BioRestorative Therapies, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed April 29, 2021. This is an annual report, not a standalone fourth-quarter report.
Business context and reporting period
BioRestorative is a development-stage regenerative medicine company with no significant operating revenue. Its lead program, BRTX-100, is an investigational autologous stem-cell therapy for chronic lower-back pain associated with degenerative disc disease. FDA authorization for a Phase 2 trial had been received, but the trial had not begun; the company planned to start in 2021 if it obtained funding. ThermoStem, a brown-fat cell program targeting metabolic disorders, remained preclinical. The company had five full-time employees.
The company filed for Chapter 11 on March 20, 2020; its reorganization plan became effective November 16, 2020. The plan exchanged substantial debt and other liabilities for shares, convertible notes and warrants, and brought significant management and board changes.
Financial results and liquidity
| Metric | FY2020 / December 31, 2020 | FY2019 / December 31, 2019 |
|---|---|---|
| Revenue | $77,000 | $130,000 |
| Operating expenses | $2,829,076 | $8,562,005 |
| Loss from operations | $(2,752,076) | $(8,432,005) |
| Net loss | $(11,272,687) | $(14,647,890) |
| Research and development expense | $876,829 | $1,722,338 |
| Cash used in operating activities | $(1,964,265) | $(6,918,734) |
| Cash | $3,064,610 | $1,664 |
| Working capital | $2,142,227 in MD&A; another risk-factor passage reports $2,142,229 | $(13,651,716) |
| Notes payable, gross | $9,637,102 | $8,393,327 |
| Total liabilities | $5,678,540 | $14,242,469 |
| Stockholders’ deficit | $(1,331,492) | $(12,776,146) |
All FY2020 and FY2019 revenue was royalty revenue under a sublicense agreement. The company reported no meaningful commercial sales or gross-margin profile. Debt was reported as due November 16, 2023, with interest rates of 5%–7%; the $9.64 million gross debt figure excludes $657,598 of estimated DIP and plan costs. Debt’s balance-sheet carrying amount was $4,270,233, net of a $5,366,869 discount.
FY2020 financing supported cash growth, including DIP and other debt funding. The filing says cash on hand and the plan’s conditional further Auctus funding would support operations for 12 months after filing, but additional funding was still needed for development and trials. Management estimated at least $12 million to complete the BRTX-100 Phase 2 trial and approximately $45 million in further funding to complete the clinical trials, assuming no operating revenue.
Material changes versus the prior comparable period
- Revenue fell 41% to $77,000, while operating expenses fell 67%, primarily because the company reduced spending before and during Chapter 11.
- Operating loss narrowed to $2.75 million from $8.43 million; net loss narrowed to $11.27 million from $14.65 million. The net result includes $4.08 million of net reorganization items and a $2.14 million noncash loss from the change in derivative fair value; therefore, the reduced loss does not by itself indicate improved operating performance.
- Operating cash use improved to $1.96 million from $6.92 million. Cash rose to $3.06 million from $1,664, and working capital shifted from a substantial deficit to a reported surplus, largely following the Chapter 11 restructuring and financing.
- Common shares outstanding increased from 77.9 million at year-end 2019 to 2.86 billion at year-end 2020 and 3.18 billion as of April 27, 2021. The reorganization also resulted in 15.0 billion warrants outstanding at year-end 2020 and substantial convertible-note dilution potential.
Outlook, risks and unusual items
- Clinical and funding outlook: Management planned to begin the 99-patient, randomized, placebo-controlled Phase 2 BRTX-100 study in 2021, subject to financing. It warned that it might not be able to raise adequate capital, and could have to curtail development or discontinue operations. Commercialization of BRTX-100 was not expected for at least five years.
- License milestone: The company believed it needed to complete the Phase 2 trial by approximately February 2022 to retain exclusivity over licensed disc/spine technology. The filing also states that it “will not be able to achieve” this milestone, a material risk to the program.
- Reorganization and financing: The plan provided for potential additional Auctus loans subject to conditions, including current SEC filings. Substantial debt is secured by substantially all company assets; a default could accelerate obligations and threaten continued operations.
- Dilution: The plan created large warrant and convertible-note overhang. The company reported 300 billion authorized common shares; conversion prices for plan notes were tied to recent market prices. Further equity awards to senior management were disclosed in 2021.
- Development and regulatory risks: No product was approved for sale. Clinical outcomes, trial enrollment, manufacturing capability, regulatory classification and approval, reimbursement, intellectual-property protection, and competition remain uncertain. COVID-19 could disrupt trial supplies, enrollment and operations.
- ThermoStem: The program remained preclinical, with further animal studies planned subject to financing; no assurance was given that its proposed delivery system would work in animals or humans.
- Internal controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end 2020, citing inadequate segregation of duties, post-bankruptcy policy adherence, and risk-assessment procedures. The evaluation of disclosure controls was not completed. The company lacked a CFO and used external financial consultants; auditor attestation on internal controls was not required. The financial-statement audit opinion was unqualified, and the auditor identified liquidity/going-concern assessment as a critical audit matter.
Important facts for investors to verify
- Whether the conditional Auctus funding was available and actually received, and the company’s cash runway after the filing date.
- Whether the BRTX-100 Phase 2 trial began, its funding status, and the implications of the stated February 2022 license milestone and management’s warning that it would not be met.
- The actual debt principal, accrued interest, DIP/plan costs, collateral, conversion terms, and any defaults or amendments.
- The scale and terms of potential dilution from warrants, convertible notes, reserved conversion shares, and management equity awards; reconcile year-end and subsequent share counts.
- Reconcile reported cash-flow financing: the cash-flow statement lists $5,527,211 of financing cash, while its listed components sum to $5,027,211 and MD&A reports $5,027,211. Also reconcile the two working-capital figures reported in the filing.
- Progress in remediating material weaknesses, completing financial-control evaluations, and strengthening finance leadership.
- Whether the 2019 and 2020 federal and state tax returns, which the filing says had not yet been filed as of the filing date, were subsequently submitted.