Bone Biologics Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The company is a development-stage medical-device business focused on NELL-1/DBX for bone regeneration in spinal fusion. It reported no revenue and is classified as a shell company in the filing.
Financial results and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $45,500 | $167,101; down 72.8% |
| General and administrative | $135,424 | $172,949; down 21.7% |
| Total operating expenses | $180,924 | $340,050; down 46.8% |
| Interest expense, related party | $250,823 | $255,250 |
| Net loss | $431,747 | $596,900 |
| Basic and diluted loss per share | $0.06 | $0.08 |
| Net cash used in operating activities | $127,983 | $149,878 |
Gross profit and operating margin are not meaningful because the company had no revenue. Cash was $71,165 at quarter-end, versus zero at December 31, 2020. Total liabilities were $14.20 million, including $11.92 million in current related-party notes payable and $1.50 million in related-party interest payable. Stockholders’ deficit was $14.12 million; accumulated deficit was $69.30 million.
Changes and operating developments
- Operating expenses and net loss declined year over year, which management attributed primarily to curtailed operations and cost reductions amid limited funding.
- Research and development spending fell by $121,601. Management said lack of capital and COVID-19 delayed R&D and clinical-trial activity; research organizations indicated trials were delayed or extended by several months.
- Financing provided $199,148 in Q1, primarily from draws on Hankey Capital’s second credit facility. At March 31, $178,064 remained available; through May 14, the company drew another $50,317. At May 10, the filing reported $127,747 available and related-party note principal of $11,972,253.
Outlook, risks and contingencies
- Going concern: The company reported substantial doubt about its ability to continue as a going concern within one year after issuance. It estimated next-12-month operating expenditures of $6.6 million and said additional financing is necessary, with no assurance it can be secured. Failure to obtain funding could force reduced or discontinued development or operations, or financing arrangements involving dilution, restrictions, or relinquished technology rights.
- Funding concentration and debt: Hankey Capital and related parties control approximately 89% of common shares, including collateral shares, and provide the company’s principal financing. Convertible notes bear at least 8.5% interest and mature December 31, 2021; the lender may convert eligible debt at $1 per share. Company assets also secure debt obligations.
- Product and regulatory risks: NELL-1/DBX remains under development and requires clinical success and FDA authorization. The company relies on its exclusive UCLA license and third-party manufacturing; license diligence requirements, intellectual-property challenges, and product acceptance are additional risks.
- COVID-19: The filing cites potential clinical-trial delays, higher costs, and uncertainty about future financing availability.
- License obligations: The company paid UCLA TDG $45,500 in Q1 2021. Development milestones, royalties, patent-cost reimbursements, and other license payments apply; none of the listed milestones had been met by March 31. The license amendment revised milestone timing and payment schedules, including addressing previously unpaid amounts.
- Litigation: A 2019 Massachusetts federal lawsuit alleges breach of contract and tortious interference relating to terminated professional service agreements. The company intends to defend the claims, but says the possible loss cannot currently be estimated.
- Controls: Management concluded disclosure controls were ineffective and identified a material weakness caused by insufficient financial-reporting staff. The filing says this contributed to untimely interim filings.
Important facts for investors to verify
- Whether the company obtains sufficient financing to cover its stated $6.6 million estimated operating expenditures and address the December 2021 note maturities.
- Available borrowing capacity and updated balances, terms, interest accruals, and conversion or collateral provisions of Hankey Capital debt.
- Clinical-trial status, the extent of COVID-related delays, and the timing and cost of regulatory milestones for NELL-1/DBX.
- Compliance with UCLA license obligations, revised payment schedules, and development milestones.
- Progress in remediating the material weakness and improving the timeliness and effectiveness of disclosure controls.
- Developments in the pending lawsuit and any material change in potential exposure.