BioRestorative Therapies, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; financial statements are unaudited. The company develops adult stem-cell therapies, principally BRTX-100 for disc and spine disorders, and a preclinical brown-fat program. It emerged from Chapter 11 reorganization in November 2020.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $15,000 | $19,000 | $33,000 | $45,000 |
| Operating expenses | $3.570 million | $481,000 | $18.643 million | $1.326 million |
| Operating loss | $3.555 million | $462,000 | $18.610 million | $1.281 million |
| Net income (loss) | $(4.063) million | $2.876 million | $(19.716) million | $(4.675) million |
| Net cash used in operations | Not separately presented for quarter | $1.556 million | $869,000 |
- Revenue came entirely from royalties under a sublicense agreement and declined year over year in both periods. No gross margin is separately reported; revenue was small relative to operating costs.
- Six-month 2021 general and administrative expense was $18.298 million, versus $782,000 a year earlier. Stock-based compensation accounted for $17.003 million of total six-month expense, compared with $441,000 in 2020. The company attributes most of the G&A increase to executive options and restricted stock units, with additional legal, accounting and financial-service costs.
- Six-month R&D expense declined to $326,000 from $448,000. Management expected R&D spending to rise as initiatives recommenced.
- Cash was $1.759 million at June 30, down from $3.065 million at December 31, 2020. Working capital was $502,000, down from $2.142 million. Operating cash use was partly offset by $250,000 of PPP loan proceeds; cash declined by $1.306 million during the half.
- Total assets were $2.885 million and total liabilities were $6.694 million; stockholders’ deficit was $3.809 million. Accumulated deficit was $109.559 million.
- Gross notes payable were reported as $9.326 million, excluding the $250,000 PPP loan. The balance sheet carries notes payable net of debt discount at $4.784 million, plus the PPP loan and other liabilities. Most note debt matures November 2023; the PPP loan matures in 2026 and may qualify for forgiveness. Debt is secured by substantially all company assets in relevant financing arrangements.
Changes versus prior period
- Six-month net loss widened to $19.716 million from $4.675 million, driven principally by stock-based compensation and higher G&A. The six-month 2021 loss includes $17.003 million of stock-based compensation.
- Q2 2020 reported net income despite an operating loss, primarily because of $3.361 million in net reorganization items. Q2 2021 had no reorganization gain or expense and reported a net loss.
- Interest and debt-discount amortization together were $1.106 million for the first half of 2021. The company recorded no loss on extinguishment or change in derivative fair value in 2021, unlike 2020.
- Common shares outstanding rose from 2.862 billion at year-end 2020 to 3.348 billion at June 30, 2021; 3.351 billion were outstanding as of August 12. The company also issued substantial options, RSUs and warrants, creating significant potential dilution.
Outlook, risks and unusual items
- Management said cash on hand and Auctus Fund’s commitment to provide up to an additional $2.1 million, as needed, were expected to fund operations for the twelve months after filing. The company also said these resources would not fund all development or achieve profitability.
- The company intends to begin a Phase 2 BRTX-100 clinical study during 2022, subject to funding. It estimated at least $12 million to complete the Phase 2 study and approximately $45 million for additional BRTX-100 clinical trials assuming no revenue. It was seeking further financing.
- Management warned that failure to obtain timely additional financing could require curtailing development and other activities or discontinuing operations. It anticipated continuing operating losses and negative operating cash flow.
- Potential dilution is substantial: at June 30, the filing reported 14.507 billion outstanding warrants, 2.352 billion options and 1.174 billion unvested RSUs. It also disclosed 51.504 billion shares reserved for future note conversions; actual issuance depends on conversion terms and market conditions.
- Auctus-related DIP and Plan costs were recorded in part as accrued expenses and debt discount. Subsequent to quarter-end, the company agreed to issue Auctus secured convertible notes and warrants for those costs, and issued 3 million shares to a prior noteholder under a settlement.
- The company believes it must complete a Phase 2 clinical trial by February 2022 to satisfy a license milestone and avoid an additional $250,000 payment to its licensor. It reported no material impairment of intangible assets.
- Management concluded disclosure controls and internal control over financial reporting were ineffective as of June 30, citing inadequate segregation of duties, insufficient formal policies and procedures, and a lack of timely internal-control risk assessment. The filing reported no off-balance-sheet arrangements and no litigation believed likely to have a material adverse effect.
Important facts for investors to verify
- Whether the Auctus funding commitment remains available and whether additional financing can be raised on acceptable terms; confirm current cash runway against the filing’s stated estimates.
- The actual Phase 2 BRTX-100 start date, trial budget and financing secured, and progress toward the February 2022 license milestone.
- The terms and potential share impact of convertible notes, warrants, options and RSUs, including the very large share reserve for note conversions.
- How much of the reported loss reflects non-cash stock compensation and whether future compensation awards or professional fees will remain elevated.
- Whether management remediates the disclosed material weaknesses and completes an effective assessment of disclosure controls.