Business context and reporting period
BioRestorative Therapies, Inc. filed this annual report for the fiscal year ended December 31, 2011; the filing is not a quarterly report. The company described itself as a development-stage enterprise focused on adult stem-cell therapies, including its early-stage ThermoStem brown-fat research program and a planned disc/spine program. Its subsidiary Stem Pearls was developing plant-derived skincare products. The company reported no operating revenue in 2011 or 2010, and none of these initiatives had generated commercial revenue.
Financial results and condition
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses / operating loss | $3.552 million | $2.069 million |
| Net loss | $4.074 million | $2.264 million |
| Net cash used in operations | $2.811 million | $0.729 million |
| Cash at year-end | $71,508 | $18,074 |
| Working capital deficiency | $3.789 million | $0.998 million |
| Notes payable, gross principal at year-end | $3.190 million | $0.534 million current |
With no revenue, gross margin is not meaningful. The net loss increased about 80% year over year. Operating expenses rose about 72%; payroll and benefits increased 82% to $1.381 million and general and administrative expense increased 180% to $1.373 million. Interest expense was $260,011 and debt-discount amortization was $345,369. The company recorded an $83,448 net gain on settlements of notes and payables. Stockholders’ deficiency was $3.686 million, versus $744,222 in 2010; accumulated deficit was $7.524 million.
Operating cash burn increased to $2.811 million from $729,218. Financing activities provided $2.850 million, principally from debt financing; investing activities provided $14,228. Total assets were $220,973 and total liabilities were $3.907 million at year-end. The filing reports no material off-balance-sheet arrangements and no dividends.
Material changes and subsequent developments
- Year-end gross debt rose substantially from 2010; notes outstanding at December 31, 2011 bore interest generally between 10% and 15% and were due between November 2011 and November 2012. The balance sheet presents notes net of $149,043 debt discount.
- After year-end through April 10, 2012, the company reported $1.6005 million of additional debt financing and $650,000 of equity financing, extended $1.610 million of debt maturities, converted $175,000 of debt to equity, and repaid $50,000. It also reported $250,000 of notes past maturity and under discussion for extension or conversion. Management estimated available cash would fund operations only through May 2012.
- The company’s Regenerative Sciences license became effective April 6, 2012. It paid a net $990,000 license fee and issued a warrant to purchase 50 million shares, subject to the agreement’s terms. These are post-balance-sheet developments, not 2011 operating results.
- As of April 10, 2012, 647,991,911 common shares were outstanding. In February 2012, shareholders approved increasing authorized common shares to 1.5 billion and gave the board discretion to effect a 1-for-10 to 1-for-150 reverse split; the board had not approved a split as of the filing.
Outlook, risks and unusual items
Management said it needed additional financing to continue operations and implement its plans, estimating aggregate funding needs of approximately $20 million to $40 million, including debt repayment and development costs. It warned that failure to obtain funding could require curtailing or discontinuing operations. The independent auditor included a going-concern explanatory paragraph, citing recurring losses and the need for additional funds; the financial statements contain no adjustments for the outcome of this uncertainty.
Planned milestones included ThermoStem research and preclinical work, a laboratory, and development of disc/spine protocols, with proposed IND/IDE and clinical-trial steps dependent on financing and regulatory progress. These were plans, not assured outcomes. Management emphasized that regulatory classification and FDA requirements for cell-based treatments remain uncertain. A pending FDA action against Regenerative Sciences over its cultured-cell procedure could materially affect the company’s licensed program and the level of regulatory oversight. Other disclosed risks include clinical and scientific failure, foreign-market regulation, competition, limited intellectual property, and reliance on key personnel. The filing also noted that the company lacked a CFO and had previously identified financial-reporting control weaknesses; it said outside consultants had remediated those weaknesses, while management concluded disclosure controls were effective at year-end.
Unusual items include substantial noncash debt discounts tied to shares issued to lenders, significant equity compensation and dilution, settlement gains, equipment returned in settlement of a note, and post-year-end financing and license costs. Research and development expense remained low at $12,000 in 2011.
Important facts for investors to verify
- Current cash, cash runway, and whether subsequent financing was sufficient to fund operations and meet debt maturities.
- Reconciliation of debt balances and maturity extensions, including the past-due $250,000 and the reported April 2012 debt balance.
- Full terms, royalty and milestone obligations, warrant tranches, and dilution associated with the Regenerative Sciences license.
- Actual progress, funding, and regulatory status of ThermoStem, disc/spine, laboratory, and Stem Pearls initiatives versus stated targets.
- Resolution and implications of the FDA litigation involving Regenerative Sciences, and any resulting impact on the company’s regulatory pathway.
- Share count and potential dilution from options, warrants, debt conversions, and any reverse split; also verify the status of internal-control remediation and financial staffing.