Bone Biologics Corporation — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. The unaudited statements are consolidated. Bone Biologics is a development-stage biotechnology company developing NELL-1 for bone regeneration in spinal fusion; it reported no revenue in the periods presented.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $2.47 million | $0.30 million | $9.47 million | $0.67 million |
| General and administrative | $1.38 million | $2.67 million | $5.24 million | $3.74 million |
| Net loss | $4.37 million | $3.36 million | $16.15 million | $5.90 million |
| Loss per share, basic and diluted | $0.11 | $0.11 | $0.43 | $0.21 |
| Cash used in operating activities | Not stated for quarter | Not stated for quarter | $6.06 million | $2.53 million |
With no revenue, gross profit and operating margins were not meaningful. Q3 operating expenses increased 30% year over year; nine-month expenses increased 234%. Q3 R&D rose sharply, while G&A declined from the prior-year quarter. Nine-month losses worsened substantially, principally alongside higher R&D and compensation-related costs.
At September 30, cash was $688,233, down from $1.12 million at December 31, 2015. Current assets were $1.07 million and current liabilities were $2.16 million. Total liabilities were $8.12 million, including $9.0 million principal of secured convertible notes, reported net of discounts and issuance costs as $5.96 million. Stockholders’ deficit was $7.05 million. The company had no principal payment requirements during the following 12 months, according to management.
Nine-month financing cash inflows were $5.63 million, including $2.5 million from common-stock issuance, $1.25 million from warrant exercises, and approximately $1.88 million net proceeds from notes. Cash declined by $426,876 over the period. The filing reports $555,805 of interest paid.
Material changes, outlook and risks
- Nine-month R&D included $4.51 million of non-cash consultant option expense and a $1.435 million Sygnal license expense, in addition to higher patent and NELL-1 development activity. Nine-month G&A included $2.94 million of stock-based compensation and increased management and financing-related costs.
- Management estimated operating expenditures of $9.7 million for the next 12 months. The company had accumulated approximately $42 million in losses since inception and disclosed substantial doubt about its ability to continue as a going concern. It expects to seek additional debt or equity financing; there is no assurance funding will be available in sufficient amounts. Management warned that a shortfall could require reducing or discontinuing development, pursuing alliances that may require relinquishing technology rights, or ceasing operations.
- Subsequent to quarter-end, the company issued two $600,000 convertible notes, one to MTF and one to Hankey Capital, for $1.2 million total. They bear 8.5% interest, mature December 31, 2016, are secured by company assets, and may convert at $1.00 per share; they automatically convert at that price if not repaid at maturity. Proceeds are restricted to essential R&D activities. Management agreed to defer 20% of earned compensation, and directors’ cash compensation is deferred by 50% until $5 million in cumulative funding from non-current stockholders is received.
- Existing secured convertible notes carry an 8.5% minimum interest rate and are secured by collateral shares and, for certain notes, company assets and license rights. The UCLA license imposes maintenance fees, royalties, development milestones and diligence requirements; failure to meet specified milestones could jeopardize exclusivity.
- The company’s lead combination product requires preclinical and clinical testing and FDA authorization. Management identified financing, trial completion, regulatory approval, third-party manufacturing, market acceptance, licensing and intellectual-property protection as material risks. No specific revenue or profitability guidance was provided.
- Potential dilution is significant: at September 30, 10.45 million warrants, 12.66 million options and shares underlying convertible notes of 5.70 million were excluded from diluted loss per share as anti-dilutive. Common shares outstanding were 38.83 million at September 30.
Important facts for investors to verify
- Whether the October 2016 $1.2 million notes and any subsequent financing provide sufficient liquidity, and the resulting conversion and dilution terms.
- Actual cash runway versus the $9.7 million estimated next-12-month expenditures, including whether planned financing is obtained.
- Progress against NELL-1 development and regulatory milestones, and continued compliance with UCLA license diligence requirements.
- The scope, economics and status of the Sygnal distribution arrangement with MTF, including completion of definitive terms.
- Stock-based compensation, consultant awards, related-party arrangements and the full potential share count from options, warrants and convertible debt.