Bone Biologics Corporation — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The annual report was signed April 2, 2018. The company is a development-stage medical-device business focused on NELL-1/DBX, an investigational combination product for spinal fusion; it had no product revenue.
Financial results and liquidity
| Metric | 2017 | 2016, restated |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $2.63 million | $20.41 million |
| Operating loss | $2.63 million | $20.41 million |
| Net loss | $7.05 million | $25.88 million |
| Loss per share, basic and diluted | $0.18 | $0.69 |
| Cash used in operating activities | $3.33 million | $7.33 million |
| Cash at year-end | $690,279 | $620,375 |
With no revenue or cost of revenue, gross profit and gross margin are not meaningful. At December 31, 2017, total assets were $795,659, current assets $795,513, current liabilities $961,795, and working capital was approximately negative $166,000. Stockholders’ deficit was $8.40 million.
Notes payable had $9.0 million principal outstanding, all related-party debt; the balance sheet reported $8.23 million net of debt discounts and issuance costs. The notes bear interest of at least 8.5%. Net interest expense was $4.42 million, versus $2.62 million in 2016. Certain 2016 and 2017 short-term notes and accrued interest converted into 4.20 million common shares on December 31, 2017. The filing reports 43.28 million shares outstanding at year-end and 43.68 million as of March 12, 2018.
Changes, restatement, and unusual items
- Net loss narrowed by 72.8% year over year, and operating cash use declined by $4.00 million. Lower development activity, reduced expenses, and noncash option-forfeiture reversals contributed; the improvement does not reflect revenue growth.
- Reported 2017 research and development expense was negative $1.19 million, reflecting a $3.63 million reversal associated with forfeited founder options. General and administrative expense was $3.82 million.
- The company materially restated 2016 annual and quarterly statements and the first three quarters of 2017 for errors involving consultant-related noncash transactions and modifications to debt and warrant terms. The restatement included a $2.84 million 2016 debt-extinguishment loss and reclassification of $1.82 million of shares to be issued from liabilities to equity. Previously filed affected-period statements are superseded and should no longer be relied upon.
Outlook, risks, and contingencies
- The auditor and management reported substantial doubt about the company’s ability to continue as a going concern. Management estimated $7.2 million of operating expenditures for the next 12 months and plans to seek additional debt or equity financing; funding is not assured. Insufficient cash could force the company to reduce or stop development.
- Management estimated a further $15 million to complete protein synthesis, animal studies, and begin first-in-human studies, and an additional $52 million to reach a spinal-fusion product launch.
- NELL-1/DBX had not entered human clinical trials or obtained FDA approval. The company expects Class III device-led combination-product regulation requiring premarket approval; timing, approval, safety, efficacy, manufacturing, and market acceptance remain uncertain.
- The August 2017 amended UCLA license maintains exclusive rights and expands the stated field to osteoporosis and trauma. It includes a $10,000 annual maintenance fee, 3% royalty on net sales, development and commercial milestones, and possible termination or conversion to nonexclusive rights if diligence deadlines are missed. No listed milestone had been met at year-end.
- Financing, debt service, dilution, reliance on related parties and third-party manufacturers, competition, intellectual-property protection, and the limited trading market are material risks. The filing reported no pending legal proceedings expected to be material and no material off-balance-sheet arrangements.
- Disclosure controls were not effective at year-end. Management identified a material weakness in controls over complex, non-routine transactions, which contributed to the restatement; a third-party review process was planned as remediation.
Important facts for investors to verify
- Current cash runway, subsequent financing, and whether funding covers the stated development budget.
- Progress and cost milestones for clinical entry and FDA premarket approval, including any updates to the development timeline.
- Full debt terms, collateral, related-party arrangements, and potential share dilution from conversions, warrants, and options.
- Restatement effects and whether the material weakness has been remediated and controls independently assessed.
- UCLA license diligence deadlines, milestone obligations, and status of expanded osteoporosis and trauma rights.