Business context and reporting period
BioRestorative Therapies, Inc. develops adult stem-cell therapies. This unaudited Form 10-Q covers the three months ended March 31, 2019, with comparisons to Q1 2018. Its lead candidate, BRTX-100, is being developed for chronic lower-back pain from degenerative disc disease; the company also has a preclinical brown-fat-based ThermoStem program and a licensed curved-needle device. Revenue was limited to royalties under a sublicense agreement.
Key financial metrics
| Metric | Q1 2019 / March 31, 2019 | Prior comparable / December 31, 2018 |
|---|---|---|
| Revenue | $29,000 | $19,000 in Q1 2018 |
| Operating expenses | $2.36 million | $2.25 million in Q1 2018 |
| Operating loss | $2.33 million | $2.23 million in Q1 2018 |
| Net loss | $3.88 million | $2.51 million in Q1 2018 |
| Basic and diluted loss per share | $0.28 | $0.39 in Q1 2018 |
| Cash | $496,279 | $117,523 |
| Working capital deficiency | $8.08 million | $9.07 million |
| Gross notes payable | $6.46 million | $5.16 million |
| Stockholders’ deficiency | $7.65 million | $8.64 million |
Operating cash use was $1.98 million, versus $1.16 million in Q1 2018. Financing provided $2.36 million, including $1.76 million net debt proceeds and $600,000 from an equity offering; cash increased by $378,756. Gross margin is not meaningful to the company’s reported results given its minimal royalty revenue and development-stage operations.
Material changes versus Q1 2018
- Revenue increased $10,000, but operating expenses rose $108,000 and operating loss widened by about $98,000.
- Net loss increased $1.38 million. Higher interest expense, debt-discount amortization, and debt-extinguishment losses were major contributors; the prior-year period included a gain on derivative fair value, while Q1 2019 recorded a loss.
- Consulting expense rose 39% to $600,000, primarily from clinical-trial and strategic-planning fees and consultant stock compensation. Research and development expense increased 12% to $455,000. General and administrative expense declined 6% to $1.29 million.
- Cash improved from year-end, but the company continued to report a large working-capital deficiency and increased gross debt. Common shares outstanding rose from 11.73 million at year-end to 14.73 million at March 31; 17,481,068 shares were outstanding as of May 14.
Outlook, risks and unusual items
- Management disclosed substantial doubt about the company’s ability to continue as a going concern. It said available cash was expected to fund operations only through June 2019 and that additional financing was necessary; there is no assurance financing will be available on acceptable terms.
- Management intended to start a Phase 2 BRTX-100 trial in Q3 2019, subject to necessary funding. It estimated approximately $20 million would be needed to commence and complete that trial and a further approximately $45 million to complete BRTX-100 clinical trials, assuming no revenue. These are estimates, not assured funding or trial outcomes.
- After quarter-end, the company reported $556,000 in equity financing and $728,280 in debt financing, exchanged $528,028 of debt including accrued interest for stock, and repaid $573,400 including interest and premiums. It reported $190,028 of principal past due as of the filing date and was negotiating extensions. Subsequent debt issuances included $760,000 principal for $728,280 cash proceeds.
- Many convertible notes carry variable conversion prices, often a discount to the stock’s fair value, and other notes were to become convertible after March 31. The filing reports 56,462,559 shares reserved for future note conversions. These terms create substantial potential dilution. Debt also includes maturity, prepayment-premium and most-favored-nation provisions.
- During Q1, the company issued 1 million shares and warrants for $600,000; exchanged notes and interest for 1,984,017 shares; and repriced options covering 4,631,700 shares to $0.75 per share. The Board also proposed, subject to shareholder approval, an increase in authorized common shares to 150 million and a discretionary 1-for-2 to 1-for-20 reverse split.
- The company reported no ordinary-course legal proceedings. Management concluded disclosure controls were effective; it reported no material control changes other than changes related to adopting ASC 606. Adoption of ASC 606 had no material financial-statement impact.
Important facts for investors to verify
- Whether the company secured enough capital to extend its stated June 2019 runway, and the terms, maturities and repayment status of debt, including past-due amounts.
- Whether the planned Phase 2 trial began as intended, its funding, regulatory status and subsequent progress; also verify the stated clinical-development funding estimates.
- The actual and potential dilution from variable-price convertible notes, warrants, option repricing, equity issuances and any share-reservation or authorization changes.
- Whether the post-quarter financing, debt exchanges and repayments occurred as disclosed, and their effect on cash, debt and shares outstanding.
- Progress in generating royalty revenue and the timing of any meaningful commercialization; Q1 revenue remained only $29,000.