Bone Biologics Corporation — Form 10-Q Summary
Period clarification: The filing covers the quarter and nine months ended September 30, 2020, not 2020 Q1 as indicated in the request metadata. It was signed April 15, 2021. Financial statements are unaudited.
Business context
Bone Biologics is a pre-revenue medical device company developing NELL-1/DBX, a bone-regeneration product initially targeting spinal fusion. The company says the FDA indicated the product would be regulated as a combination product with a device lead. It holds an exclusive worldwide license from UCLA Technology Development Group for NELL-1 applications including spinal fusion, osteoporosis, and trauma.
Financial performance and position
| Metric | Three months ended Sep. 30, 2020 | Three months ended Sep. 30, 2019 | Nine months ended Sep. 30, 2020 | Nine months ended Sep. 30, 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $142,877 | $44,942 | $318,978 | $1,026,840 |
| General and administrative | $2,946 | $256,368 | $299,604 | $1,142,965 |
| Total operating expenses | $145,823 | $301,310 | $618,582 | $2,169,805 |
| Net loss | $394,049 | $561,419 | $1,370,979 | $2,893,664 |
| Loss per share, basic and diluted | $0.05 | $0.08 | $0.19 | $0.40 |
At September 30, 2020, cash was $2,461, total assets $2,461, current liabilities $13.24 million, total liabilities $13.24 million, and stockholders’ deficit $13.24 million. The filing reports related-party notes payable of $11.60 million, all classified as current, plus $1.00 million of related-party interest payable. Notes bear a minimum 8.5% annual interest rate and mature December 31, 2021. No revenue or gross margin was reported.
For the first nine months of 2020, operating cash use was $301,240, financing cash inflow was $279,556, and cash declined by $21,684 to $2,461. In the comparable 2019 period, operating cash use was $2.95 million and financing inflow was $2.20 million. The company reported $68.0 million of accumulated losses since inception.
Material changes and management commentary
- Year-to-date operating expenses fell 71% and net loss fell 53% versus 2019, principally because operations were curtailed for lack of funding. In Q3, R&D expense rose $97,935 from the prior-year quarter, which management attributed to a large-animal pivotal study; G&A fell sharply because of reduced operations.
- Management estimated $6.6 million of operating expenditures 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 of the financial statements.
- The company depends on additional debt or equity financing and has historically relied on Hankey Capital. At September 30, 2020, Hankey Capital held or controlled approximately 89% of common shares, including collateral shares; the related-party notes were $11.60 million. The company had $500,444 available under Hankey Capital’s second credit facility at quarter-end.
- Subsequent to quarter-end through March 31, 2021, the company drew another $188,319 under that facility; the filing states that $312,125 remained available at March 31, 2021.
- Management said COVID-19 and limited capital delayed or extended clinical trials by several months, increased the risk of higher trial costs, and added uncertainty about future financing.
- On August 13, 2020, the company amended its UCLA license to revise certain development milestone dates in light of COVID-19 delays and establish a revised payment schedule addressing unpaid patent prosecution, reimbursement, maintenance, and late-fee amounts. Missing diligence milestones can permit UCLA to terminate or narrow the license.
Risks, contingencies, and unusual items
- Disclosure controls and procedures were deemed ineffective as of September 30, 2020. Management identified a material weakness due to insufficient staffing for financial reporting and SEC filing preparation and review; the filing says the company was not timely with interim filings.
- A 2019 federal lawsuit alleges breach of contract and tortious interference relating to terminated professional service agreements. The company intends to defend the case, but says the possible loss cannot be estimated at this early stage.
- UCLA license terms include a $10,000 annual maintenance fee, a 3% royalty on applicable net sales, development and commercial milestones, and potential payments tied to sublicensing or a change of control. No listed development milestones had been met as of September 30, 2020.
- Further financing may be unavailable or on unfavorable terms; without sufficient funds, the company may reduce or discontinue development or operations. Equity financing could dilute shareholders, while strategic alliances could require relinquishing technology rights.
Investor facts to verify
- Whether the company secured sufficient financing after the reported period, and its current cash, facility availability, and debt maturities.
- How the going-concern uncertainty and severe working-capital shortfall have evolved, including whether the $6.6 million spending estimate was funded or revised.
- Clinical-trial status, COVID-related delays, and progress toward regulatory authorization for NELL-1/DBX.
- The status and potential financial exposure of the lawsuit and the company’s obligations under the amended UCLA license.
- Whether the identified financial-reporting material weakness and ineffective disclosure controls have been remediated.
- The filing’s reporting-period discrepancy: the supplied request says Q1 2020, while the 10-Q itself reports the quarter ended September 30, 2020.