Biorestoreative Therapies, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. The company is a development-stage biotechnology business developing stem-cell-based programs for disc conditions and metabolic disorders, alongside skincare products. Its brtxDISC and ThermoStem programs remained in non-clinical research; Q1 revenue came from Stem Pearls skincare sales. Share and per-share amounts reflect the 1-for-50 reverse split effective April 15, 2013.
Key financial metrics
| Metric | Q1 2013 / March 31, 2013 | Comparable period / December 31, 2012 |
|---|---|---|
| Revenue | $1,130 | $0 in Q1 2012 |
| Gross profit / margin | $968 / 85.7% | $0 in Q1 2012 |
| Operating expenses | $1,300,549 | $1,324,225 in Q1 2012 |
| Operating loss | $(1,299,581) | $(1,324,225) in Q1 2012 |
| Net loss | $(1,565,998); basic and diluted loss per share $(0.10) | $(1,494,382); loss per share $(0.13) in Q1 2012 |
| Cash and working capital | $498,590 cash; working capital deficit of $2,493,176 | $363 cash; working capital deficit of $2,784,676 at December 31, 2012 |
| Operating cash flow | $(771,773) | $(393,895) in Q1 2012 |
| Financing cash flow | $1,270,000 | $325,500 in Q1 2012 |
| Total liabilities / notes payable | $6,613,805 liabilities; $4,969,685 gross debt | $6,409,737 liabilities at December 31, 2012 |
Changes and operating results
- Revenue remained negligible despite increasing from zero in Q1 2012. The reported gross margin is based on only $1,130 of sales and should not be treated as indicative of a scaled business.
- Operating expenses declined about 2% year over year. Consulting expense fell 45% to $230,116, primarily due to lower non-cash stock compensation; general and administrative expense fell 21% to $640,110.
- Research and development expense rose 646% to $400,442, reflecting the brown-fat and disc/spine initiatives and related compensation. Management expected R&D spending, as well as marketing and administrative costs, to increase.
- Net loss increased about 5% year over year as interest expense rose 56% to $197,868. Q1 2012 included a $23,077 gain on settlement that did not recur; Q1 2013 included a $7,200 loss on extinguishment of debt.
- Cash rose from $363 at year-end mainly because the company raised $820,000 in equity and borrowed $450,000 during the quarter. Operating cash use increased year over year, partly offset by higher payables and accruals.
Debt, liquidity, outlook, and risks
- Management stated that available cash was expected to fund operations only until June 2013. The filing identifies substantial doubt about the company’s ability to continue as a going concern; further financing is necessary, with no assurance it can be obtained on acceptable terms.
- On March 26, Cayman borrowed an additional $450,000 from the Bermuda Lender and combined it with prior borrowings into a $4 million zero-coupon note due July 31, 2014. The company issued 600,000 shares and a five-year warrant for 400,000 shares at $2.50 per share in connection with the new borrowing, accrued-interest waiver, and maturity extension. About 80% of the face value of outstanding notes was sourced from this single lender.
- Other debt carried stated interest rates of 8%–15% and maturities extending through July 2014. Current liabilities were $3,059,021, including $1,347,751 of accrued expenses and other current liabilities; accrued payroll and payroll taxes accounted for $972,993 of that balance.
- After quarter-end, the company raised $25,000 through an equity sale and extended a $25,000 note to June 30, 2013. These amounts did not resolve the stated funding need. The company was considering financing alternatives; failure to raise capital or obtain debt extensions or conversions could require curtailing development and other activities or discontinuing operations.
- An investment banker agreement in principle contemplated a possible equity offering, with a 7.5% placement fee, warrants equal to 5% of shares sold, and reimbursement of up to $100,000 in legal costs. The proposed offering had not commenced as of the filing.
- The company’s key programs were still investigational or in development, and it had not generated significant revenue. Commercialization, research progress, financing availability, debt repayment, and dilution from equity and warrants are material uncertainties.
Important facts for investors to verify
- Whether the company obtained financing after the filing and whether its stated June 2013 cash runway was extended.
- The status, terms, and actual proceeds of any proposed equity offering, and the company’s ability to meet debt maturities and interest obligations.
- Cash burn, increases in accrued payroll and other liabilities, and the extent to which operating cash use is being funded by unpaid obligations.
- Progress and regulatory requirements for the brtxDISC and ThermoStem programs, and evidence of commercial demand for Stem Pearls and other products.
- Potential dilution from the substantial outstanding options and warrants; the filing reports 4,078,000 options and 4,217,800 warrants outstanding at March 31, 2013.