Bone Biologics Corporation — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. The company is a pre-revenue medical-device developer focused on NELL-1/DBX for bone regeneration and spinal fusion; its product remains in development and subject to regulatory approval and clinical testing.
Financial performance and position
- Revenue: None in the quarter or first half; no gross profit or operating margin was reported.
- Net loss: Q2 loss was $1.263 million, versus net income of $1.016 million in Q2 2017. First-half loss was $2.718 million versus $1.906 million a year earlier. Q2 2017 included a large noncash stock-compensation reversal, making the comparison unusual.
- Expenses and interest: First-half operating expenses were $1.957 million, compared with $185,000 in 2017; the prior-year amount was reduced by founder-option forfeiture credits. First-half net interest expense fell to $759,000 from $1.719 million, partly reflecting conversion of $3.9 million of notes and lower debt-discount amortization.
- Cash flow and liquidity: Cash used in operating activities was $1.486 million in the first half, versus $1.837 million in 2017. June 30 cash was $305,000, current assets $378,000, current liabilities $1.271 million, and working-capital deficit $893,000. Cash was reported at $3.141 million as of August 1, following post-quarter financing.
- Debt and equity: June 30 liabilities totaled $9.834 million, including $9.6 million of related-party notes before discounts and costs; $600,000 was current. Stockholders’ deficit was $9.456 million. First-half financing provided $1.1 million: $500,000 from stock issuance and a $600,000 related-party bridge note.
Changes, outlook and material developments
- Management estimated operating expenditures of $8.2 million over the next 12 months and stated that additional financing is needed. The filing says substantial doubt exists about the company’s ability to continue as a going concern; without sufficient funding, it may have to scale back or discontinue development or operations.
- On July 16, 2018, the company completed a $3.870 million stock financing, issuing shares to participating shareholders and Hankey Capital, and secured a separate $2 million credit facility. Proceeds were intended for working capital and development costs, among other uses, including repayment of the $600,000 bridge note. The filing reported $3.141 million cash on August 1.
- The financing gave Don Hankey control of the company; he became chairman effective July 16. Amendments also reduced the conversion price on existing Hankey notes to $1.00 per share. A 1-for-10 reverse stock split became effective July 24.
- An August 3 shareholder derivative complaint alleges securities-law violations and breach of fiduciary duty and seeks, among other relief, rescission of the reverse split. The company intends to defend the case; potential loss could not be estimated.
- Management concluded disclosure controls and procedures were not effective as of June 30. Remediation includes third-party review of non-routine transactions. No specific financial guidance beyond the estimated 12-month operating expenditures was provided.
Key investor verification points
- Confirm post-financing cash, drawdowns and terms of the $2 million credit facility, and whether funding is adequate relative to the $8.2 million estimated expenditures.
- Review the related-party debt, conversion terms, collateral and potential dilution, including the post-quarter amendments and Hankey Capital’s control position.
- Track NELL-1/DBX development, clinical and regulatory milestones, and spending against management’s plans.
- Monitor the shareholder litigation and any effect on the reverse split or financing.
- Assess progress on the disclosed control remediation and the continuing going-concern risk.