Business context and reporting period
BioRestorative Therapies, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2016. The company is a development-stage cell-therapy business pursuing its brtxDISC program for lumbar disc disease and its preclinical ThermoStem program for metabolic disorders, alongside a curved-needle device and Stem Pearls skincare products.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $9,125 | $184,902; down about 95% |
| Gross profit | $9,115 | $108,470 |
| Operating expenses | $2,076,249 | $1,734,436; up about 20% |
| Operating loss | $(2,067,134) | $(1,625,966) |
| Net loss | $(2,487,328) | $(1,760,121) |
| Basic and diluted loss per share | $(0.69) | $(1.00); weighted-average shares rose to 3,619,813 from 1,755,398 |
| Cash and cash equivalents | $353,095 at March 31 | $166,555 at December 31, 2015 |
| Operating cash flow | $(1,717,835) | $(674,778) |
| Working capital deficiency | $5,205,946 | $5,323,179 at December 31, 2015 |
| Gross notes payable | $1,381,583 at March 31 | $1,470,083 at December 31, 2015 |
Research and development expense increased 113% to $866,044, principally reflecting third-party laboratory costs, higher payroll and bonus accruals. Other expense rose to $420,194, including $337,021 of debt-discount amortization. Financing activities provided $1,994,240, including $1,618,372 from stock and warrant sales; investing activities used $89,865. Total liabilities were $5,590,101, all current, against current assets of $384,155.
Material changes versus the prior comparable period
- Revenue fell because the company completed its research and development agreement obligations by December 31, 2015 and reported no new such agreements; Q1 2016 revenue was primarily a $9,000 sublicense royalty.
- Operating expenses increased, led by research and development, while consulting and marketing costs declined. The larger operating loss and debt-discount amortization contributed to a higher net loss.
- Operating cash use increased substantially year over year. Cash at quarter-end rose mainly through financing, including equity and debt proceeds and warrant exercises.
- During Q1, the company issued 404,593 shares and warrants for $1,618,372 gross proceeds, and warrants to purchase 60,831 shares were exercised. It also converted or exchanged notes and interest for equity.
Outlook, risks and unusual items
Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It expected available cash to fund operations only through June 2016 and said further financing would be required. Subsequent to quarter-end, the company reported $225,000 of equity financing and $155,000 of debt financing, repayment of $15,000 of debt, and an extension through June of $148,000 of debt. At the filing date, $346,518 of notes were past due; extensions or conversions were being negotiated, with no assurance of success.
Management estimated that $7.5 million to $8.5 million would be needed to commence and complete a Phase 2 trial for brtxDISC, and a further $20 million to $30 million to complete the Disc/Spine clinical trials. These are estimates, not committed funding. Failure to obtain financing or reach agreements with creditors could force the company to curtail development and marketing or discontinue operations. The company also expects R&D and general and administrative costs to increase. Q1 included debt-discount amortization, a loss on extinguishment of notes, and warrant-modification expense. The board approved potential 2016 performance bonuses of up to $407,000, to be accrued as probable.
As of March 31, the balance sheet showed $1,316,780 of notes payable net of debt discount, while management reported gross debt of $1,381,583. The filing also reports later debt balances and maturities; confirm the applicable date when assessing current obligations. No material legal proceedings or off-balance-sheet arrangements were reported. Management stated that disclosure controls were effective and that there were no material changes in internal control over financial reporting during the quarter.
Key facts investors should verify
- Whether the company secured enough additional capital to fund operations beyond June 2016, and on what dilution and financing terms.
- Current status of the $346,518 reported past due at filing, other debt maturities, and any creditor extensions or conversions.
- Actual cash runway and operating cash burn, given Q1 operating cash use of $1.72 million against $353,095 quarter-end cash.
- Progress, regulatory and clinical plans, and funding requirements for brtxDISC and ThermoStem, including whether the stated trial-funding estimates remain valid.
- Potential dilution from stock and warrant financings, conversions, outstanding warrants and options; the filing lists 3,688,953 potentially dilutive shares excluded from diluted loss per share as anti-dilutive.
- Revenue outlook following the end of research and development agreements, and whether replacement agreements or meaningful commercial revenues emerge.