Business Context and Reporting Period
Company: Bone Biologics Corp. (formerly AFH Acquisition X, Inc.)
Filing Type: Form 8-K (Current Report)
Date of Report: September 19, 2014
Event: Completion of a reverse triangular merger between AFH Acquisition X, Inc. and Bone Biologics, Inc. (Bone). Following the merger, the Company ceased to be a shell company and changed its name to Bone Biologics, Corp.
Business Focus: Development of Nell-1, a recombinant human protein for bone regeneration, primarily targeting spinal fusion surgery. The Company is in the pre-investigational device exemption (IDE) phase.
Key Financial Metrics
Revenue: $0 (No significant operating history; development stage entity).
Profitability:
- Net Loss (Year Ended Dec 31, 2013): $(1,082,203)
- Net Loss (Six Months Ended June 30, 2014): $(751,215)
- Accumulated Deficit (as of June 30, 2014): Approximately $(8.4 million) since inception.
Cash Flow and Liquidity:
- Cash Balance (June 30, 2014): $163
- Cash Used in Operating Activities (Six Months Ended June 30, 2014): $(288,752)
- Working Capital: Significant deficiency; recurring operating losses raise substantial doubt about the ability to continue as a going concern without additional financing.
Debt and Capital Structure:
- Notes Payable to Related Party (MTF) (June 30, 2014): $4,106,972 (net of debt discount).
- Notes Payable (Bridge Notes) (June 30, 2014): $277,066 (net of debt discount).
- Post-Merger Equity: Approximately 17.9 million shares of Common Stock issued and outstanding as of September 19, 2014.
- Major Shareholders: Musculoskeletal Transplant Foundation (MTF) holds ~49.3%; AFH Holding & Advisory, LLC holds ~10.8%.
Material Changes vs. Prior Period
Corporate Structure: The Company transitioned from a shell company (AFH Acquisition X, Inc.) to an operating biotechnology entity (Bone Biologics, Corp.) via a reverse merger. Bone Biologics is deemed the accounting acquirer.
Debt Conversions:
- MTF converted $1,533,356 of outstanding debt into Series B Preferred Stock, then Common Stock.
- 2013 Bridge Note holders converted $455,974 of principal and accrued interest into Common Stock.
- Orthofix Holdings Inc. purchased $500,000 of Common Stock and issued convertible notes totaling $500,000, which were subsequently converted into Common Stock.
Expense Trends:
- General & Administrative Expenses: Increased 168.6% year-over-year (2012 to 2013) and 42.6% year-over-year (six months ended June 30, 2013 to 2014), driven by professional fees and transaction costs related to the merger and financing.
- Interest Expense: Increased 46.7% year-over-year (2012 to 2013) and 45.2% year-over-year (six months ended June 30, 2013 to 2014) due to related party notes and bridge financing.
Guidance, Outlook, and Risks
Financing Plan (Subsequent Closings):
- Private Placement: Commencing immediately, targeting up to $10.0 million (including 15% over-allotment). Proceeds over $1.0 million will pay transaction fees and fund working capital.
- PIPE: Intends to raise $8.0 million to $10.0 million contingent on investment bank support.
- Initial Public Offering (IPO): Intends to raise up to $40.0 million contingent on PIPE closing and investment bank support.
Management Commentary:
- Management estimates an additional $50-60 million is required to achieve product launch.
- Immediate milestones include media screening studies, master cell bank manufacturing, and pre-clinical toxicology studies.
Risks and Contingencies:
- Going Concern: Auditors have noted substantial doubt regarding the Company's ability to continue as a going concern due to recurring losses and working capital deficiencies.
- Regulatory Approval: The lead product (Nell-1/TCP Fusion Device) is expected to be regulated as a Class III medical device requiring Pre-Market Approval (PMA). No assurance of FDA approval exists.
- Capital Requirements: Failure to secure additional financing will force a reduction or refocusing of development efforts.
- Competition: Primary competitor is Medtronic's Infuse Bone Graft (BMP-2).
Investor Verification Checklist
- Capital Sufficiency: Verify the status of the Private Placement and PIPE; the Company has minimal cash ($163 as of June 30, 2014) and relies entirely on these financings to fund operations.
- Debt Obligations: Confirm the terms of the remaining MTF debt (~$3.6 million principal) and the $340,000 note to AFH Advisory, including maturity dates and conversion triggers.
- Regulatory Pathway: Validate the FDA's classification of Nell-1 as a Class III device and the timeline for the Investigational Device Exemption (IDE) meeting.
- Dilution: Assess the impact of the 15% over-allotment options in the Private Placement, PIPE, and IPO, as well as the conversion of remaining debt and exercise of warrants (approx. 2.5 million shares issuable upon warrant exercise).
- Related Party Transactions: Review the extent of MTF's control (49.3% ownership) and the terms of the exclusive license agreement with UCLA regarding royalty obligations.