring of financial consultants.