Bone Biologics Corporation — Form 10-Q Summary
Reporting period: Three months ended March 31, 2020. The filing was signed April 15, 2021. The cover also reports shares outstanding as of March 31, 2021, an apparent period inconsistency that investors should verify.
Business context
Bone Biologics is a development-stage medical device company focused on NELL-1/DBX, a bone-regeneration product for spinal fusion. The company reported no revenue and had not generated revenue from planned operations. Its product is a combination product expected to be regulated by the FDA with a device lead.
Key financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $167,101 | $564,333 |
| General and administrative | $172,949 | $624,904 |
| Total operating expenses | $340,050 | $1,189,237 |
| Interest expense, related party | $255,250 | $217,456 |
| Net loss | $596,900 | $1,406,693 |
| Net loss per share, basic and diluted | $0.08 | $0.19 |
| Net cash used in operating activities | $149,878 | $928,967 |
At March 31, 2020, cash was $2,432, total assets were $6,964, total liabilities were $12.47 million, and stockholders’ deficit was $12.46 million. Related-party notes payable totaled $11.45 million; accrued related-party interest was $508,801. The filing classifies all notes payable as current at quarter-end, although the note terms list a December 31, 2021 maturity. The Second Hankey Capital credit facility had $651,835 available at March 31, 2020. Operating expenditures for the following 12 months were estimated at $6.6 million.
Changes and management commentary
- Operating expenses fell 71% year over year, as management attributed the decreases in R&D and G&A to curtailed operations and cost-cutting amid insufficient funding.
- Interest expense increased 17%, which management attributed to increased debt. Operating cash use declined substantially; the company received $128,165 from draws on its related-party credit facility in Q1 2020.
- Management said the company had scaled back activities other than fundraising. It continued to seek debt or equity financing, but gave no assurance that financing would be available or sufficient.
- The filing states that the loss, operating cash use, accumulated losses of approximately $68 million, and stockholders’ deficit raise substantial doubt about the company’s ability to continue as a going concern within one year after issuance. It warns that insufficient funding could force further reductions, discontinuation of development, or cessation of operations.
Outlook, risks, and unusual items
- COVID-19: Clinical research organizations indicated trials were delayed or extended by several months; management cited potential added costs and uncertainty about future financing.
- Funding concentration: Hankey Capital, whose affiliates include the company’s chairman and a director, provided working capital through debt and equity. The filing says it controlled approximately 89% of common shares, including collateral shares. Notes bear at least 8.5% interest and are convertible at $1.00 per share.
- License obligations: The UCLA license requires maintenance fees, royalties, development milestones, and reimbursement of patent costs. No listed milestones had been met as of March 31, 2020. An August 2020 amendment revised milestone dates and payment arrangements, including for amounts owed to UCLA TDG.
- Litigation: Two plaintiffs sued the company and others over terminated professional-service agreements. The company intended to defend the claims; the potential loss could not be estimated at the filing stage.
- Controls: Management concluded disclosure controls were ineffective and identified a material weakness due to insufficient staffing for financial reporting and SEC filings; the company said it was not timely with interim filings.
Important facts for investors to verify
- Confirm the correct reporting and filing dates: the filing presents Q1 2020 financial statements but includes later-dated information, including a March 31, 2021 share count and subsequent-period financing references.
- Clarify the balance-sheet classification of the $11.45 million related-party notes as current versus their stated December 2021 maturity, and confirm the amount and availability of remaining credit-facility funds for the relevant date.
- Assess whether the company obtained financing sufficient to meet its stated $6.6 million 12-month spending estimate and address the going-concern uncertainty.
- Monitor clinical-trial timing, regulatory progress, UCLA license compliance and revised payment terms, and the outcome or potential cost of the litigation.
- Review remediation of the disclosed material weakness and the company’s ability to provide timely, reliable financial reporting.