Bone Biologics Corporation — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. The company is a pre-revenue medical-device developer focused on NELL-1/DBX, a bone-regeneration product for spinal fusion. The FDA has indicated it will be regulated as a combination product with a device lead. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $301,310 | $(404,791) | $2,169,805 | $1,552,083 |
| Net loss | $(561,419) | $(241,744) | $(2,893,664) | $(2,959,711) |
| Loss per share, basic and diluted | $(0.08) | $(0.03) | $(0.40) | $(0.55) |
| Cash used in operating activities | Not separately presented for the quarter | $(2,953,540) | $(2,766,140) |
The 2018 quarter and nine-month R&D figures were negative, reflecting a reversal related to the fair value of consultant options; they are not conventional positive operating expenses. Gross margin is not meaningful because the company had no revenue.
- At September 30, cash was $201,834, down from $955,374 at December 31, 2018. Current assets were $249,345 versus current liabilities of $11,631,482, a working-capital deficit of approximately $11.38 million.
- Related-party notes payable totaled $11.2 million, up from $9.0 million at year-end. The notes bear 9% interest and are convertible at $1 per share. Hankey Capital provided $2.2 million of financing during the first nine months; $900,000 remained available under its second facility at quarter-end.
- Stockholders’ deficit was $11.38 million; accumulated deficit was $66.51 million. No material off-balance-sheet arrangements were reported.
Changes versus the prior comparable period
- Q3 net loss increased to $561,419 from $241,744. Operating results shifted from reported operating income of $404,791 to an operating loss of $301,310, primarily because the prior-year quarter included a large R&D option-valuation credit. Q3 2019 also included $260,070 of related-party interest expense.
- For the nine months, net loss was slightly lower than the prior-year $2.96 million, despite operating expenses increasing 40% to $2.17 million. R&D expense increased to $1.03 million, including costs associated with a large-animal pivotal study; G&A declined to $1.14 million, partly due to a $379,167 deferred-compensation forfeiture and lower option amortization.
- Operating cash use increased to $2.95 million from $2.77 million. Financing cash inflow was $2.2 million, compared with $4.37 million in the prior-year period, which included equity financing.
Outlook, risks, and unusual items
- Management estimated operating expenditures of $2.6 million for the next 12 months and expects continued significant NELL-1 development costs. No revenue or earnings guidance was provided.
- The filing states that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the financial statements. Management expects to seek additional debt or equity financing, but gives no assurance it will be available. A shortfall could require reducing or stopping development or operations; equity financing could dilute shareholders.
- Hankey Capital and related parties controlled approximately 89% of common shares, including collateral shares, and hold all $11.2 million of quarter-end notes. The notes are secured; 23.4 million collateral shares were outstanding at September 30. This related-party financing and ownership concentration are significant dependencies.
- After quarter-end, amendments effective October 1 deferred interest payments until maturity and extended the listed notes’ maturities to December 31, 2021. The company drew a further $35,000 from its second credit facility on November 12, 2019.
- A July 2019 lawsuit alleges breach of contract and tortious interference concerning terminated professional-service agreements. The company intends to defend the case, but says the potential loss cannot yet be estimated. A separate shareholder suit related to the 2018 financing was dismissed in July 2019.
- The company amended its UCLA license in 2019, retaining exclusive development and commercialization rights for specified applications. The license includes annual fees, royalties, milestone payments, diligence requirements, and potential termination or loss of exclusivity if milestones are not met. Clinical and regulatory approval, financing, manufacturing, and intellectual-property risks remain material.
Important facts for investors to verify
- Cash runway against the estimated $2.6 million of next-12-month expenditures, and whether further financing is committed or available.
- Details and enforceability of the amended note terms, including the December 2021 maturities, deferred interest, conversion rights, collateral, and remaining credit-facility capacity.
- Development and regulatory status of NELL-1/DBX, including progress and costs for the large-animal pivotal study and any clinical or FDA milestones.
- Potential financial exposure from the pending professional-services litigation and the company’s indemnification obligations.
- Share-count and dilution implications of collateral shares, convertible notes, and other potential equity issuance.