Bone Biologics Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. The unaudited statements are consolidated. Bone Biologics is a pre-revenue medical-device company developing NELL-1/DBX for bone regeneration, initially targeting spinal fusion. The company reported no revenue in either 2021 or the comparable 2020 periods.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $2,016 | $9,000 | $47,516 | $176,101 |
| General and administrative | $229,865 | $123,709 | $365,289 | $296,658 |
| Total operating expenses | $231,881 | $132,709 | $412,805 | $472,759 |
| Net loss | $491,898 | $380,030 | $923,645 | $976,930 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(763,964) | $(229,012) |
Gross margin is not applicable because the company had no revenue or cost of revenue. Q2 net loss widened 29.4%; first-half net loss narrowed 5.5%. Management attributed lower R&D spending to curtailed operations and higher G&A to resuming operations and bringing SEC filings current. Interest expense was $260,017 in Q2 and $510,840 for the first half, primarily reflecting increased debt.
Financial position and liquidity
- At June 30, cash and total assets were $4,438, versus no cash or assets reported at December 31, 2020.
- Current liabilities and total liabilities were $14.62 million; stockholders’ deficit was $14.62 million. Related-party notes payable were $12.49 million, with $1.76 million of related-party interest payable.
- First-half operating cash use of $763,964 was financed principally by $768,402 of financing proceeds, mainly Hankey Capital credit-facility draws. Cash at period-end was $4,438.
- The company estimated operating expenditures of $6.6 million for the next 12 months and stated that substantial doubt exists about its ability to continue as a going concern within one year after issuance of the financial statements.
Material developments, outlook, and risks
- The company depends on Hankey Capital for working capital. Hankey-related parties control approximately 89% of common stock, including collateral shares, and Hankey Capital holds $12.49 million in convertible notes. The notes bear interest at a minimum 8.5%, are convertible at $1 per share, and generally mature December 31, 2021. Hankey representatives also serve as directors.
- A $700,000 third credit facility with Hankey Capital was entered into in June 2021. At June 30, $391,190 had been drawn and $308,810 remained available; a further $148,672 was drawn through August 8, 2021.
- Management plans to seek additional debt or equity financing, but gives no assurance it will be available or sufficient. A funding shortfall could force reduced or discontinued development, a strategic transaction involving relinquishment of technology rights, or substantially reduced or discontinued operations. Equity funding may dilute holders; debt may restrict operations.
- COVID-19 was reported to have delayed or extended clinical trials by several months and could increase trial costs and constrain financing.
- The NELL-1 license from UCLA carries maintenance, royalty, and development-milestone obligations. Certain milestone dates were amended on June 30, 2021; UCLA may terminate or make the license non-exclusive if diligence milestones are not met. No listed milestones had been met by quarter-end.
- A lawsuit filed in 2019 alleges breach of contract and tortious interference relating to terminated professional service agreements. The company intends to defend the case; the filing says the potential loss cannot be estimated.
- The board authorized a 1-for-2.5 reverse stock split, subject to distribution of an information statement and in conjunction with a Nasdaq Capital Market listing. It was not yet effective at the filing date.
- Disclosure controls were deemed ineffective, and management identified a material weakness due to insufficient financial-reporting staff and review capacity. The company also indicated it was not timely with interim filings. The cover page checked “No” for having filed all required reports during the preceding 12 months.
Facts investors should verify
- Whether the company obtained sufficient financing to cover the stated $6.6 million expected next-12-month expenditures, and the status and terms of Hankey Capital facilities and December 2021 maturities.
- Current cash, liabilities, related-party interest accruals, and any subsequent financing or debt conversion.
- Clinical-trial progress, COVID-related delays, and compliance with amended UCLA license milestones and payment obligations.
- Progress toward Nasdaq listing and whether the proposed reverse split became effective.
- Remediation of the material weakness and improvement in disclosure controls, filing timeliness, and financial-reporting staffing.
- Developments in the pending litigation and any resulting financial exposure.