Bone Biologics Corporation — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. The unaudited consolidated statements are compared with Q1 2018. Bone Biologics is a pre-revenue medical-device developer focused on NELL-1/DBX for spinal fusion; the filing describes it as a combination product with a device lead.
Financial and operating results
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $564,333 | $369,011 |
| General and administrative expense | $624,904 | $727,713 |
| Total operating expenses / operating loss | $1,189,237 | $1,096,724 |
| Related-party interest expense | $217,456 | $357,917 |
| Net loss | $1,406,693 | $1,454,641 |
| Basic and diluted loss per share | $0.19 | $0.33 |
| Cash used in operating activities | $928,967 | $818,875 |
Gross margin is not meaningful because the company had no revenue or cost of revenue. Net loss narrowed 3.3% year over year, while operating expenses rose 8.4%. R&D increased 52.9%, primarily from costs for the large-animal pivotal study. G&A decreased 14.1%, mainly due to lower management-option amortization. Interest expense declined 39.2%, largely because less debt-discount amortization followed the 2018 debt modification.
Balance sheet and liquidity
- At March 31, 2019, cash was $726,407, down from $955,374 at December 31, 2018; total current assets were $814,063.
- Current liabilities were $10.79 million, including $9.70 million of related-party notes payable and $491,667 of deferred compensation. Stockholders’ deficit was $9.97 million.
- The company drew $700,000 from Hankey Capital’s credit facility in March. At quarter-end, $1.3 million remained available. On May 2, it drew a further $500,000; the filing reports $800,000 available at May 8 and related-party note principal of $10.2 million.
- Operating cash use exceeded the prior-year quarter by $110,092. Financing provided $700,000 in Q1 2019, versus $500,000 from a stock issuance in Q1 2018.
Material developments, outlook and risks
- Management estimated operating expenditures of $12.1 million for the next 12 months. The filing states that accumulated losses were approximately $65.0 million and that substantial doubt exists about the company’s ability to continue as a going concern within one year after the financial statements are issued. Additional financing is not assured; insufficient funding could force reductions or discontinuation of development or operations.
- The company has depended on Hankey Capital for debt and equity financing. Hankey Capital and its affiliates reportedly controlled approximately 88% of common shares, including collateral shares, and representatives serve as directors. The related-party notes are secured and convertible at $1.00 per share, with a December 31, 2019 maturity and stated minimum interest rate of 8.5%.
- On April 9, 2019, the company entered into an amended and restated exclusive license agreement with UCLA TDG. It continues exclusive rights for specified NELL-1 applications and adds PEGylated product rights and development obligations. Terms include annual maintenance fees, royalties, sublicense-income sharing, milestone payments, patent-cost reimbursement and diligence requirements that could permit UCLA TDG to terminate or reduce the license.
- A shareholder lawsuit concerning the July 2018 financing and reverse stock split remained at an early stage. The company and certain defendants moved to dismiss; the company could not estimate any potential loss. It also disclosed indemnification obligations for certain directors.
- Key risks include financing availability and dilution, clinical-trial and regulatory outcomes, reliance on third-party manufacturers and licensed technology, intellectual-property protection, and market acceptance. No specific revenue or earnings guidance was provided.
Most important facts for investors to verify
- Near-term cash needs against the $12.1 million estimated operating expenditures, available facility balance, and any financing obtained after May 8.
- Terms, maturity, conversion and collateral provisions of Hankey Capital’s related-party debt, plus the extent of its ownership and influence.
- Progress, cost and timing of the NELL-1/DBX large-animal pivotal study and subsequent FDA requirements.
- Milestones, diligence deadlines, royalties and other obligations under the amended UCLA license, including the added PEGylated product rights.
- Status and potential financial impact of the shareholder litigation, and the dilution implied by outstanding convertible notes, options and warrants.