Biorestoreative Therapies, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. Financial statements are unaudited. The company develops adult stem-cell therapies, including brtxDISC for lumbar disc disease and the preclinical ThermoStem program for metabolic disorders; it also has a cosmetic-products business and is developing a curved needle device.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $148,764 | $175,941 | $333,666 | $176,316 |
| Gross profit (margin) | $74,119 (50%) | $133,575 (76%) | $182,589 (55%) | $133,890 (76%) |
| Operating expenses | $1,336,923 | $1,415,062 | $3,071,359 | $2,843,795 |
| Operating loss | $(1,262,804) | $(1,281,487) | $(2,888,770) | $(2,709,905) |
| Net loss | $(1,420,298) | $(1,333,139) | $(3,180,419) | $(3,002,815) |
| Basic and diluted loss per share | $(0.64) | $(1.17) | $(1.60) | $(2.79) |
For the six months, operating cash use was $1,484,389, investing cash use was $226,914, and financing provided $1,625,950. Cash fell by $85,353 to $6,445. At June 30, total assets were $2,070,578 and total liabilities were $4,951,101. Working capital deficiency was $4,673,421; stockholders’ deficiency was $2,880,523. Gross debt was reported at $1,226,685, while balance-sheet notes payable are shown net of debt discount.
Changes versus prior comparable periods
- Q2 revenue declined about 15% year over year, while first-half revenue increased about 89%, largely reflecting research and development agreements. Two pharmaceutical clients accounted for substantially all revenue in the 2015 periods.
- Gross margin fell to 50% in Q2 and 55% for the first half, primarily because of higher research-agreement costs, including greater use of a third-party laboratory.
- First-half operating expenses rose about 8%. General and administrative expense increased 36%, including legal and professional costs, while consulting expense declined 39%, mainly due to lower noncash stock-based compensation.
- First-half net loss increased about 6%. Lower interest and debt-discount amortization were offset by higher operating costs and the absence of the prior-year gain on settlement of payables.
Outlook, liquidity, risks and notable items
- Management stated that available cash was expected to fund operations only through September 2015. The filing says additional financing is required and raises substantial doubt about the company’s ability to continue as a going concern. Without timely financing or debt-holder extensions/conversions, the company may curtail development and marketing or discontinue operations.
- After June 30, the company reported $180,000 of equity financing and $200,000 of debt financing, and conversion/exchange of $30,000 of debt plus $1,736 of accrued interest. As of the filing date, $275,000 of notes were past due; negotiations to extend or convert them were ongoing, with no assurance of success. Management reported active capital-raising efforts but no closing of a larger capital raise before filing.
- Management expects research, marketing, and general and administrative expenses to increase as programs and operations expand. No quantified revenue, earnings, or cash-flow guidance was provided.
- During the first half, $4.41 million of Bermuda-lender notes and accrued interest were exchanged for shares and warrants. Additional debt exchanges and conversions reduced reported debt but contributed to shareholder dilution. The company also issued shares and warrants for cash, services, and settlement of a legal claim.
- A 1-for-20 reverse stock split became effective July 7, 2015; share and per-share figures in the statements were retroactively adjusted. The company changed its state of incorporation from Nevada to Delaware effective January 1, 2015.
- The company settled a former consultant’s lawsuit in April 2015, issuing shares and warrants valued at $152,000. Management reported no material change in internal control over financial reporting and said disclosure controls were effective.
Important facts for investors to verify
- Whether the company obtained enough new capital after the filing to fund operations beyond the stated September 2015 runway, and the terms and dilution of any financing.
- Current status of the $275,000 past-due notes, other debt maturities, interest obligations, and any extensions, conversions, or defaults.
- Cash burn, overdue payables and accrued liabilities, and the company’s ability to meet near-term obligations.
- Progress, financing needs, regulatory pathway, and commercial prospects for brtxDISC, ThermoStem, and other development programs.
- Revenue concentration and the timing and collectability of research-agreement receivables, including the $50,000 receivable from the Japanese pharmaceutical agreement.
- Potential dilution from outstanding options, warrants, convertible notes, and subsequent-period issuances; the filing reported 2,826,324 common shares outstanding as of August 12, 2015.