Bone Biologics Corporation — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017; financial statements are unaudited. Bone Biologics is a development-stage medical device company developing NELL-1/DBX for spinal fusion. It reported no revenue in the periods presented.
Key financial metrics
| Metric | Q3 2017 / September 30, 2017 | Comparable period / December 31, 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1.131 million for Q3; $1.316 million for nine months | $3.857 million for Q3 2016; $14.706 million for nine months 2016 |
| Net loss | $2.527 million for Q3; $4.737 million for nine months | $4.372 million for Q3 2016; $16.150 million for nine months 2016 |
| Net loss per share, basic and diluted | $0.06 for Q3; $0.12 for nine months | $0.11 for Q3 2016; $0.43 for nine months 2016 |
| Cash and cash equivalents | $1.622 million | $0.620 million |
| Current assets / current liabilities | $1.940 million / $5.643 million | $0.973 million / $3.325 million |
| Total liabilities | $12.845 million | $9.607 million |
| Notes payable | $12.900 million principal; $10.090 million net carrying value | $10.200 million principal; $6.282 million net carrying value |
| Operating cash flow | $(2.398) million for nine months | $(6.060) million for nine months 2016 |
Gross profit and margins are not meaningful because the company had no revenue. At September 30, 2017, stockholders’ deficit was $10.904 million. The company had 39.077 million common shares outstanding.
Material changes versus prior period
- Q3 net loss narrowed 42% year over year; nine-month net loss narrowed 71%. Operating expenses fell substantially, but the year-to-date research and development (R&D) line was a negative $1.654 million, not a normal operating expense level.
- The filing attributes the R&D decrease mainly to reversals of previously recognized option expense following termination of the founders’ professional services agreements. It identifies $3.629 million of R&D forfeiture reversals; consultant-option accounting also affected reported expenses. These are unusual, non-cash items and materially affect comparability.
- Interest expense rose to $3.419 million for nine months from $1.437 million, largely due to new 2017 borrowing and amortization of beneficial conversion features and debt discounts.
- Cash increased by $1.002 million from year-end. Nine-month financing provided $3.400 million, including $2.700 million of note proceeds and $700,000 from common stock issuance.
Outlook, liquidity, and risks
- Going concern: The company has incurred approximately $52 million in cumulative losses and states that substantial additional financing is needed. Management estimates operating expenditures of $6.5 million over the next 12 months, while cash at September 30 was $1.622 million. It also disclosed $3.9 million of principal payment requirements over the next 12 months. The filing provides no assurance that financing will be available in sufficient amounts.
- Management intends to raise additional debt and/or equity. If funding is insufficient, the company may scale back or discontinue development, pursue strategic alliances that could require relinquishing technology rights, or cease operations. Cash used in operations was lower partly because of development timing and deferred compensation.
- Several convertible notes bear 8.5% interest and mature December 31, 2017; certain notes may automatically convert at $1 per share if unpaid at maturity. Older secured notes mature in 2019. The company’s debt is secured in part by assets, license agreements, and collateral shares. Convertible notes and other securities create potential dilution.
- The August 2017 amended UCLA license preserves exclusive NELL-1 rights for spinal fusion and expands licensed applications to osteoporosis and trauma. The license includes maintenance fees, royalties, milestone payments, patent-cost obligations, and development diligence requirements; failure to meet certain milestones could result in termination or loss of exclusivity.
- Product development depends on successful preclinical and clinical work and FDA authorization. Management also identifies financing availability, third-party manufacturing, market acceptance, intellectual-property protection, and product liability as risks. No formal revenue or earnings guidance is provided.
- The company reported no pending legal proceedings and stated that disclosure controls were effective as of September 30, 2017.
Important facts for investors to verify
- Near-term cash needs against the $1.622 million cash balance, including the $6.5 million operating estimate and $3.9 million principal requirements.
- Status, terms, and availability of subsequent financing, and the treatment of notes reaching their December 31, 2017 maturity dates.
- How much of the reported expense reduction reflects non-cash option forfeiture reversals rather than lower ongoing development costs.
- Clinical, regulatory, and development milestones for NELL-1, and compliance with UCLA license diligence obligations and associated payment terms.
- Potential dilution: the filing lists 10.391 million warrants, 8.397 million options, and 9.596 million shares underlying convertible notes.