Bone Biologics Corporation — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016; statements are unaudited. Bone Biologics is a development-stage biotechnology company developing NELL-1 for bone regeneration in spinal fusion. It had not generated revenue. The filing identifies the company as a shell company.
Financial results and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $2.319 million | $0.175 million | $6.997 million | $0.363 million |
| General and administrative | $1.970 million | $0.336 million | $3.852 million | $1.071 million |
| Net loss | $4.800 million | $0.891 million | $11.778 million | $2.533 million |
| Loss per share, basic and diluted | $0.13 | $0.03 | $0.32 | $0.10 |
- No gross profit or operating margin was reported because revenue was zero.
- Cash was $2.194 million at June 30, 2016, versus $1.115 million at December 31, 2015. Current assets were $2.634 million and current liabilities $2.305 million.
- Six-month operating cash use was $4.554 million; investing cash use was zero; financing provided $5.633 million. Cash increased by $1.079 million.
- Notes payable totaled $9.0 million gross, with a $5.646 million net carrying value after debt discount and issuance costs. The secured convertible notes bear 8.5% minimum interest and mature in 2019.
- Accumulated deficit was $37.693 million; stockholders’ deficit was $5.316 million. Common shares outstanding increased to 38.829 million from 32.212 million at year-end 2015.
Changes and notable items
- Year-over-year losses and operating expenses rose substantially, largely reflecting increased NELL-1 development activity, consultant options, the $1.435 million Sygnal license charge, higher personnel and professional costs, and stock-based compensation.
- In February, the company raised $2.5 million through common-stock sales and issued a $2.0 million secured convertible note; it also received $1.25 million from warrant exercises. The filing reports $5.7 million of debt and equity financing closed on February 24.
- In June, the company exercised its Sygnal distribution option from MTF and issued 700,000 restricted shares; the $1.435 million license cost was expensed as R&D.
- Potential dilution was significant: at June 30, the filing lists 10.452 million warrants, 12.656 million options, and 5.696 million shares underlying convertible notes. The balance sheet also reports $1.823 million of shares to be issued.
Outlook, risks and contingencies
- Management estimated next-12-month operating expenditures at $8.5 million in MD&A; the financial-statement note gives $8.6 million. Cash at quarter-end was well below either estimate. Management intends to raise additional debt or equity, but gave no assurance that financing will be available in sufficient amounts.
- The filing reiterates substantial going-concern uncertainty, with the prior-year auditor’s going-concern notation referenced. The company reported cumulative losses of approximately $37.7 million since inception and no principal payment requirements over the next 12 months.
- NELL-1 requires preclinical and clinical testing and FDA authorization; the FDA indicated a combination-product pathway with a device lead. Development delays, regulatory outcomes, financing availability, manufacturing reliance, market acceptance and intellectual-property protection are identified risks.
- The UCLA license includes development milestones, maintenance fees, royalties and potential termination or conversion to a non-exclusive license if diligence milestones are missed. The company also faces future milestone payments and a possible liquidity-event payment.
- Management said disclosure controls were effective at June 30 and reported remediation steps for a previously identified weakness in valuation of options and warrants. No material legal proceedings were reported.
Important facts for investors to verify
- Available cash, actual monthly cash burn and the timing and terms of any additional financing.
- The differing $8.5 million and $8.6 million operating-expenditure estimates and the assumptions behind them.
- NELL-1 clinical, regulatory and manufacturing milestones, and compliance with UCLA license diligence obligations.
- The terms, collateral, conversion provisions and dilution exposure associated with the Hankey Capital notes, warrants and outstanding equity awards.
- The commercial terms and expected economics of the Sygnal arrangement with MTF.