Bone Biologics Corp quarterly report, Q1 FY2019

Bone Biologics Corporation — Q1 2019 Form 10-Q

Reporting period: Three months ended March 31, 2019. The unaudited consolidated statements are compared with Q1 2018. Bone Biologics is a pre-revenue medical-device developer focused on NELL-1/DBX for spinal fusion; the filing describes it as a combination product with a device lead.

Financial and operating results

MetricQ1 2019Q1 2018
Revenue$0$0
Research and development expense$564,333$369,011
General and administrative expense$624,904$727,713
Total operating expenses / operating loss$1,189,237$1,096,724
Related-party interest expense$217,456$357,917
Net loss$1,406,693$1,454,641
Basic and diluted loss per share$0.19$0.33
Cash used in operating activities$928,967$818,875

Gross margin is not meaningful because the company had no revenue or cost of revenue. Net loss narrowed 3.3% year over year, while operating expenses rose 8.4%. R&D increased 52.9%, primarily from costs for the large-animal pivotal study. G&A decreased 14.1%, mainly due to lower management-option amortization. Interest expense declined 39.2%, largely because less debt-discount amortization followed the 2018 debt modification.

Balance sheet and liquidity

  • At March 31, 2019, cash was $726,407, down from $955,374 at December 31, 2018; total current assets were $814,063.
  • Current liabilities were $10.79 million, including $9.70 million of related-party notes payable and $491,667 of deferred compensation. Stockholders’ deficit was $9.97 million.
  • The company drew $700,000 from Hankey Capital’s credit facility in March. At quarter-end, $1.3 million remained available. On May 2, it drew a further $500,000; the filing reports $800,000 available at May 8 and related-party note principal of $10.2 million.
  • Operating cash use exceeded the prior-year quarter by $110,092. Financing provided $700,000 in Q1 2019, versus $500,000 from a stock issuance in Q1 2018.

Material developments, outlook and risks

  • Management estimated operating expenditures of $12.1 million for the next 12 months. The filing states that accumulated losses were approximately $65.0 million and that substantial doubt exists about the company’s ability to continue as a going concern within one year after the financial statements are issued. Additional financing is not assured; insufficient funding could force reductions or discontinuation of development or operations.
  • The company has depended on Hankey Capital for debt and equity financing. Hankey Capital and its affiliates reportedly controlled approximately 88% of common shares, including collateral shares, and representatives serve as directors. The related-party notes are secured and convertible at $1.00 per share, with a December 31, 2019 maturity and stated minimum interest rate of 8.5%.
  • On April 9, 2019, the company entered into an amended and restated exclusive license agreement with UCLA TDG. It continues exclusive rights for specified NELL-1 applications and adds PEGylated product rights and development obligations. Terms include annual maintenance fees, royalties, sublicense-income sharing, milestone payments, patent-cost reimbursement and diligence requirements that could permit UCLA TDG to terminate or reduce the license.
  • A shareholder lawsuit concerning the July 2018 financing and reverse stock split remained at an early stage. The company and certain defendants moved to dismiss; the company could not estimate any potential loss. It also disclosed indemnification obligations for certain directors.
  • Key risks include financing availability and dilution, clinical-trial and regulatory outcomes, reliance on third-party manufacturers and licensed technology, intellectual-property protection, and market acceptance. No specific revenue or earnings guidance was provided.

Most important facts for investors to verify

  • Near-term cash needs against the $12.1 million estimated operating expenditures, available facility balance, and any financing obtained after May 8.
  • Terms, maturity, conversion and collateral provisions of Hankey Capital’s related-party debt, plus the extent of its ownership and influence.
  • Progress, cost and timing of the NELL-1/DBX large-animal pivotal study and subsequent FDA requirements.
  • Milestones, diligence deadlines, royalties and other obligations under the amended UCLA license, including the added PEGylated product rights.
  • Status and potential financial impact of the shareholder litigation, and the dilution implied by outstanding convertible notes, options and warrants.