Filing identity and business context
This Form 10-Q is filed by AFH Acquisition X, Inc., a Delaware development-stage blank-check company, for the quarter ended July 31, 2014—not by Bone Biologics Corp. AFH reported no active operations other than seeking a business combination and had generated no revenue since its October 18, 2007 inception.
AFH’s majority shareholder had an amended letter of intent with Bone Biologics, Inc. for a contemplated merger. The filing says a merger agreement had not yet been completed and AFH was not negotiating with any other target. If consummated, the transaction was expected to result in a name change to Bone Biologics Corp.; the proposed transaction and its terms remained subject to completion.
Financial results and liquidity
| Metric | Three months ended July 31 | Nine months ended July 31 |
|---|---|---|
| Revenue | $0 in 2014 and 2013 | $0 in 2014 and 2013 |
| Total expenses | $1,306 in 2014; $1,085 in 2013 | $4,670 in 2014; $3,776 in 2013 |
| Net loss after tax | $1,306 in 2014; $1,085 in 2013 | $5,070 in 2014; $4,176 in 2013 |
| Operating cash flow | Not presented for the three-month period | $(4,125) in 2014; $(5,484) in 2013 |
At July 31, 2014, cash was $22, total assets were $22, and current liabilities were $44,897, including $40,368 due to the parent and $4,529 of accrued expenses. Stockholders’ deficit was $44,875, and accumulated development-stage deficit was $69,875. The parent advances have no stated repayment terms. The filing reports no interest paid and no investing cash flows.
Nine-month financing cash flow was $3,767, entirely from net cash advances by the parent; the resulting cash decrease was $358. The company described itself as having no capital resources and said it would depend on stock issuance and shareholder contributions to fund administrative costs. There was no conventional interest-bearing debt balance separately reported.
Changes, outlook, and risks
- Nine-month net loss increased by $894 year over year, while total expenses rose by $894. Legal and professional fees were the largest reported expense category.
- Management stated that substantial doubt existed about the company’s ability to continue as a going concern, citing recurring losses, an accumulated deficit, and negative working capital. The statements contain no adjustments for a possible failure to continue as a going concern.
- The proposed Bone transaction contemplated issuing AFH shares to Bone stockholders and reducing AFH’s 5,000,000 pre-merger shares to 3,853,600 through consolidation and cancellation of the balance. The filing provides no assurance the merger would close or that the company could otherwise identify and complete an acquisition.
- Management warned that a business combination could materially dilute existing shareholders and that additional securities or a future financing could affect the value of the company’s shares. It also noted that funding might be unavailable.
- After quarter-end, on August 6, 2014, 450,000 shares were transferred to Hankey Investment Company, L.P. and 150,000 shares were transferred to Bret Hankey as compensation, in each case from the company’s sole shareholder. The filing reports 5,000,000 shares outstanding as of September 14, 2014.
- Management concluded disclosure controls were effective as of July 31, 2014 and reported no significant quarterly change in internal control over financial reporting. No legal proceedings or material off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Confirm the identity and reporting status of the issuer: this filing is for AFH Acquisition X, Inc., and does not present Bone Biologics’ operating results.
- Verify whether the contemplated merger was executed and closed, and review the definitive agreement, closing conditions, consideration, and resulting ownership and dilution.
- Assess the company’s ability to fund expenses and satisfy liabilities, including the terms and expected treatment of the $40,368 parent balance.
- Review subsequent ownership changes and the share count after any merger or other corporate actions.
- Reconcile the proposed reduction to 3,853,600 pre-merger shares with the reported 5,000,000 shares outstanding as of September 14, 2014.