Bone Biologics Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2020. The filing was signed April 15, 2021; it also reports certain subsequent events through March 31, 2021.
Business context
Bone Biologics is a pre-revenue medical-device company developing NELL-1/DBX, a bone-regeneration product initially focused on spinal fusion. The company holds an exclusive worldwide license from UCLA/UC Regents and says the FDA has indicated the product will be regulated as a combination product with a device lead.
Financial results and liquidity
- Revenue and margins: No revenue or cost of revenue in Q2 or the first six months of 2020 or comparable 2019 periods; gross profit was zero.
- Q2 2020: Operating expenses were $132,709, down from $679,257 in Q2 2019. Net loss was $380,030, versus $925,552; basic and diluted loss per share was $0.05, versus $0.13.
- First six months of 2020: Operating expenses were $472,759, down from $1,868,495 in 2019. Net loss was $976,930, versus $2,332,245; loss per share was $0.13, versus $0.32. Related-party interest expense rose to $502,571 from $462,150.
- Cash flow: Operating cash use was $229,012 for the six months, compared with $2,479,002 in 2019. Financing provided $204,867, principally from Hankey Capital credit-facility draws. Cash fell from $24,145 at year-end 2019 to zero at June 30, 2020.
- Balance sheet at June 30: Total assets were $1,433; current liabilities were $12,845,983, including $11,524,765 of related-party notes and $756,122 of related-party interest payable. Total liabilities were $12,845,983 and stockholders’ deficit was $12,844,550. The notes were due December 31, 2021 and bore at least 8.5% interest; all were classified as current at June 30.
- Available financing: $575,235 remained available under Hankey Capital’s second credit facility at June 30. The company reported drawing another $263,111 through March 31, 2021, when $312,125 remained available. Hankey Capital and affiliates controlled approximately 89% of common shares, including collateral shares, according to the filing.
Changes versus prior comparable periods
- Operating expenses and net loss fell sharply year over year, but management attributed the reductions to curtailed operations and cost-cutting amid lack of capital, not improved revenue generation.
- R&D expense declined 98% in Q2 and 82% for the six-month period; G&A expense declined 53% and 67%, respectively.
- Related-party interest expense increased 1% in Q2 and 9% for the six-month period, which management attributed to increased debt.
- Cash used in operations was substantially lower than in 2019, while cash at period-end was exhausted.
Outlook, risks, and unusual items
- Management estimated operating expenditures of $6.6 million for the next 12 months and stated that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance. Additional debt or equity financing is not assured; without funding, the company may scale back or discontinue development or operations. Equity financing could dilute holders, while debt could restrict operations.
- COVID-19, together with insufficient funding, delayed or extended clinical trials by several months and prompted a broad operational scale-back. Management warned of potential further trial delays, higher costs, and reduced financing availability.
- On August 13, 2020, after the reporting date, the company amended its UCLA license to revise certain development-milestone dates in light of COVID-related delays and to address unpaid patent-prosecution, cost-reimbursement, maintenance-fee, and late-fee amounts. The filing says no listed license milestones had been met as of June 30, 2020.
- A 2019 federal lawsuit alleges breach of contract and tortious interference relating to terminated professional-service agreements. The company intends to defend the claims; it said the potential loss could not be estimated at this early stage.
- Disclosure controls were deemed ineffective, and management identified a material weakness from insufficient staffing for financial reporting and SEC filings. The company said it was not timely with interim filings.
- Hankey Capital is both the principal financing source and an affiliate of directors and a significant shareholder, creating substantial financing concentration and related-party exposure.
Key facts for investors to verify
- Current cash, available credit, subsequent borrowing, and the company’s ability to fund the stated $6.6 million of expected next-12-month expenditures.
- Terms, maturity, conversion rights, collateral, and related-party status of Hankey Capital notes, including accrued interest and the current-liability classification.
- Current status of NELL-1/DBX clinical trials, COVID-related delays, FDA pathway, and UCLA license milestones and unpaid amounts under the August 2020 amendment.
- Developments and potential exposure in the pending lawsuit, which the filing does not quantify.
- Remediation of the disclosed material weakness and ineffective disclosure controls; confirm the timing and completeness of subsequent SEC filings.