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EX-31.2 - Bone Biologics Corpex31-2.htm
EX-32.2 - Bone Biologics Corpex32-2.htm
EX-31.1 - Bone Biologics Corpex31-1.htm
EX-32.1 - Bone Biologics Corpex32-1.htm
EX-23.1 - Bone Biologics Corpex23-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended: December 31, 2015

 

For the transition period from _________ to _________

 

Commission File Number: 000-53078

 

Bone Biologics Corporation

(Exact name of registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

42-1743430

(I.R.S. Employer

Identification No.)

 

321 Columbus Ave., Boston, MA 02116

(732) 661-2224

 

Securities registered pursuant to Section 12(b) of the Act:

 

None

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, $0.001 par value per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] No [X]

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

Indicate by check mark whether the Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer [  ]     Accelerated filer   [  ]
       
Non-accelerated filer [  ]   (Do not check if a smaller reporting company)   Smaller reporting company   [X]

 

Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of March 14, 2016, there were 38,014,507 shares of common stock, par value $.001, outstanding.

 

Documents Incorporated by Reference

 

None.

 

 

 

 
 

 

TABLE OF CONTENTS

 

      Page
Part I      
Item 1. Business   1
Item 1A. Risk Factors   13
Item 1B. Unresolved Staff Comments   13
Item 2. Properties   13
Item 3. Legal Proceedings   13
Item 4. Mine Safety Disclosures   13
       
Part II      
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities   14
Item 6. Selected Financial Data   15
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk   21
Item 8. Financial Statements and Supplementary Data   21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   21
Item 9A. Controls and Procedures   21
Item 9B. Other Information   22
       
Part III      
Item 10. Directors, Executive Officers and Corporate Governance   23
Item 11. Executive Compensation   29
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   36
Item 13. Certain Relationships and Related Transactions, and Director Independence   38
Item 14. Principal Accounting Fees and Services   40
       
Part IV      
Item 15. Exhibits, Financial Statement Schedules   40
     
Signatures   41
Power of Attorney   42
Index to Consolidated Financial Statements   43
Exhibit Index   71

 

 
 

 

Cautionary Note on Forward-Looking Statements

 

This annual report on form 10-K (“Annual Report”) contains forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.

 

All statements other than historical facts contained in this Annual Report, including statements regarding our future financial position, capital expenditures, cash flows, business strategy and plans and objectives of management for future operations are forward-looking statements. The words “anticipated,” “believe,” “expect,” “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may,” and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect our management’s current views with respect to future events and financial performance and involve risks and uncertainties, including, without limitation, our ability to raise additional capital to fund our operations, obtaining Food and Drug Administration (“FDA”) and other regulatory authorization to market our drug and biological products, successful completion of our clinical trials, our ability to achieve regulatory authorization to market our lead product NELL-1, our reliance on third party manufacturers for our drug products, market acceptance of our products, our dependence on licenses for certain of our products, our reliance on the expected growth in demand for our products, exposure to product liability and defect claims, development of a public trading market for our securities, and various other matters, many of which are beyond our control.

 

Should one or more of these risks or uncertainties occur, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated or otherwise indicated. Consequently, all of the forward-looking statements made in this Annual Report are qualified by these cautionary statements and accordingly there can be no assurances made with respect to the actual results or developments. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

Unless expressly indicated or the context requires otherwise, the terms “Company,” “we,” “us,” and “our” in this document refer to Bone Biologics Corporation, a Delaware corporation, and, its wholly owned subsidiary, as defined under Part I, Item 1-“Business” in this Annual Report.

 

 
 

 

PART I

 

Item 1. Business

 

OVERVIEW

 

We are a biotechnology company that is currently focused on bone regeneration in spinal fusion using the recombinant human protein, known as NELL-1/DBX®. The NELL-1/DBX® combination product is an osteoinductive recombinant protein that provides target specific control over bone regeneration. The protein, as part of the UCB-1 technology platform has been licensed exclusively for worldwide applications to us through a technology transfer from UCLA. UCLA and the Company received guidance from the FDA that NELL-1/DBX® will be classified as a combination product with a device lead.

 

The Company was founded by University of California professors in collaboration with an Osaka University professor and a University of Southern California surgeon in 2004 as a privately-held company with proprietary, patented technology that has been validated in sheep and non-human primate models to facilitate bone growth. Our platform technology has application in delivering improved outcomes in the surgical specialties of spinal, orthopedic, general orthopedic, plastic reconstruction, neurosurgery, interventional radiology, and sports medicine. Lead product development and clinical studies are targeted on spinal fusion surgery, one of the larger segments in the orthopedic market.

 

PRODUCTS

 

We have developed a stand-alone platform technology through significant lab, small animal and large animal research over more than ten years to generate the current applications across broad fields of use. The platform technology is UCB-1, a proprietary skeletal specific growth factor used in combination with DBX®, a proprietary demineralized bone matrix from Musculoskeletal Transplant Foundation (MTF). Together, with DBX®, or alone, NELL-1 provides regulation over skeletal tissue formation and stem cell differentiation during bone regeneration. The platform technology was obtained by the Company pursuant to an exclusive license agreement with the Regents of the University of California, as described below under “UCLA Exclusive License Agreement.”

 

We are currently focused on bone regeneration in lumbar spinal fusion using our recombinant human protein, known as NELL-1 which is a bone void filler. NELL-1/DBX® is an osteoinductive orthobiologic combination product that provides control over bone regeneration. Leveraging the resources of investors and strategic partners, we have successfully surpassed two critical milestones:

 

  Demonstrating a successful small laboratory scale pilot run for the manufacturing of the recombinant NELL-1 protein in Chinese hamster ovary cells; and
     
  Validation of protein dosing and efficacy in established large animal sheep models and non-human primate models.

 

 1 
 

 

We are targeting spinal fusion as the first clinical indication of our platform technology and are currently in the development phase with this proposed medical device. The lead product, purified NELL-1, is expected to be mixed with 510(k) cleared DBX® Demineralized Bone Putty recommended for use in conjunction with a cleared intervertebral body fusion device. The NELL-1/DBX® Fusion Device will be comprised of a single dose vial of NELL-1 recombinant protein freeze dried onto DBX®. A vial of NELL-1/DBX® will be sold in a convenience kit with a diluent and a syringe of 510(k) cleared demineralized bone (“DBX® Putty”), produced by MTF. A delivery device will allow the surgeon to mix the reconstituted NELL-1 with the appropriate quantity of DBX® Putty just prior to implantation.

 

The NELL-1/DBX® Fusion Device is intended for use in lumbar spinal fusion and may have a variety of other applications such as cervical spinal fusion.

 

While the product is initially targeted at the lumbar spine fusion market, we believe NELL-1’s unique set of characteristics, target specific mechanism of action, efficacy, safety, and affordability, position the product well for application in a variety of procedures, including:

 

Spine Implants. This is the largest market for bone substitute product, representing >70% of the total U.S. market according to Transparency Market Research. While use of the patient’s own bone, also referred to as autograft, to enhance fusion of vertebral segments remains the gold standard for this type of treatment, complications associated with use of autograft bone including pain, increased surgical time and infection limit its use.

 

Non-Union Trauma Cases. While the majority of fractures heal without the need for osteosynthetic products, bone substitutes are used in complicated breaks where the bone does not mend naturally. NELL-1 is expected to perform as well as high-priced growth factors in this market.

 

Hip & Knee Revisions. The use of bone substitutes in reconstruction surgery is generally limited to revision cases where the products are used to account for the significant bone loss that accompanies these cases. The treatment of osteoporotic patients also represents a substantial opportunity for NELL-1’s use in hip and knee reconstruction.

 

Implant Coating. The use of NELL-1 as a direct coating on hip and knee implants could have a very significant impact on the market. A NELL-1 coating may prolong the life of primary implants and allow for differentiation in a commodity market.

 

Osteoporosis. The medical need to find a solution to counter a decrease in bone mass and density seen in women most frequently after menopause or a similar effect on astronauts in microgravity environments for an extend period of time is a major medical challenge. The systemic use of NELL-1 to stimulate bone regeneration throughout the body thereby increasing bone density could have a very significant impact on the treatment of osteoporosis.

 

UCLA’s initial research was funded with approximately $18 million in resources from UCLA and government grants. After licensing the exclusive worldwide intellectual property rights from UCLA, development was funded with additional grant funding and $6.5 million in strategic investment from MTF. We anticipate that it will require an additional $18 million to complete protein synthesis, animal studies, and commence first in man studies. An estimated additional $155 million will be required to achieve product launch.

 

NELL-1’s powerful specific bone and cartilage forming properties are derived from the ability of NELL-1 to only target cells that exhibit an activated “master switch” to develop into bone or cartilage. NELL-1 is a function specific recombinant human protein that has been proven in lab bench models to recapitulate normal human growth and development to provide control over bone and cartilage regeneration.

 

 2 
 

 

NELL-1 was isolated in 1996, and the first NELL-1 patent on bone regeneration was filed in 1999. Subsequent patents and continuations in part describing NELL-1 manufacturing, delivery, and cartilage regeneration were filed in 2002, 2003, 2006, 2007, 2008, and 2009 to further strengthen the patent portfolio.

 

RESEARCH & PUBLICATIONS

 

Our leading scientists have been published in notable scientific journals and publications in our field. There are more than 80 publications that serve to highlight the work and achievements of the researchers and the Company.

 

PROPOSED INITIAL CLINICAL APPLICATION

 

The NELL-1/DBX® Fusion Device will be indicated for spinal fusion procedures in skeletally mature patients with degenerative disc disease (“DDD”) at one level from L4-S1. These DDD patients may also have up to Grade I spondylolisthesis at the involved level. The NELL-1/DBX® Fusion Device is to be implanted via an anterior open or an anterior laparoscopic approach in conjunction with a cleared intervertebral body fusion device. Patients receiving the device should have had at least six months of non-operative treatment prior to treatment with the device. A cervical indication is currently under consideration. This indication for use would fill a current clinical gap, created by potentially dangerous inflammatory responses caused by commercially available catalytic bone growth agents, the subject of a Public Health Notification from the United States Food and Drug Administration (the “FDA”) on July 1, 2008 about life threatening complications associated with a recombinant human protein in cervical spine fusion. We do not expect our product to see the same adverse events with NELL-1/DBX® as have been observed with other commercially available protein. We have performed a rat femoral onlay model to compare proinflammatory response of rhBMP-2 and NELL-1 within Helistate collagen sponges. While NELL-1 induced normal healing, rhBMP-2 induced significant amounts of swelling and histological evidence of intense inflammatory response.

 

DESCRIPTION OF THE DBX® PUTTY TO BE USED WITH NELL-1

 

The DBX® Demineralized Bone Putty provided in the convenience kit with NELL-1/DBX® is a Class III device with a pre-market approval (PMA). The common name is “Bone Void Filler Containing Human Demineralized Bone Matrix.” The product is regulated under 21 C.F.R. §888.3045 Resorbable calcium salt bone void filler device, Product Codes MQV, GXP, and MBP. MTF is the manufacturer of the DBX® Putty. This product was cleared by the FDA under 510(k) number K053218 for spine indication in December 2006.

 

DBX® Putty is a matrix composed of processed human cortical bone. Demineralized bone granules are mixed with sodium hyaluronate to form the DBX® Putty. Every lot of final DBX® Putty product is tested in an athymic mouse model or in an alkaline phosphatase assay, which has been shown to have a positive correlation with the athymic mouse model, to ensure the osteoinductive potential of the final product.

 

Our instructions for use will recommend use of the NELL-1/DBX® Fusion Device with a lumbar indication. The surgeon can therefore choose to use the intervertebral fusion device that he or she is most experienced with and, in their judgment, is the best option for successful treatment. We have three precedent products, which are also osteoinductive, with intended uses similar or the same as NELL-1, that have been cleared by the FDA as medical devices. These are as follow:

 

  Infuse Bone Graft/LT-Cage Lumbar Tapered Fusion Device (PMA)-rhBMP-2 dissolved in water and applied to a collagen (bovine type I) sponge and placed in a cage;
     
  GEM 21S (PMA)-rhPDGF-BB and -tricalcium phosphate (growth factor enhanced matrix); and
     
  DBX® (510k)-human cortical bone (ground and demineralized) and mixed with sodium hyaluronate to form a putty.

 

 3 
 

 

Based upon extensive discussions with regulatory experts and a specific communication from the FDA in response to a submission of our plan under the Exclusive License between UCLA and the Company we believe the NELL-1/DBX® Fusion Device will be regulated as a Class III medical device and will therefore require submission and approval of a pre-market approval, (“PMA”). The FDA response to the submission of our plan is: “We have determined that the product is a combination product that will be regulated under Device authorities, with CDRH (Center for Devices and Radiological Health) as the lead center.”

 

OUR BUSINESS STRATEGY

 

Our business strategy is to develop our target specific platform technology to meet a current established market with improvement in patient outcomes and reduction in costs to the healthcare delivery system. This narrowing of our focus from the research to the development stage is to allow for the approval for use of our target specific protein exhibiting efficacy and safety by matching or exceeding current market approved products. Identifying the best future strategic partners to facilitate the development through pre Investigational Device Exemption (“IDE”), clinical, and ultimate commercialization is critical as we fund the pre-IDE work and continue achieving milestones. We believe that the licensing of the distribution of the NELL-1 product in the fields of use focused upon will generate sufficient funding to provide for the ongoing development of the Platform Technology across other surgical and therapeutic fields.

 

DEVELOPMENT OF THE COMPANY

 

The Company was incorporated in Delaware on October 18, 2007 as AFH Acquisition X, Inc. The Company and its wholly-owned subsidiary, Bone Biologics Acquisition Corp., (“Merger Sub”), entered into an Agreement and Plan of Merger, dated as of September 19, 2014 (the “Merger Agreement”), with Bone Biologics, Inc. (“Bone”). Pursuant to the terms of the Merger Agreement, Bone merged with Merger Sub on September 19, 2014 (the “Merger”), with Bone as the surviving entity and a wholly owned subsidiary of the Company. After the Merger, the Company ceased to be a shell company, as defined in the rules of the SEC, and the Company officially changed its name to Bone Biologics Corporation. The 5,000,000 outstanding shares of common stock of the Company prior to the Merger were consolidated into 3,853,600 shares of common stock and the remaining shares were cancelled. At the effective time of the Merger, all of the issued and outstanding shares of Bone common stock converted into a combined total of 19,897,587 shares of the Company’s Common Stock (including 2,151,926 shares issuable upon the exercise of outstanding warrants and 5,658,658 shares issuable upon conversion of debt). Unless the context indicates otherwise, as used in this Annual Report, the “Company,” “we,” “us,” and “our” also refer to and include Bone, its wholly owned subsidiary.

 

UCLA Exclusive License Agreement

 

On March 15, 2006, the Company entered into an exclusive license agreement (the “Initial Agreement”) with the Regents of the University of California Los Angeles (“UCLA”). The Initial Agreement has been amended through nine sets of amendments (as so amended, the “The UCLA License Agreement”).

 

The UCLA License Agreement provides us with an exclusive license to several of UCLA patents covering, among other things, enhanced NELL-1 bone mineralization. The grant of the UCLA License Agreement is subject to any license obligations to the U.S. government, and the term of the license lasts until the last-to-expire UCLA patent licensed under the UCLA License Agreement expires. Under the UCLA License Agreement, we are permitted to make, have made, use, sell, offer for sale and import any products covered by the UCLA License Agreement patents in a certain Field of Use which is currently defined as special function by local administration and expressly excludes osteoporosis and cartilage indications or systemic administration in all indications. Currently the parties are negotiating in good faith the terms pursuant to which UCLA will grant an option to exclusively license UCLA Patent Rights in the osteoporosis indication. After December 22, 2016, we may notify UCLA of our interest in requesting an expansion of the Field of Use to include additional available indications, including cartilage indications or systemic administration in the Field of Use. The parties will engage in good faith discussions of such requests.

 

 4 
 

 

We have agreed to pay an annual maintenance fee to UCLA of $10,000 as well as to pay certain royalties to UCLA under the UCLA License Agreement at the rate of 3.0% of net sales of licensed products. We must pay the royalties to UCLA on a quarterly basis. Upon a first commercial sale, we also must pay between $50,000 and $250,000, depending on the calendar year which is after the first commercial sale. If we are required to pay any third party any royalties as a result of us making use of UCLA patents, then we may reduce the royalty owed to UCLA by 0.333% for every percentage point paid to a third party. If we grant sublicense rights to a third party to use the UCLA patent, then we will pay to UCLA 10% to 20% of the sublicensing income we receive from such sublicense.

 

We are obligated to make the following milestone payments to UCLA for each Licensed Product or Licensed Method:

 

  $100,000 upon enrollment of the first subject in a Feasibility Study;
     
  $250,000 upon enrollment of the first subject in a Pivotal Study:
     
  $500,000 upon Pre-Market Approval of a Licensed Product or Licensed Method; and
     
  $1,000,000 upon the First Commercial Sale of a Licensed Product or Licensed Method.

 

We are also obligated to pay UCLA a cash milestone payment within thirty (30) days of a Liquidity Event (including a Change of Control Transaction and a payment election by UCLA exercisable after December 22, 2016, such payment to equal the greater of:

 

  $500,000; or
     
  2% of all proceeds in connection with a Change of Control Transaction.

 

We are obligated to diligently proceed with developing and commercializing licensed products under UCLA patents set forth in the UCLA License Agreement. UCLA has the right to either terminate the license or reduce the license to a non-exclusive license if we do not meet certain diligence milestone deadlines set forth in the UCLA License Agreement.

 

We must reimburse or pre-pay UCLA for patent prosecution and maintenance costs incurred during the term of the UCLA License Agreement. We have the right to bring infringement actions against third party infringers of the UCLA License Agreement, UCLA may join voluntarily, at its own expense, or, at our expense, be joined involuntarily to the action. We are required to indemnify UCLA against any third party claims arising out of our exercise of the rights under the UCLA License Agreement or any sublicense.

 

AFH Holding & Advisory LLC

 

In connection with the Merger, the Company and MTF entered into a letter agreement with AFH Holdings & Advisory, LLC (“AFH”) dated May 7, 2014 (the “AFH/MTF Agreement”). Amir Heshmatpour is the controlling party of AFH and an affiliate and board observer of the Company. The AFH Agreement contemplated among other things (a) the sale of Notes in the principal amount of $50,000 and warrants to purchase common stock, and (b) certain assistance to be provided by AFH in connection with the Merger, the subsequent quotation of the Company’s common stock, procuring private funding and a possible initial public offering. In consideration of AFH’s advisory services, the Company granted to AFH certain anti-dilution protection arising from future issuances of the Company’s common stock. The Company granted to each of AFH and MTF the right to appoint three members of the Board and to the original founding scientists and then minority shareholders the right to appoint one member with each of MTF and AFH having the right to appoint one individual with observer status with respect to the Board. The Company also granted to AFH the right to act as advisor to the Company on all financings for a period of two years. The AFH/MTF Agreement also granted to AFH and MTF restricted shares equal to 2.5% of the fully diluted shares of the Company (the “Milestone Shares”) at the time of completion of certain milestone targets. The milestone targets were not met and pursuant to separate side letter agreements dated August 11, 2015, the Company agreed to issue to each of AFH and MTF 867,163 shares in exchange for forfeiture of any claims to receive any Milestone Shares.

 

 5 
 

 

On October 28, 2015, the Company agreed (i) to issue to AFH 915,614 shares of common stock of the Company and warrants to purchase 158,229 shares of common stock and (ii) to make a payment of $275,000. The warrants have an exercise price of $1.58. The shares and warrants were issued and the payment was made to AFH as payment for advisory services rendered to the Company.

 

In addition to the shares and warrants issued for services, AFH received cash totaling $408,750 for services during the year ended December 31, 2015.

 

Pursuant to a letter agreement dated February 10, 2016, the Company agreed to issue a total of 1,260,255 shares of common stock of the Company to AFH. The Letter Agreement was entered into in connection with the AFH/MTF Agreement under which AFH and its affiliated entities, individuals or assignees (“AFH Group”) were entitled to 10% of the outstanding shares of common stock of the Company on a fully diluted basis (the “Share Adjustment”) after giving effect to an anticipated private placement of between $8,000,000 and $10,000,000 (the “PIPE”). In the Letter Agreement, the Company recognized that, at the time the AFH/MTF Agreement was entered into, it was not anticipated that certain events in addition to the PIPE would dilute directly or indirectly the interest of AFH Group as stockholders of the Company, including the Ninth Amendment to the UCLA License Agreement and the issuance of the Company’s Common Shares pursuant to the Professional Services Agreement with each of Dr. Chia Soo, Dr. Ben Wu, and Dr. Eric Ting discussed below. Accordingly, the Company agreed to issue the 1,260,255 shares in connection with the Share Adjustment.

 

Musculoskeletal Transplant Foundation (MTF)

 

We have formed a formal strategic alliance with Musculoskeletal Transplant Foundation (MTF) on the collaborative development of osteoinductive products that incorporate MTF’s current product line of natural bone graft substitutes with NELL-1. MTF is the exclusive allograft supplier for BIOBONE-X™. MTF has become one of the major investors of the Company. MTF is the world’s largest allograft bone supplier. It is also the country’s largest full service tissue organization dedicated to providing quality tissue through a commitment to excellence in education, research, recovery and care for recipients, donors and their families. A not-for-profit organization, MTF is a consortium of academic medical institutions and organ and tissue recovery organizations across the country. We anticipate that MTF, with its proven ISO 9001 manufacturing and packaging of FDA approved osteogenic carriers, will significantly accelerate the clinical development cycle of NELL-1 related products.

 

The Company and MTF entered into a loan agreement in 2008 and a credit agreement in 2009 (collectively, the “MTF Credit Agreements”), and accompanying promissory and convertible promissory notes in January 2008, November 2008, March 2009 and August 2009 to fund the development of Bone. As of September 19, 2014, $5,192,684 in principal and interest was outstanding under the MTF Credit Agreements. On September 19, 2014, $1,533,356 of the amounts due under the MTF Credit Agreements were converted to shares of the Company. The remaining amounts due under the MTF Credit Agreements were cancelled and a new Convertible Note in the principal amount of $3,659,328 was issued by the Company.

 

In 2013, the Company and MTF also entered into a bridge note in the principal amount of $100,000. Prior to consummation of the Merger, the 2013 bridge note and accrued interest were converted into Common Stock at a conversion price of $1.00 per share.

 

Pursuant to the AFH/MTF Agreement, MTF has the right to appoint three members to the Company’s Board of Directors together with one non-voting observer.

 

 6 
 

 

On September 15, 2014, the Company and MTF entered into a loan agreement and accompanying promissory note to fund the continued operations of the Company prior to the Merger. On October 27, 2014, the balance in the amount of $303,371 was paid in full and the line of credit was cancelled.

 

On February 22, 2016, the Company entered into a share purchase agreement with MTF, pursuant to which MTF purchased from the Company an aggregate of 731,707 shares of common stock of the Company at a price per share equal to $2.05.

 

On February 24, 2016 the Company entered into an Option Agreement for the Distribution and Supply of Sygnal™ demineralized bone matrix (“Sygnal”) with MTF pursuant to which:

 

  a. MTF grants to the Company the exclusive right and option (the “Option”) to distribute Sygnal upon the critical terms as described in the Option Agreement (the “Option Rights”). The Company will exercise the Option, if at all, by providing written notice to MTF of its intent to do so. During the term of the Option, MTF will not enter into any agreements with any third parties which include the transfer by MTF of the Option Rights.
     
  b. Upon the exercising of the Option, the Company will grant to MTF 700,000 shares of common stock in the Company.
     
  c. Within 30 days of exercising the Option, MTF will provide the Company with a written proposal of a Definitive Agreement that includes, inter alia, the Critical Terms and those other commercially reasonable terms as agreed upon by the parties. The parties will fully negotiate in good faith all of the terms of the Definitive Agreement, and any ancillary agreements thereto consistent with the Critical Terms.
     
  d. In the event the Company does not exercise the Option within the Term of the Option Agreement, MTF will be free to enter into any other agreement relating to the Option Rights as it deems appropriate without liability to the Company.

 

Sygnal is a bone void filler contouring allograft bone that has the inorganic mineral removed, leaving behind the organic “collagen” matrix.

 

Hankey Capital LLC

 

First Secured Convertible Note and Warrant

 

On October 24, 2014, the Company issued a convertible promissory note in the amount of $5,000,000 to Hankey Capital, LLC (“Hankey Capital”). The Convertible Note matures on October 24, 2017 and bears interest at an annual rate of interest of the “prime rate” plus 4.0%, with a minimum rate of 8.5% per annum until maturity, with interest payable monthly in arrears. Prior to the Maturity Date, Hankey Capital has a right, in its sole discretion, to convert the Convertible Note into shares of the Company’s Common Stock, at a conversion rate equal to the greater of (i) $1.58 per share or (ii) 70% of the average daily price for the Common Stock as measured over the course of the 60 day period prior to the conversion.

 

The Convertible Note is secured by certain collateral shares of Common Stock issued by the Company in the name of Hankey Capital, in such amount so as to maintain a loan to value ratio of no greater than 50% (the “Collateral”). 6,329,114 shares were issued upon closing the lending. The number of shares in the Collateral shall be adjusted on a yearly basis. The shares representing the Collateral contain a restrictive legend. The Company shall seek to register the Collateral shares initially delivered on the date of the Convertible Note pursuant to the Registration Rights Agreement described below. Upon the effectiveness of such Registration Statement, the Company will remove the restrictive legends from the Collateral shares so long as Hankey Capital agrees in any event not to sell any Collateral shares if Hankey Capital is notified that the Registration Statement is no longer effective. Hankey Capital may hold the Collateral in any brokerage account of its choosing, but shall not transfer, sell or otherwise dispose of any Collateral, except during the existence of an Event of Default, as defined in the Convertible Note. The Convertible Note is further secured by collateral assignments of all the Company’s license agreements. The principal amount of the loan is pre-payable in whole or in part at any time, without premium or penalty. Upon any voluntary partial prepayment of outstanding principal, Hankey Capital will return Collateral shares to the Company in the amount necessary, if any, to maintain the loan to value ratio at no less than 50%. Upon a full payment of the outstanding principal, all Collateral shares shall be returned return and cancelled. Hankey Capital will also return Collateral shares under the same terms in case of partial or full conversion of the Convertible Note. The Company paid a commitment fee in the amount of 3.0% of the original principal amount of the loan ($150,000) to Hankey Capital. On October 24, 2014, the Company also issued a warrant to Hankey Capital for 3,955,697 shares of Common Stock at an exercise price per share of $1.58. The Warrant was amended as of February 10, 2016 to extend the expiration date to October 24, 2019. The Note and Warrant contain provisions limiting the exercise/conversion thereof.

 

 7 
 

 

Second Secured Convertible Note and Warrant

 

On May 4, 2015, the Company issued a convertible promissory note in the amount of $2,000,000 to Hankey Capital. The 2nd Convertible Note matures on May 4, 2018 and bears interest at an annual rate of interest of the “prime rate” plus 4.0%, with a minimum rate of 8.5% per annum until maturity, with interest payable monthly in arrears. Prior to the Maturity Date, Hankey Capital has a right, in its sole discretion, to convert the Convertible Note into shares of the Company’s Common Stock, at a conversion rate equal to the greater of (i) $1.58 per share or (ii) 70% of the average daily price for the Common Stock as measured over the course of the 60 day period prior to the conversion. The Convertible Note is secured by certain collateral shares of Common Stock issued by the Company in the name of Hankey Capital, in such amount so as to maintain a loan to value ratio of no greater than 50%. The number of shares in the Collateral shall be adjusted on a yearly basis. The Convertible Note is further secured by collateral assignments of all the Company’s license agreements. The principal amount of the loan is pre-payable in whole or in part at any time, without premium or penalty. Upon any voluntary partial prepayment of outstanding principal, Hankey Capital shall return Collateral shares to the Company in the amount necessary, if any, to maintain the loan to value ratio at no less than 50%. Upon a full payment of the outstanding principal, all the collateral shares shall be returned return and cancelled. Hankey Capital shall also return the collateral shares under the same terms in case of partial or full conversion of the Convertible Note. In connection with the Convertible Note, on May 4, 2015 the Company issued 2,531,646 common shares as collateral. The Company paid a commitment fee in the amount of $60,000 (3% of the original principal amount of the loan) to Hankey Capital. On May 4, 2015, the Company also issued a warrant to Hankey Capital for 1,898,734 shares of Common Stock at an exercise price per share of $1.58. The Warrant was amended as of February 10, 2016 to extend the expiration date to May 4, 2020. The Note and Warrant contain provisions limiting the exercise/conversion thereof.

 

Third Convertible Secured Term Note and Warrant

 

On February 24, 2016, the Company issued a convertible promissory note in the amount of $2,000,000 to Hankey Capital. The Convertible Note matures on February 23, 2019 (the “Maturity Date”) and bears interest at an annual rate of interest at the “prime rate” (as quoted in the “Money Rates” section of The Wall Street Journal) plus 4.0%, with a minimum rate of 8.5% per annum until maturity, with interest payable monthly in arrears. Prior to the Maturity Date, Hankey Capital has a right, in its sole discretion, to convert the Convertible Note into shares of the Company’s common stock (the “Conversion Shares”), at a conversion rate equal to $1.58 per share. The Convertible Note is secured by certain collateral shares of Common Stock issued by the Company in the name of Hankey Capital, in such amount so as to maintain a loan to value ratio of no greater than 50%. The number of Collateral Shares will be adjusted on a yearly basis. The Convertible Note is further secured by all of the Company’s personal property, including collateral assignments of all the Company’s license agreements and the Option Agreement. The principal amount of the loan is prepayable in whole or in part at any time, without premium or penalty. Upon any voluntary partial prepayment of outstanding principal, Hankey Capital will return Collateral Shares to the Company in the amount necessary, if any, to maintain the loan to value ratio at no less than 50%. Upon a full payment of the outstanding principal, all Collateral Shares will be returned and cancelled. Hankey Capital will also return Collateral Shares under the same terms in case of partial or full conversion of the Convertible Note. In connection with the Convertible Note, on February 24, 2016 the Company issued 2,531,646 common shares as collateral, paid a commitment fee in the amount of $40,000 (2% of the original principal amount of the Loan) and a warrant to Hankey Capital for 1,463,415 shares of Common Stock at an exercise price per share of $2.05. The Warrant will expire on February 23, 2021. The Note and Warrant contain provisions limiting the exercise/conversion thereof.

 

In connection with the financing with Hankey Capital, Hankey Capital exercised warrants to purchase an aggregate of 791,139 shares resulting in gross proceeds to the Company of $1,250,000, and the parties agreed to extend the maturity date of the first two convertible secured notes to December 31, 2019 and fix the conversion rate to $1.58. The Company also agreed to extend the term of all outstanding warrants to five years from issuance.

 

 8 
 

 

Founders

 

The Company entered into a Letter Agreement effective October 2, 2015, with each of Dr. Chia Soo (who currently serves as a director of the Company), Dr. Eric Kang Ting and Dr. Ben Wu (who currently serves as a director of the Company) (collectively, the “Founders”). The Founders were three of the original shareholders of the Company. Pursuant to the Letter Agreement, the Founders agrees to deliver to the Company all past work product and past data related to NELL-1 (the “Data”) for use by the Company in its sole discretion, within the applicable licensing rights granted under the UCLA license and in exchange the Company agreed to the future issuance of an aggregate of 1,153,846 shares of the Company’s common stock. The Shares are to be equally distributed between the Founders upon the earlier of (i) the third anniversary of the Agreement and (ii) the occurrence of a Liquidity Event (as defined in the Letter Agreement). The Letter Agreement also provides the Shares with certain piggyback registration rights upon the occurrence of an equity financing by the Company. The Letter Agreement related to past work product and past data and therefore will be expensed as research and development costs upon the effective date and recorded a liability to issue shares.

 

Founders Professional Services Agreement

 

Effective January 8, 2016, the Company entered into separate Professional Services Agreements with each of the Founders. Pursuant to each of the Agreements, each Founder has agreed to provide certain services to the Company, including providing strategic advice and strategic introductions to the Company’s management team as well as specific services set forth on an Exhibit to each Agreement. The Agreements are substantially identical. In consideration for the services to be rendered under the applicable Agreement, each Founder is granted 10-year stock options (the “Options”) to purchase 1,800,364 shares of the Company’s common stock corresponding to 4% of the Company’s outstanding common stock, on a fully diluted basis, at an exercise price of $1.59 per share. The shares subject to the Options will vest 25% on each of the first, second and third anniversary of the effective date and 12.5% on each of the fourth and fifth anniversary of the effective date. The options fully vest on a change of control of the Company, if the Company terminates the Agreement without cause or the Founder terminates the Agreement with cause. Additionally, beginning January 1, 2017, the Company will pay each Founder an annual consulting fee of $200,000 in cash or, at the option of the Company, in shares of its common stock valued as provided in the Agreement.

 

Dr. Soo and Dr. Wu are directors of the Company, and Dr. Ting is on the Company’s Scientific Advisory Board. Each of the Advisors were involved in the founding of the Company.

 

COMPETITION

 

The orthobiologic and orthopedic industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on intellectual property. We face substantial competition from many different sources, including large and specialty orthopedic companies, biotechnology companies, academic research institutions and governmental agencies along with public and private research institutions.

 

Our business is in a very competitive and evolving field, that faces competition from large established orthopedic companies such as (but not limited to) Medtronic, Stryker, Zimmer-Biomet, and DePuy-Synthes that possess considerably more resources than Bone Biologics.

 

Our commercial opportunity could be reduced if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.

 

The NELL-1 growth factor is mechanistically distinct from BMPs and can minimize complications associated with BMP therapies. The early proof of concept animal studies has shown the efficacy of NELL-1 combined with demineralized bone matrix (DBM) as a novel bone graft material for interbody spine fusion.

 

 9 
 

 

CUSTOMERS

 

The populations of interest include spine surgeons, and patients with a skeletal bone defect or bone-related condition in their spine, for which intervention is undertaken to correct such a defect. Spine surgeons and patients can choose to eliminate the need to perform a second painful surgery to obtain autograft harvest of hip bone for fusion procedures by utilizing various other types of biologics.

 

Most cases of lower back pain can be linked to a general cause such as muscle strain, injury, overuse, or can be attributed to a specific condition like herniated disc, degenerative disc disease, spondylolisthesis, spinal stenosis, or osteoarthritis.

 

INTELLECTUAL PROPERTY

 

We have an intellectual property portfolio that includes exclusive, worldwide licenses from UCLA which we believe constitute a formidable barrier to entry.

 

Additional patent applications are currently in preparation. The intellectual property is unique and comprehensively covers NELL-1 manufacture, NELL-1 compositions and NELL-1 use in wide ranging clinical and diagnostic applications. We protect our proprietary technology through all mechanisms including U.S. and foreign patent filings, trade secret protections, and collaboration agreements with domestic and international corporations, universities and research institutions. We are the exclusive licensee for the following twelve (12) UCLA issued patents:

 

U.S. Patent No.   Summary   Date Issued
         
7052856   NELL-1 Enhanced Bone Mineralization   5/20/2006
         
7544486   NELL-1 Peptide Expression Systems   6/9/2009
         
7687462   Composition for promoting Cartilage   3/30/2010
         
7691607   Expression system of NELL-1 peptide   4/6/2010
         
7776361   NELL-1 Enhanced Bone Mineralization   8/17/2010
         
7807787   NELL-1 Peptide   10/5/2010
         
7833968   Pharmaceutical compositions for treating or preventing bone conditions   11/16/2010
         
7844066   NELL-1 Enhanced Bone Mineralization   2/8/2011
         
8044026   Composition for promoting cartilage   10/25/2011
         
8048646   NELL-1 peptide expression systems   11/1/2011
         
8053412   NELL-1 Peptides   11/8/2011
         
8207120   NELL-1 Enhanced Bone Mineralization   6/26/2012

 

 10 
 

 

GOVERNMENT REGULATION

 

The manufacturing and marketing of any product which we may formulate with our technologies as well as our related research and development activities are subject to regulation for safety, efficacy and quality by governmental authorities in the U.S. and other countries. We anticipate that these regulations will apply separately to each biotechnology product. The Company believes that complying with these regulations will involve a considerable level of time, expense and uncertainty.

 

In the U.S., drugs are subject to rigorous federal regulation and, to a lesser extent, state regulation. The Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our products. Drug development and approval within this regulatory framework is difficult to predict, requires a number of years and involves the expenditure of substantial resources. Moreover, ongoing legislation by U.S. Congress and rule making by the United States Food and Drug Administration (“FDA”) presents an ever-changing landscape where we could be required to undertake additional activities before any governmental approval is granted allowing us to market our products. The steps required before a pharmaceutical agent may be marketed in the U.S. include:

 

  Laboratory and non-clinical tests for safety and small scale manufacturing of the agent;
     
  The submission to the FDA of an IDE which must become effective before human clinical trials can commence;
     
  Clinical trials to characterize the efficacy and safety of the product in the intended patient population;
     
  The submission of a New Drug Application (“NDA”) or PMA to the FDA; and
     
  FDA approval of the NDA or PMA prior to any commercial sale or shipment of the product.

 

In addition to obtaining FDA approval for each product, each manufacturing establishment must be registered with, and approved by, the FDA. Moreover, manufacturing establishments are subject to biennial inspections by the FDA and must comply with the FDA’s current Good Manufacturing Practices “cGMP” for products, drugs and devices.

 

Non-clinical Trials

 

Non-clinical testing includes laboratory evaluation of chemistry and formulation as well as tissue culture and animal studies to assess the safety and potential efficacy of the product. Non-clinical safety tests must be conducted by laboratories that comply with FDA regulations regarding good laboratory practices. Non-clinical testing is inherently risky and the results can be unpredictable or difficult to interpret. The results of non-clinical testing are submitted to the FDA as part of an IDE and are reviewed by the FDA prior to the commencement of clinical trials. Unless the FDA objects to an IDE, clinical studies may begin 30 days after the IDE is submitted. We have relied and intend to continue to rely on third-party contractors to perform non-clinical trials.

 

Clinical Trials

 

Clinical trials involve the administration of the investigational product to healthy volunteers or to patients under the supervision of a qualified investigator. Clinical trials must be conducted in accordance with good clinical practices under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA prior to its conduct. Further, each clinical study must be conducted under the auspices of an independent institutional review board. The institutional review board will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. The drug product used in clinical trials must be manufactured according to the FDA’s current Good Manufacturing Practices.

 

 11 
 

 

Clinical trials under IDE regulations are typically conducted in two sequential trials. In the Pilot trial, the initial introduction of the product into healthy human subjects, the drug is tested for safety (adverse side effects), absorption, metabolism, bio-distribution, excretion, food and drug interactions, abuse as well as limited measures of pharmacologic effect and proof of principle that involves studies in a limited patient population in order to:

 

  assess the potential efficacy of the product for specific, targeted indications;
     
  demonstrate efficacy in a limited patient population;
     
  identify the range of doses likely to be effective for the indication; and
     
  identify possible adverse events and safety risks.

 

When there is evidence that the product may be effective and has an acceptable safety profile in Pilot evaluations, Pivotal trials are undertaken to establish and confirm the clinical efficacy and establish the safety profile of the product within a larger population at geographically dispersed clinical study sites. Pivotal trials frequently involve randomized controlled trials and, whenever possible, studies are conducted in a manner so that neither the patient nor the investigator knows what treatment is being administered. The Company, or the FDA, may suspend clinical trials at any time if it is believed that the individuals participating in such trials are being exposed to unacceptable health risks. We intend to rely upon third-party contractors to advise and assist us in the preparation of our IDEs and the conduct of clinical trials that will be conducted under the IDEs.

 

Premarket Approval and FDA Approval Process

 

The results of the manufacturing process, development work, non-clinical studies and clinical studies are submitted to the FDA in the form of a PMA prior to marketing and selling the product. The testing and approval process is likely to require substantial time and effort. In addition to the results of non-clinical and clinical testing, the PMA applicant must submit detailed information about chemistry, manufacturing and controls that will describe how the product is made and tested through the manufacturing process.

 

The PMA review process involves FDA investigation into the details of the manufacturing process, as well as the design and analysis of each of the non-clinical and clinical studies. This review includes inspection of the manufacturing facility, the data recording process for the clinical studies, the record keeping at a sample of clinical trial sites and a thorough review of the data collected and analyzed for each non-clinical and clinical study. Through this investigation, the FDA reaches a decision about the risk-benefit profile of a product candidate. If the benefit is worth the risk, the FDA begins negotiating with the company about the content of an acceptable package insert and associated Risk Evaluation and Mitigation Strategies (“REMS”), if required.

 

The approval process is affected by a number of factors, including the severity of the disease, the availability of alternative treatments and the risks and benefits demonstrated in clinical trials. Consequently, there is a risk that approval may not be granted on a timely basis, if at all. The FDA may deny a PMA if applicable regulatory criteria are not satisfied, require additional testing or information or require post-marketing testing (Phase 4) and surveillance to monitor the safety of a company’s product if it does not believe the PMA contains adequate evidence of the safety and efficacy of the product. Moreover, if regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which it may be marketed. Finally, product approvals may be withdrawn if compliance with regulatory standards is not maintained or health problems are identified that would alter the risk-benefit analysis for the product. Post-approval studies may be conducted to explore the use of the product for new indications or populations such as pediatrics.

 

Among the conditions for PMA approval is the requirement that any prospective manufacturer’s quality control and manufacturing procedures conform to the FDA’s Good Manufacturing Practices and the specifications approved in the PMA. In complying with standards set forth in these regulations, manufacturers must continue to expend time, money and effort in the area of product and quality control to ensure full technical compliance. Manufacturing establishments, both foreign and domestic, also are subject to inspections by or under the authority of the FDA and by other federal, state or local agencies. Additionally, in the event of non-compliance, FDA may issue warning letters and/or seek criminal and civil penalties, enjoin manufacture, seize product or revoke approval.

 

 12 
 

 

International Approval

 

Whether or not FDA approval has been obtained, approval of a product by regulatory authorities in foreign countries must be obtained prior to the commencement of commercial sales of the drug in such countries. The requirements governing the conduct of clinical trials and drug approvals vary widely from country to country, and the time required for approval may be longer or shorter than that required for FDA approval. Although there are some procedures for unified filings for certain European countries, in general, each country at this time has its own procedures and requirements.

 

Other Regulation

 

In addition to regulations enforced by the FDA, we are also subject to U.S. regulation under the Controlled Substances Act, the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state, local or similar foreign regulations. Our research and development may involve the controlled use of hazardous materials, chemicals and radioactive compounds. Although we believe that its safety procedures for handling and disposing of such materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of any accident, we could be held liable for any damages that result and any such liability could exceed our resources.

 

EMPLOYEES

 

As of the date hereof, we have three (3) full-time employees.

 

Item 1A. Risk Factors

 

Not applicable.

 

Item 1B. Unresolved Staff Comments

 

None.

 

Item 2. Properties

 

We lease our primary office is located at 321 Columbus Ave., Boston, MA 02116.

 

Item 3. Legal Proceedings

 

In the normal course of our business, the Company may periodically become subject to various lawsuits. However, there are currently no legal actions pending against us or, to our knowledge, are any such proceedings contemplated.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

 13 
 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

 

Market.

 

Our common stock trades over-the-counter and is quoted on the OTCQB of the OTC Markets under the symbol “BBLG” effective January 27, 2016. From December 10, 2015 through listing on the OTCQB our stock was quoted on the OTC Bulletin Board. The table below sets forth the high and low bid prices for our common stock as reflected on the OTC Bulletin Board. Quotations represent prices between dealers, do not include retail markups, markdowns or commissions, and do not necessarily represent prices at which actual transactions were affected.

 

Common Stock
Fiscal Year 2015  High   Low 
Fourth Quarter  $0.01   $0.01 

 

Holders.

 

As of March 14, 2016, there are approximately 40 record holders of 38,014,507 shares of Common Stock.

 

Dividends.

 

To date, we have paid no cash dividends on our Common Stock. For the foreseeable future, earnings generated from our operations will be retained for use in our business and not to pay dividends.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

2015 Equity Incentive Plan

 

The Company has 14,000,000 shares of Common Stock authorized and reserved for issuance under our 2015 Equity Incentive Plan for option awards. This reserve may be increased by the Board each year by up to the number of shares of stock equal to 5% of the number of shares of stock issued and outstanding on the immediately preceding December 31. Appropriate adjustments will be made in the number of authorized shares and other numerical limits in our 2015 Equity Incentive Plan and in outstanding awards to prevent dilution or enlargement of participants’ rights in the event of a stock split or other change in our capital structure. Shares subject to awards granted under our 2015 Equity Incentive Plan which expire, are repurchased or are cancelled or forfeited will again become available for issuance under our 2015 Equity Incentive Plan. The shares available will not be reduced by awards settled in cash. Shares withheld to satisfy tax withholding obligations will not again become available for grant. The gross number of shares issued upon the exercise of stock appreciation rights or options exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under our 2015 Equity Incentive Plan.

 

Awards may be granted under our 2015 Equity Incentive Plan to our employees, including officers, director or consultants, and our present or future affiliated entities. While we may grant incentive stock options only to employees, we may grant non-statutory stock options, stock appreciation rights, restricted stock purchase rights or bonuses, restricted stock units, performance shares, performance units and cash-based awards or other stock based awards to any eligible participant.

 

The 2015 Equity Incentive Plan will be administered by our compensation committee. Subject to the provisions of our 2015 Equity Incentive Plan, the compensation committee determines, in its discretion, the persons to whom, and the times at which, awards are granted, as well as the size, terms and conditions of each award. All awards are evidenced by a written agreement between us and the holder of the award. The compensation committee has the authority to construe and interpret the terms of our 2015 Equity Incentive Plan and awards granted under our 2015 Equity Incentive Plan.

 

 14 
 

  

Plan category 

Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights
(a)

  

Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)

  

Number of
securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities reflected
in column (a))
(c)

 
Equity compensation plans approved by security holders   6,294,226   $1.59    7,705,774 
Equity compensation plans not approved by security holders               
Total   6,294,226   $1.59    7,705,774 

 

Item 6. Selected Financial Data

 

Not applicable.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

We are a biotechnology company that is currently focused on bone regeneration in spinal fusion using the recombinant human protein, known as NELL-1/DBX®. The NELL-1/DBX® combination product is an osteoinductive recombinant protein that provides target specific control over bone regeneration. The protein, as part of the UCB-1 technology platform has been licensed exclusively for worldwide applications to us through a technology transfer from UCLA. UCLA and the Company received guidance from the FDA that NELL-1/DBX® will be classified as a combination product with a device lead.

 

We are a development stage entity. The production and marketing of our products and ongoing research and development activities will be subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any combination product developed by us must undergo rigorous preclinical (animal) and clinical (human) testing and an extensive regulatory approval process implemented by the FDA under the Food, Drug and Cosmetic Act. There can be no assurance that we will not encounter problems in clinical trials that will cause us or the FDA to delay or suspend the clinical trial.

 

 15 
 

 

Our success will depend in part on our ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by us will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to us.

 

UCLA Exclusive License Agreement

 

On March 15, 2006, the Company entered into an exclusive license agreement (the “Initial Agreement”) with the Regents of the University of California Los Angeles (“UCLA”). The Initial Agreement has been amended through nine sets of amendments (as so amended, the “The UCLA License Agreement”).

 

The UCLA License Agreement provides us with an exclusive license to several of UCLA patents covering, among other things, enhanced NELL-1 bone mineralization. The grant of the UCLA License Agreement is subject to any license obligations to the U.S. government, and the term of the license lasts until the last-to-expire UCLA patent licensed under the UCLA License Agreement expires. Under the UCLA License Agreement, we are permitted to make, have made, use, sell, offer for sale and import any products covered by the UCLA License Agreement patents in a certain Field of Use which is currently defined as special function by local administration and expressly excludes osteoporosis and cartilage indications or systemic administration in all indications. Currently the parties are negotiating in good faith the terms pursuant to which UCLA will grant an option to exclusively license UCLA Patent Rights in the osteoporosis indication. After December 22, 2016, we may notify UCLA of our interest in requesting an expansion of the Field of Use to include additional available indications, including cartilage indications or systemic administration in the Field of Use. The parties will engage in good faith discussions of such requests.

 

The UCLA License Agreement provides us with an exclusive license to several of UCLA patents covering, among other things, enhanced NELL-1 bone mineralization. The grant of the UCLA License Agreement is subject to any license obligations to the U.S. government, and the term of the license lasts until the last-to-expire UCLA patent licensed under the UCLA License Agreement expires. Under the UCLA License Agreement, we are permitted to make, have made, use, sell, offer for sale and import any products covered by the UCLA License Agreement patents in a certain field of use. We have agreed to pay an annual maintenance fee to UCLA of $10,000 as well as to pay certain royalties to UCLA under the UCLA License Agreement at the rate of 3.0% of net sales of licensed products. We must pay the royalties to UCLA on a quarterly basis. Upon a first commercial sale, we also must pay between $50,000 and $250,000, depending on the calendar year which is after the first commercial sale. If we are required to pay any third party any royalties as a result of us making use of UCLA patents, then we may reduce the royalty owed to UCLA by 0.333% for every percentage point paid to a third party. If we grant sublicense rights to a third party to use the UCLA patent, then we will pay to UCLA 10% to 20% of the sublicensing income we receive from such sublicense.

 

We are obligated to make the following milestone payments to UCLA for each Licensed Product or Licensed Method:

 

  $100,000 upon enrollment of the first subject in a Feasibility Study;
     
  $250,000 upon enrollment of the first subject in a Pivotal Study:
     
  $500,000 upon Pre-Market Approval of a Licensed Product or Licensed Method; and
     
  $1,000,000 upon the First Commercial Sale of a Licensed Product or Licensed Method.

 

We are also obligated to pay UCLA a cash milestone payment within thirty (30) days of a Liquidity Event (including a Change of Control Transaction and a payment election by UCLA exercisable after December 22, 2016, such payment to equal the greater of:

 

  $500,000; or
     
  2% of all proceeds in connection with a Change of Control Transaction.

 

 16 
 

 

We are obligated to diligently proceed with developing and commercializing licensed products under UCLA patents set forth in the UCLA License Agreement. UCLA has the right to either terminate the license or reduce the license to a non-exclusive license if we do not meet certain diligence milestone deadlines set forth in the UCLA License Agreement.

 

We must reimburse or pre-pay UCLA for patent prosecution and maintenance costs incurred during the term of the UCLA License Agreement. We have the right to bring infringement actions against third party infringers of the UCLA License Agreement, UCLA may join voluntarily, at its own expense, or, at our expense, be joined involuntarily to the action. We are required to indemnify UCLA against any third party claims arising out of our exercise of the rights under the UCLA License Agreement or any sublicense.

 

Recapitalization

 

We were incorporated under the laws of the State of Delaware on October 18, 2007 as AFH Acquisition X, Inc. Through a reverse merger in September 2014 (the “Merger”), the Company acquired its operating subsidiary Bone Biologics, Inc. Upon the consummation of the Merger, the Company officially changed its name to “Bone Biologics Corporation” to more accurately reflect the nature of its business, and Bone Biologics, Inc. became a wholly-owned subsidiary of the Company. Bone Biologics, Inc. was incorporated in California on March 9, 2004.

 

In connection with the Merger, the 5,000,000 outstanding shares of Common Stock of the Company prior to the Merger were consolidated into 3,853,600 shares of Common Stock and the remaining shares were cancelled.

 

Additionally, all of the issued and outstanding shares of Bone Biologics Inc.’s $0.0001 par value common stock converted into a combined total of 19,897,587 shares of the Company’s Common Stock (including 2,151,926 shares issuable upon the exercise of outstanding warrants and 5,648,658 shares issuable upon the conversion of debt). In exchange, Bone Biologics, Inc. agreed to pay AFH Holding & Advisory, LLC (“AFH Advisory”), former majority shareholder of AFH Acquisition X, Inc., the principal sum of $590,000.

 

Results of Operations

 

Since our inception, we devoted substantially all of our efforts and funding to the development of the NELL-1 protein and raising capital. We have not yet generated revenues from our planned operations.

 

Year ended December 31, 2015 compared to the year ended December 31, 2014

 

   Year ended
December 31, 2015
    Year ended
December 31, 2014
   % Change 
Operating expenses                
Research and development  $3,666,108    $623,522    487.97%
General and administrative   8,329,978     1,509,306    451.91%
Transaction costs   -     877,776    (100.00)%
                 
Total operating expenses   11,996,086     3,010,604    298.46%
                 
Loss from operations   (11, 996,086)    (3,010,604)   298.46%
                 
Other expense   -     (9,624)   (100.00)%
Interest expense, net   (1,872,001)    (1,402,585)   33.47%
Total other income/expense   (1,872,001)    (1,412,209)   32.56%
                 
Loss before provision for income taxes   (13,868,087)    (4,422,813)   213.56%
                 
Provision for income taxes   8,840     1,600    452.50%
                 
Net loss  $(13,876,927)   $(4,424,413)   213.64%

 

 17 
 

 

Research and Development

 

Our research and development expenses increased from $623,522 during the year ended December 31, 2014 to $3,666,108 during the year ended December 31, 2015. The $3,042,586 or 487.97% increase was primarily due to the fair value of shares to be issued pursuant to our agreement with our Founders of $1,823,077 and increases in development activities for our lead product NELL-1. We will continue to incur significant expenses for development activities for NELL-1. We also had an increase in the stock compensation expense related to the issuance of additional options.

 

General and Administrative

 

Our general and administrative expenses increased from $1,509,306 during the year ended December 31, 2014 to $8,329,978 during the year ended December 31, 2015. The $6,820,672 or 451.91% increase was primarily due to the issuance of shares for the MTF Revised Milestone Side Letter Agreement totaling $1,370,118, increased wages and issuance of stock options to our new Chief Executive Officer and Chief Operating Officer and the issuance of options and shares to our directors during the year ended December 31, 2015. None of these costs were incurred during the year ended December 31, 2014. We also incurred increased legal expenses during year ended December 31, 2015 resulting from services provided for various agreements entered into during the year.

 

Transaction Costs

 

Transaction costs are expenses associated with our recapitalization which include accounting, legal and other professional services and the $590,000 fee paid to AFH Advisory incurred in 2014. This applies only to the merger transaction therefore no costs were incurred for the year ended December 31, 2015.

 

Interest Expense

 

Our net interest expense increased from $1,402,585 for the year ended December 31, 2014 to $1,872,001 during the year ended December 31, 2015. The $469,416 or 33.47% increase was related to the secured convertible note issuance in May 2015 and offset by a non-cash charge for warrants issued in connection with a short term line of credit secured in 2014.

 

Liquidity and Capital Resources

 

   December 31, 2015   December 31, 2014 
         
Assets          
           
Current assets          
Cash  $1,115,109   $2,661,396 
Prepaid expenses   85,998    89,517 
Deferred financing fees   873,274    983,857 
Other receivables – related party   -    75,000 
           
Total current assets   2,074,381    3,809,770 
           
Property and equipment, net   5,804    11,621 
           
Total assets  $2,080,185   $3,821,391 
           
Liabilities and Stockholders’ Deficit          
           
Current liabilities          
Accounts payable and accrued expenses  $322,078   $215,389 
Shares to be issued   1,823,077    - 
Note payable to related party   -    3,659,328 
           
Total current liabilities   2,145,155    3,874,717 
           
Note payable, net of debt discount of $1,383,905   5,616,095    3,645,194 
           
Total liabilities   7,761,250    7,519,911 
           
Commitments and Contingencies          
           
Stockholders’ deficit          
Preferred Stock, $0.001 par value per share; 20,000,000 shares authorized; none issued or outstanding at December 31, 2015 and 2014   -    - 
Common stock, $0.001 par value per share; 100,000,000 shares authorized; 32,211,956 and 24,269,047 shares issued and outstanding at December 31, 2015 and 2014, respectively   32,212    24,269 
Additional paid-in capital   20,201,567    8,315,128 
Accumulated deficit   (25,914,844)   (12,037,917)
           
Total stockholders’ deficit   (5, 681,065)   (3,698,520)
           
Total liabilities and stockholders’ deficit  $2,080,185   $3,821,391 

 

 18 
 

 

We have no significant operating history and, from our inception to December 31, 2015, we have generated a net loss of approximately $25.9 million. The financial statements for the years ended December 31, 2015 and 2014 were prepared assuming we will continue as a going concern. Operating expenditures for the next twelve months are estimated at $6.9 million. The Company has no principal payment requirements for the next 12 months.

 

The Company will continue to incur significant expenses for development activities for their lead product NELL-1. The Company’s December 31, 2015 audited financial statements contained a notation by our auditors regarding the Company’s ability to continue as a going concern. The accompanying consolidated financial statements for the year ended December 31, 2015, have been prepared assuming the Company will continue as a going concern. Management intends to raise additional debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet the Company’s needs.

 

As of December 31, 2015 and 2014, we had cash of $1,115,109 and $2,661,396, respectively.

 

On February 22, 2016, the Company entered into share purchase agreements, pursuant to which the Company sold an aggregate of 1,219,511 shares of common stock of the Company at a price per share equal to $2.05 for gross proceeds of $2.5 million.

 

On February 24, 2016, the Company issued a convertible promissory note in the amount of $2,000,000 to Hankey Capital. The Convertible Note matures on February 23, 2019 (the “Maturity Date”) and bears interest at an annual rate of interest at the “prime rate” (as quoted in the “Money Rates” section of The Wall Street Journal) plus 4.0%, with a minimum rate of 8.5% per annum until maturity, with interest payable monthly in arrears. Prior to the Maturity Date, Hankey Capital has a right, in its sole discretion, to convert the Convertible Note into shares of the Company’s common stock (the “Conversion Shares”), at a conversion rate equal to $1.58 per share. The Convertible Note is secured by certain collateral shares of Common Stock issued by the Company in the name of Hankey Capital, in such amount so as to maintain a loan to value ratio of no greater than 50%. The number of Collateral Shares will be adjusted on a yearly basis. The Convertible Note is further secured by all of the Company’s personal property, including collateral assignments of all the Company’s license agreements and the Option Agreement. The principal amount of the loan is prepayable in whole or in part at any time, without premium or penalty. Upon any voluntary partial prepayment of outstanding principal, Hankey Capital will return Collateral Shares to the Company in the amount necessary, if any, to maintain the loan to value ratio at no less than 50%. Upon a full payment of the outstanding principal, all Collateral Shares will be returned and cancelled. Hankey Capital will also return Collateral Shares under the same terms in case of partial or full conversion of the Convertible Note.

 

In connection with the financing with Hankey Capital, Hankey Capital exercised warrants to purchase an aggregate of 791,139 shares resulting in gross proceeds to the Company of $1,250,000.

 

 19 
 

 

Cash Flows

 

The following is a summary of our cash flows provided by operating, investing and financing activities for the years ended December 31, 2015 and 2014:

 

   Year Ended
December 31, 2015 
   Year Ended
December 31, 2014
 
         
Operating activities          
Net loss  $(13, 876,927)  $(4,424,413)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Depreciation   4,451    280 
Accrued interest expense   105,669    318,215 
Amortization of deferred financing costs   661,617    60,398 
Debt discount amortization   623,101    437,115 
Stock-based compensation   3,700,431    256,642 
Warrants issued with Line of Credit   -    520,487 
Warrants issued to consultants   497,003    379,349 
Loss on sale of marketable securities   -    9,624 
Shares issued for services   2,825,943    - 
Transaction costs financed through notes payable   -    590,000 
Shares to be issued for research & development service   1,823,077    - 
Loss on disposal of fixed equipment   1,870    - 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   3,519    (78,750)
Deferred financing costs   (185,000)   (543,401)
Other receivables – related party   75,000    (75,000)
Advances due to related party   -    (41,300)
Accounts payable and accrued expenses   194,463    (164,864)
           
Net cash (used in) operating activities   (3,545,783)   (2,755,618)
           
Investing activities          
Purchase of property and equipment   (504)   (11,901)
Proceeds from sale of marketable securities   -    37,377 
           
Net cash (used in) provided by investing activities   (504)   25,476 
           
Financing activities          
Proceeds from the issuance of common stock   -    480,000 
Repayment of debt   -    (590,000)
Proceeds from issuance of notes payable - related party   -    553,371 
Repayment of notes payable – related party   -    (303,371)
Proceeds from issuance of notes payable   2,000,000    5,250,000 
           
Net cash provided by financing activities   2,000,000    5,390,000 
           
Net increase (decrease) in cash   (1,546,287)   2,659,858 
           
Cash, beginning of period   2,661,396    1,538 
Cash, end of period  $1,115,109   $2,661,396 
           
Supplemental non-cash information          
Legal expenses paid through relief of related party receivable  $75,000   $- 
Issuance of warrants in connection with Notes Payable, net of amortization included above  $-   $248,744 
Related Party Debt and accrued interest converted into Common Shares  $3,852,771   $- 
Issuance of warrants in payment of financing fees  $-   $21,738 
Note payable received in the form of investments  $-   $50,000 
Interest paid  $544,708   $72,014 
Taxes paid  $8,840   $1,600 

 

 20 
 

 

Operating activities

 

In the years ended December 31, 2015 and 2014, cash used in operating activities was $3,545,783 and $2,755,618 respectively. Cash expenditures for the year ended December 31, 2015 increased primarily due to patent costs, increased wages for our new Chief Executive Officer and Chief Operating Officer and professional fees as a result of the Company’s financing activities and costs of becoming a public entity.

 

Investing activities

 

In the year ended December 31, 2015, cash used in investing activities of $504 was a purchase of equipment. In the year ended December 31, 2014, cash provided by investing activities of $25,476 resulted from the sale of marketable securities which were received in lieu of cash for a bridge note with AFH Advisory reduced by the purchases of equipment of $11,901.

 

Financing activities

 

During the year ended December 31, 2015, cash provided by financing activities was from the issuance of a $2,000,000 convertible note issued in May 2015. During the year ended December 31, 2014, cash provided by financing activities was $5,390,000 and resulted from the proceeds received from the issuance of notes and sale of shares.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 8. Financial Statements and Supplementary Data

 

The financial statements and supplementary data required by Regulation S-X are included in Item 15. “Exhibits, Financial Statements Schedules” contained in Part IV, Item 15 of this Annual Report.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Financial Officer and Chief Executive Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of December 31, 2015. Based upon that evaluation, our Chief Financial Officer and Chief Executive Officer concluded that as of December 31, 2015, our disclosure controls and procedures were not effective.

 

 21 
 

 

Management’s Annual Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

 

  Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
     
  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
     
  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

As of December 31, 2015, management assessed the effectiveness of our internal control over financial reporting and based on that evaluation, they concluded that our internal controls and procedures were not effective.

 

Changes in Internal Control over Financial Reporting

 

During 2014, we identified a material weakness related to the valuation of options and warrants issued. The Company has engaged a third party to review our calculations. During the quarter ended September 30, 2015, the Company granted options in excess of the 2014 Stock Option Plan Stock reserve. The 2015 Equity Incentive Plan was developed and approved by the Board and majority shareholders. Sufficient shares have been reserved and any additional issuances are first assessed against the available reserve.

 

Except for the changes noted above, there was no change in our internal control over financial reporting that occurred during the year ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information

 

None.

 

 22 
 

 

Part III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The Company’s directors are elected annually for a one year term or until their respective successors are duly elected and qualified or until their earlier resignation or removal. The following table sets forth certain information regarding the Company’s directors and executive officers as of March 14, 2016:

 

Name   Age   Position
Stephen R. LaNeve   56   Chief Executive Officer and President and Director
Jeffrey Frelick   50   Chief Operating Officer
Deina H. Walsh   51   Chief Financial Officer
Bruce Stroever   66   Chairman of the Board of Directors
Dr. Chia Soo   48   Director
William Coffin   70   Director
John Booth   61   Director
Jimmy Delshad   75   Director
Dr. Benjamin Wu   54   Director

 

Stephen R. LaNeve: Chief Executive Officer and President

 

Stephen R. La Neve has served as our Chief Executive Officer since August 17, 2015. He brings thirty years of health care experience, leadership and success. Prior to his current position, Steve held leadership roles in the device and diagnostic segments which include: CEO and president of Etex Corporation; president of Becton Dickinson’s Pre-Analytical Systems business; president of Medtronic’s $3.5b Spine and Biologics business; and president of Medtronic’s second largest country business unit, Medtronic Japan. He also served as senior vice president and executive vice president at Premier, one of the largest GPOs in the United States and ran the global Injection Systems business unit for Becton Dickinson. Additionally, Steve has held a number of commercial leadership roles at Becton Dickinson, Roche Diagnostics and E Merck Diagnostic Systems in sales, marketing, strategic planning and project management both in the US and outside the US. He serves on the board of directors for SkelRegen, LLC and Rapid Pathogen Screening, Inc. (RPS), and he consults for private equity companies in the medical device area. Steve holds a B.S. in Health Planning and Administration from the Pennsylvania State University, an M.B.A. from West Chester University, and is a member of the omicron delta epsilon honor society for academic excellence in economics.

 

Jeffrey Frelick: Chief Operating Officer

 

Jeffrey Frelick has served as our Chief Operating Officer since August 17, 2015. He was the COO of Life Science Enterprises, where he brings more than 25 years of med-tech experience. He spent the past 15 years on Wall Street as a sell-side analyst following the med-tech industry at investment banks such as Canaccord Genuity, ThinkEquity and Lazard. Prior to becoming an equity research analyst, Jeff worked at Boston Biomedical Consultants where he provided strategic planning assistance, market research data and due diligence for diagnostics companies. He previously held sales and sales management positions at Becton Dickinson’s Primary Care Diagnostic Division after gaining technical experience as a laboratory technologist with Clinical Pathology Facility. Jeff received a B.S. in Biology from University of Pittsburgh and an M.B.A. from Suffolk University’s Sawyer Business School.

 

Deina H. Walsh: Chief Financial Officer

 

Deina Walsh has served as our Chief Financial Officer since November 2014. She is a certified public accountant and owner/founder of DHW CPA, PLLC a Public Companies Accounting Oversight Board (PCAOB) registered firm since 2014. Prior to forming her firm, Ms. Walsh has 13 years at a public accounting firm where as a partner she was actively responsible for leading firm audit engagements of publicly held entities in accordance with PCAOB standards and compliance with SEC regulations, including internal control requirements under section 404 of the Sarbanes-Oxley Act. Ms. Walsh had a global client base including entities throughout the United States, Canada and China. These entities encompass a diverse range of industries including manufacturing, wholesale, life sciences, pharmaceuticals, and technology. Her experience includes work with start-up companies and well-established operating entities. She has assisted many entities seeking debt and equity capital. Areas of specialty include mergers, acquisitions, reverse mergers, consolidations, complex equity structures, foreign currency translations and revenue recognition complexities. Ms. Walsh has an Associates of Science Degree in Business Administration from Monroe Community College and a Bachelor of Science Degree in Accounting from the State University of New York at Brockport.

 

 23 
 

 

Bruce Stroever: Chairman of the Board of Directors

 

Mr. Stroever has forty years of product development and general management experience in the medical device and orthobiologics fields. Mr. Stroever joined MTF in late 1988 as General Manager and is currently the President and Chief Executive Officer of MTF. He has served as MTF’s President since his appointment in 1992 and as Chief Executive Officer since 1996. Under Mr. Stroever’s leadership, MTF has grown to be the largest tissue bank in the world providing over 500,000 grafts per year. From 1971 to 1988, Mr. Stroever held several positions with Ethicon, Inc., a Johnson & Johnson, Inc. subsidiary. Mr. Stroever currently serves on the advisory board for the New Jersey Organ and Tissue Sharing Network. He was elected to the Board of Governors of the American Association of Tissue Banks for a three year term in 1999 and subsequently in 2012. Mr. Stroever has served as the Chairman of Bone’s Board of Directors since 2012. Mr. Stroever received his B.E. in Mechanical/Chemical Engineering from Stevens Institute of Technology in 1972 and a Masters of Science in Bioengineering from Columbia University in 1977. Given Mr. Stroever’s forty years of experience in the medical device and orthobiologics fields, as well as, the roles he has held at Bone, the Company believes he is well qualified to serve as the Chairman of the Board of Directors.

 

Dr. Chia Soo. MD: Director

 

Dr. Soo is a Professor in the UCLA Department of Orthopedics and a Professor and Vice Chair for Research in the UCLA Division of Plastic and Reconstructive Surgery. She graduated magna cum laude in 1989 with a bachelors of science in Biology from UCLA and obtained her medical degree at UCLA in 1993 with election to Alpha Omega Alpha. She completed UCLA Plastic and Reconstructive Surgery training in 2002 and was certified by the American Board of Plastic Surgery in 2005 and made a Fellow of the American College of Surgeons in 2007. Since 2011, Dr. Soo has served as a consultant to MTF, the world’s largest tissue bank for allograft product development. She has also consulted extensively on the FDA regulatory issues related to allograft products, wound care products and bone growth products. Dr. Soo is one of the world’s foremost experts on NELL-1 protein and has authored over 100 peer-reviewed publications on musculoskeletal regeneration, cutaneous repair, and translational applications of stem cells as well as an inventor on over 16 patents in the area of regenerative medicine. She is also in expert on large and small translational animal models for device, combination product, and drug development. Dr. Soo is a standing member of the prestigious Musculoskeletal Tissue Engineering Study Section at the National Institutes of Health (NIH) and she continues to be and has been a principal investigator on numerous awards funded by the NIH, the Department of Defense (DOD), the California Institute of Regenerative Medicine (CIRM), and most recently, the Center for Advancement of Science in Space (CASIS), the sole manager of the International Space Station U.S. National Laboratory. She also is a Founder and has served as a member of Bone’s Board of Directors since 2004. Dr. Soo’s unique background in NELL-1 and translational product development strongly positions her to be a Director of the Company.

 

William Coffin: Director

 

Founder and CEO of CCG, a national investor relations agency which during his leadership conducted business through offices in New York, Los Angeles, Beijing, Mr. Coffin was an investor relations counselor for over 30 years until his retirement in 2012. In this role, Mr. Coffin represented numerous publicly held and private companies, assisted in over 100 initial public offerings, counseled and participated in over 50 mergers and acquisitions, and worked with virtually every major investment banking firm in the country. Since 2004 until 2015, Mr. Coffin has served as Chairman of the Board of the California Council on Economic Education (“CCEE”), a nonprofit, nonpartisan organization that works towards implementing and increasing economic and financial literacy among California primary and secondary school students. Mr. Coffin is currently Chairman Emeritus of the CCEE. Mr. Coffin is also an adjunct professor in the MBA program at Mount St. Mary’s University, a private liberal arts college in Los Angeles, where he teaches modern theories of corporate governance and corporate communications. Mr. Coffin received a B.A. in journalism from California State University, Los Angeles.

 

 24 
 

 

John Booth: Director

 

Mr. Booth has been CEO of Spineology Inc. since 2004 and has been a board member since its inception in 1998. Spineology is involved in the development and commercialization of minimally invasive spinal implants and access systems. Mr. Booth held various executive level positions at Phillips Plastics Corporation, most recently serving as CEO from June of 2001 to December 2002. Before serving as CEO of Phillips, he was CEO of Microvena Corporation, a cardiovascular device subsidiary of Phillips, from 1999 to 2001 and CEO of Phillips Origen Group Division from 1998 to 1999. Prior to Phillips, Mr. Booth was President and CEO of INCSTAR Corporation, a publicly held medical technology company involved in in-vitro diagnostics. He has held various positions in both financial and general management in the medical technology industry since 1981. Mr. Booth has also serve on the boards of directors of INCSTAR Corporation from 1994 to 1997, Microvena Corporation from 1998 to 2001, Phillips Plastics Corporation from 2000 to 2002, Imricor Medical Systems Inc. from 2007 to 2014, Spineology Inc. from 1998 to the present. Mr. Booth received a B.S. degree in accounting from Villanova University and an MBA from Seton Hall University.

 

Jimmy Delshad: Director

 

Mr. Delshad brings more than ten years of elected public service to the Company. From 2003 through 2011, Mr. Delshad served as Mayor and Councilmember of the City of Beverly Hills, California. In this role, Mr. Delshad was responsible for, among other things: the formulation of city policies and ordinances; the establishment and monitoring of a budget of approximately $500 million; and the management of more than 1000 city employees. Additionally, since his retirement as Mayor in 2011, Mr. Delshad has served as a Goodwill Ambassador for the City of Beverly Hills. Since 2012, Mr. Delshad has held the position of Chairman of Delshad Capital, which guides companies in technology, security, crowd-funding and marketing. During 2011 through 2012, Mr. Delshad was Vice Chairman at Pacific Capital Group where he evaluated and managed various projects, such as Smart City initiatives, fuel technology and software products. From 1978 through 2002, Mr. Delshad was founder and Chief Executive Officer of American International Business, Inc., a manufacturer of computer storage technologies with offices in Germany, London and Brussels. Mr. Delshad served on the board of directors of Evryx Corp from 2008 through 2010 and Dream Team Gaming from 2007 through 2009. Mr. Delshad has also served on the Boards of Directors of the Iranian American Jewish Federation from 2002 through the present, the World Affair Council from 2011 through 2012, Sheba Medical Center from 2003 through 2008, Maple Counseling Center from 2001 through 2003, Mount Sinai Mortuaries from 2001 through the present and Nessah Synagogue from 2001 through 2004. Mr. Delshad received his B.S. in Computer Science from California State University and completed additional post-graduate coursework at the University of Southern California.

 

Benjamin Wu: Director

 

Dr. Ben Wu, DDS, PhD is a founder and has served on served as a member of Bone’s Scientific Advisory Board since 2005. He is Professor and Chair of the Division of Advanced Prosthodontics, the Director of the Weintraub Center for Reconstructive Biotechnology at the School of Dentistry and the Executive Director of the UCLA Wireless Health Institute. He also chaired the Department of Bioengineering at the School of Engineering. Dr. Wu provides multidisciplinary patient care in the UCLA Faculty Group Dental Practice, where he focuses on the treatment of advanced, complex oral rehabilitation using implant, fixed, and removable prosthodontics. He is a fellow of the Academy of Prosthodontics. Dr. Wu is internationally recognized for his cutting-edge research in the formation of biomimetic apatites, development of bioinspired growth factors, and engineering of biomimetic microenvironment to deliver cells, proteins, and genes to promote repair and regeneration of hard and soft tissues. Dr. Wu has been highly prolific throughout his entire career (over 170 original research articles, 22 issued patents with more pending) and has been continuously funded by federal research grants. Professor Wu’s research group has extensively analyzed the effects of processing parameters on the formation of biomimetic apatites, and his fundamental understanding has led to applications in the areas of art conservation, drug delivery, separations, and biosensors. His research group has also shed light on the interplay between orthobiologic growth factors and adult stem cells in the area of bone repair. His experimental skills are complemented by insightful mathematical modeling of complex, moving boundary diffusion-reaction problems that have led to key design criteria for tissue engineering, material degradation, and cancer survival mechanisms. His work has impacted clinical disciplines ranging from Orthopedics, Interventional Radiology, Urology, Pediatric Surgery, Orthodontics, and Dentistry. He has work with Dr. Ting and Dr. Soo as to develop novel material systems to deliver NELL-1 to promote bone and cartilage regeneration. He received residency in advanced prosthodontics at Harvard School of Dental Medicine, PhD from the Dept. of Material Science and Engineering at MIT.

 

 25 
 

 

Family Relationships

 

Drs. Ting and Soo are husband and wife.

 

Board of Directors and Corporate Governance

 

Our Board of Directors currently consists of seven (7) members, including Bruce Stroever, Dr. Chia Soo, William Coffin, John Booth, Jimmy Delshad, Benjamin Wu, and Stephen R. LaNeve.

 

Board Committees

 

Our Board of Directors has appointed an audit committee, governance committee and compensation committee. The Board of Directors met or acted by written consent 12 times during 2015.

 

Audit Committee

 

The audit committee is responsible for overseeing: (i) our accounting and reporting practices and compliance with legal and regulatory requirements regarding such accounting and reporting practices; (ii) the quality and integrity of our financial statements; (iii) our internal control and compliance programs; (iv) our independent auditors’ qualifications and independence and (v) the performance of our independent auditors and our internal audit function. In so doing, the audit committee maintains free and open means of communication between our directors, internal auditors and management. We are not required to have an Audit Committee consisting solely of independent directors or required to have an “audit committee financial expert” as we are neither listed on NASDAQ nor the New York Stock Exchange.

 

Our audit committee consists of John Booth, as Chairman, and Jimmy Delshad. The Audit committee met four times during 2015.

 

Compensation Committee

 

The compensation committee is responsible for reviewing and approving the compensation of our executive officers and directors and our performance plans and other compensation plans. The compensation committee makes recommendations to our Board of Directors in connection with such compensation and performance plans.

 

Our compensation committee consists of John Booth, as Chairman, and Bill Coffin. The compensation committee met six times.

 

Nominating and Corporate Governance Committee

 

The nominating and corporate governance committee is responsible for (i) identifying, screening and reviewing individuals qualified to serve as directors (consistent with criteria approved by our Board of Directors) and recommending to our Board candidates for nomination for election at the annual meeting of shareholders or to fill board vacancies or newly created directorships; (ii) developing and recommending to our Board of Directors and overseeing the implementation of our corporate governance guidelines (if any); (iii) overseeing evaluations of our Board of Directors and (iv) recommending to our Board of Directors candidates for appointment to board committees.

 

 26 
 

 

Our nominating and corporate governance committee consists of Bill Coffin, as Chairman, and Jimmy Delshad.

 

Code of Ethics

 

On February 9, 2014 the Company adopted a formal code of ethics within the meaning of Item 406 of Regulation S-K promulgated under the Securities Act, that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and that that establishes, among other things, procedures for handling actual or apparent conflicts of interest. Our Code of Ethics is available at our website http://bonebiologics.com/investor-relations/corporate-governance/.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.

 

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 2015, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with; except that each of the following each failed to file one report of one transaction Mr. Booth, Mr. Coffin, Mr. Delshad, Mr. Oram, Mr. Warnecke. Both Dr. Soo and Dr. Wu each failed to file two reports of one transaction.

 

Indemnification Agreements

 

Our Board has approved a form of indemnification agreement for our directors and executive officers (“Indemnification Agreement”). Following Board approval, we entered into Indemnification Agreements with each of our current directors and executive officers.

 

The Indemnification Agreement provides for indemnification against expenses, judgments, fines and penalties actually and reasonably incurred by an indemnitee in connection with threatened, pending or completed actions, suits or other proceedings, subject to certain limitations. The Indemnification Agreement also provides for the advancement of expenses in connection with a proceeding prior to a final, non-appealable judgment or other adjudication, provided that the indemnitee provides an undertaking to repay to us any amounts advanced if the indemnitee is ultimately found not to be entitled to indemnification by us. The Indemnification Agreement sets forth procedures for making and responding to a request for indemnification or advancement of expenses, as well as dispute resolution procedures that will apply to any dispute between us and an indemnitee arising under the Indemnification Agreement.

 

The foregoing description is qualified in its entirety by reference to the form of Indemnification Agreement filed as Exhibit 10.17 to the Current Report on Form 8-K filed on September 25, 2014.

 

Effective as of September 19, 2014, our Board of Directors also approved the Former D&O Indemnification Agreement to be entered into between us, Don Hankey and Amir Heshmatpour. The Former D&O Indemnification Agreement requires that for a period of four (4) years from and after September 19, 2014, we will indemnify (including advancement of expenses) and hold harmless persons who were officers and directors of the Company (i) by reason of being an officer or director of the Company prior to the Merger, including through all transactions relating to the Merger, or (ii) is related to acts in connection with the Merger taken by the Former D&O Indemnified Persons, provided however, that the foregoing indemnity shall be excess of all any insurance coverage available to the Former D&O Indemnified Parties for any such loss. The accuracy of the Hankey Affidavit and Heshmatpour Affidavit in connection with the Former D&O Indemnification is a condition precedent to the foregoing indemnity (including advancement of expenses). The Company has no insurance coverage that would cover any claim asserted against the Company by any Former D&O Indemnified Person pursuant to this Former D&O Indemnification Agreement.

 

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This description is qualified in its entirety by the Former D&O Indemnification Agreement filed as Exhibit 10.18 to the Current Report on Form 8-K filed on September 25, 2014 and incorporated herein by reference.

  

Scientific Advisory Board

 

Mr. Gertzman has served as a member of Bone’s Scientific Advisory Board since 2005. He is the former Executive Vice President for Research and Development from MTF since 1996 and is currently a consultant to MTF in patent prosecution. He has been engaged in industrial product development of surgical implants for forty years. From 1964 to 1993, he was employed by Ethicon, Inc., a Johnson & Johnson Company as Director of Product Engineering Johnson & Johnson USA. From 1993 to 1996, he was employed by Xomed Medical Products and served in several positions of responsibility in research and product development, after his appointment as Vice President, Research and Development in 1993. Mr. Gertzman was appointed Vice President, Research and Development for MTF in 1996 and is currently employed in the development of new tissue forms and related processes. He holds over twenty-five (25) U.S. patents, with many more pending, both in the U.S. and internationally. He completed a Bachelor of Science at CCNY in 1960 and a Master’s of Science degree in Chemistry from Boston University in 1963.

 

Dr. Shun’ichi Kuroda has served as a member of Bone’s Scientific Advisory Board since 2005. He taught as a professor at the Department of Bio-agricultural Sciences of Nagoya University since 2009 and has served as the Chairman of the Department since 2012. Dr. Kuroda has expertise is in recombinant protein engineering and manufacturing.

 

Dr. Jeffrey C. Wang, MD has served as a member of Bone’s Scientific Advisory Board since 2005. Dr. Wang has been Chief of the Orthopaedic Spine Surgery Service since 1997, Fellowship Director of the UCLA Orthopaedic Spine Surgery Fellowship, and is Currently Professor of Orthopaedic Surgery and Neurosurgery. He is also the Vice Chair of Clinical Operations for the UCLA Department of Orthopaedic Surgery. He is Co-Director of the UCLA Spine Center. Dr. Wang’s research areas include the use of osteoinductive and osteoconductive materials for spinal fusion as well as novel gene therapy and minimally invasive techniques for spinal surgery. He obtained his undergraduate degree from Stanford University and his medical degree from the University of Pittsburgh. He then completed his Orthopaedic Surgery training at UCLA and his Spine Fellowship at Case Western Reserve University.

 

Dr. Xinli Zhang has served as a member of Bone’s Scientific Advisory Board since 2005. Since 2009, he has served as an Associate Professor at the UCLA School of Dentistry. Prior to joining UCLA, Dr. Zhang was Associate Professor in the Third Military Medical University in China from 1994 to 2000. Dr. Zhang combines his specialized training as a pathologist with a PhD in molecular biology. Dr. Zhang brings over twenty years of experience in medical and dental research in both China and the U.S. Dr. Zhang is an expert in developmental molecular biology and pathology of various bone and cartilaginous tissue related conditions.

 

Dr. Mark Spilker joined MTF in early 2009 and is currently managing the R&D, Project Management, Clinical Studies, Quality Assurance and Regulatory departments. Mark has been leading the continued development and expansion of MTF’s human allograft tissue portfolio. Under his leadership, the MTF team has developed new tissue forms including allograft bone designs for extremity surgery, allograft scaffolds for cartilage regeneration and a living allogeneic stem cell graft for orthopedic surgery. Over his career, Mark has held positions in Marketing, R&D and Program Management. Prior to MTF, Mark was formerly Vice President, R&D and Program Management for Integra NeuroSciences where he was responsible for development programs ranging from collagen-based scaffolds for bone and soft tissue regeneration to medical electronics and implantable fluid-handling shunts and valves. Prior to joining Integra he conducted his post-graduate studies at Massachusetts Institute of Technology, making significant contributions in the field of biomaterials technology and tissue engineering in neurosurgery. He received a B.S. degree in Mechanical Engineering from the University of Utah and an M.S. and Ph.D. in Mechanical Engineering from the Massachusetts Institute of Technology.

 

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Dr. Eric Ting, MD as a founder and has served on served as a member of Bone’s Scientific Advisory Board since 2005. He is a UCLA (Harvard trained orthodontist) is fully endowed Department Chair in Department of Surgery and Director of UCLA Craniofacial Abnormalities Laboratory. He is an endowed professor and Director of UCLA Laboratory for Craniofacial Anomalies at the Dental and Craniofacial Research Institute and holds a faculty position in the UCLA Dept of Surgery. His research interests include the molecular mechanism of craniosynostosis, which is the premature fusion of calvarial suture line in infants and tissue engineering of bone. Craniosyntosisis requires surgeries through childhood to alleviate and open the skull. Starting in the mid 1990’s the research identified that the NELL protein (a protein whose sole purpose was to create the bone growth to close the skull and after performing its task went dormant) was over expressed in the infants, which created the premature closing. Dr. Ting received his Doctorate of Dental Medicine Degree from Harvard University, School of Dental Medicine and completed his Postdoctoral Orthodontic Residency and also received the Doctorate of Medical Sciences from Harvard.

 

Item 11. Executive Compensation

 

The table below summarizes the compensation earned for services rendered to us in all capacities, for the fiscal years indicated, by its named executive officers:

  

Name and Principal Position  Year   Salary   Bonus ($)   Stock Awards ($)(5) (6)  

Option Awards ($)(2) (3) (4)

     Non-Equity Incentive Plan Compensation ($)    Deferred Compensation ($)   All Other Compensation ($)   Total Compensation ($) 
Mike Schuler, Chief Executive Officer (1)   2015   $112,500                             $112,500 
    2014   $47,500                                 $47,500 
                                              
Stephen R. LaNeve, Chief Executive Officer, President, Director   2015   $187,500       $78,750    $3,392,775                  $3,659,025 
    2014    -                                    
                                              
Jeffrey Frelick, Chief Operating Officer   2015   $112,500       $33,750    $1,696,388                  $1,842,638 
    2014    -                                    
                                              
Dr. William Jay Treat, Chief Technology Officer   2015   $300,000             $987,419                  $1,287,419 
    2014   $195,000             $418,016                  $613,016 
                                              
Deina Walsh, Chief Financial Officer   2015   $108,333       $22,764    $938,427                  $1,069,524 
    2014   $25,000             $135,774                  $160,774 

 

 29 
 

  

(1) MTF was paid compensation for Mr. Schuler’s CEO services per a consulting agreement with the Company. On August 17, 2015, the Company appointed Steven R. LaNeve as our full-time Chief Executive Officer and our agreement with MTF for the services of Mr. Schuler concluded.
   
(2) The amounts shown reflect the aggregate grant date fair value computed in accordance with FASB ASC 718. These amounts reflect our accounting for these awards and do not correspond to the actual values that may be realized by the named executive officers and do not represent actual cash compensation paid to the recipient. Pursuant to SEC rules, we disregarded the estimates of forfeitures related to service-based vesting conditions.
   
(3) We granted option awards in 2015 in connection with the appointments of Mr. LaNeve, Mr. Frelick and Ms. Walsh as executive officers of the Company. Valuation assumptions used to determine grant date fair value as required by FASB ASC 718 are disclosed in Note 9 to our consolidated financial statements for the year ended December 30, 2015. 1/3 of the shares subject to the options vest on each anniversary of the Vesting Commencement Date, subject to the option holder’s Continuous Service (as defined in the Plan) on each vesting date.
   
(4) Our 2014 Stock Option Plan was never submitted for approval to the shareholders therefore ineffective. Our 2015 Equity Incentive Plan was approved by majority shareholder consent on December 30, 2015 and all options outstanding as of the effective date were cancelled and re-issued under the new plan at current plan terms. The change in terms was considered a modification to the existing stock options and the incremental fair value is included in the amounts reflected above.
   
(5) The amounts shown reflect the aggregate grant date fair value computed in accordance with FASB ASC 718. Under ASC 718, the fair value of such stock awards is determined as of the date of grant using the closing market price of common stock on the date of grant. These amounts reflect our accounting for these awards and do not correspond to the actual values that may be realized by the named executive officers and do not represent actual cash compensation paid to the recipient. Pursuant to SEC rules, we disregarded the estimates of forfeitures related to service-based vesting conditions.
   
(6) We granted restricted stock awards in 2015 to Mr. LaNeve, Mr. Frelick and Ms. Walsh. These awards vest 100% upon four (4) years from the date of issuance.

 

Changes in Executive Compensation

 

Our 2015 Equity Incentive Plan was approved by majority shareholder consent on December 30, 2015 and all options outstanding as of the effective date were cancelled and re-issued under the new plan at current plan terms.

 

  Base Salary: The Company’s base salaries are designed as a means to provide a fixed level of compensation in order to attract and retain talent. The base salaries of our named executive officers depend on their job responsibilities, the market rate of compensation paid by companies in our industry for similar positions, our financial position and the strength of our business.
     
  Performance-Based Cash Awards: As part of the Company’s executive compensation program, the board intends to establish an annual performance-based cash award program for our executive officers and other key employees based upon individual performance and the Company’s performance. The award program will also be designed to reinforce the Company’s goals and then current strategic initiatives. The annual performance-based cash awards will be based on the achievement of Company and individual performance metrics established at the beginning of each fiscal year by the compensation committee and our Board of Directors. Following the end of each fiscal year, the compensation committee will be responsible for determining the bonus amount payable to the executive officer based on the achievement of the Company’s performance and the individual performance metrics established for such executive.

 

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  Long-Term Equity Awards: Our Board of Directors believes that equity ownership by our executive officers and key employees encourages them to create long-term value and aligns their interest with those of our stockholders. We grant annual equity awards to our executive officers under our 2015 Equity Incentive Plan. Our Board of Directors adopted and approved the following 2015 Equity Incentive Plan and intends to submit it for approval by our stockholders.
     
  2015 Equity Incentive Plan: The Company has 14,000,000 shares of Common Stock authorized and reserved for issuance under our 2015 Equity Incentive Plan for option awards. This reserve may be increased by the Board each year by up to the number of shares of stock equal to 5% of the number of shares of stock issued and outstanding on the immediately preceding December 31. Appropriate adjustments will be made in the number of authorized shares and other numerical limits in our 2015 Equity Incentive Plan and in outstanding awards to prevent dilution or enlargement of participants’ rights in the event of a stock split or other change in our capital structure. Shares subject to awards granted under our 2015 Equity Incentive Plan which expire, are repurchased or are cancelled or forfeited will again become available for issuance under our 2015 Equity Incentive Plan. The shares available will not be reduced by awards settled in cash. Shares withheld to satisfy tax withholding obligations will not again become available for grant. The gross number of shares issued upon the exercise of stock appreciation rights or options exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under our 2015 Equity Incentive Plan.
     
  Awards may be granted under our 2015 Equity Incentive Plan to our employees, including officers, director or consultants, and our present or future affiliated entities. While we may grant incentive stock options only to employees, we may grant non-statutory stock options, stock appreciation rights, restricted stock purchase rights or bonuses, restricted stock units, performance shares, performance units and cash-based awards or other stock based awards to any eligible participant.
     
  The 2015 Equity Incentive Plan will be administered by our compensation committee. Subject to the provisions of our 2015 Equity Incentive Plan, the compensation committee determines, in its discretion, the persons to whom, and the times at which, awards are granted, as well as the size, terms and conditions of each award. All awards are evidenced by a written agreement between us and the holder of the award. The compensation committee has the authority to construe and interpret the terms of our 2015 Equity Incentive Plan and awards granted under our 2015 Equity Incentive Plan.

 

Our Board of Directors approved the following compensation for our named executive officers:

 

Stephen R. LaNeve, Chief Executive Officer:

 

Base Salary: Mr. LaNeve’s base salary is $500,000.

 

Bonus: During each calendar year, Mr. LaNeve shall be eligible to earn an annual target bonus of seventy percent (70%) of his base salary as in-effect for the applicable calendar year, subject to the achievement of personal and corporate objectives or milestones to be established by the board of directors, or any compensation committee thereof, (after considering any input or recommendations from Mr. LaNeve) within sixty (60) days following the beginning of each calendar year during Mr. LaNeve’s employment. In order to earn the annual bonus under this provision, the applicable objectives must be achieved and Mr. LaNeve must be employed by Company at the time the annual bonus is distributed by Company. The annual bonus, if any, shall be paid on or before March 15th of the calendar year following the year in which it is considered earned. The actual annual bonus paid may be more or less than seventy percent (70%) of Mr. LaNeve’s base salary.

 

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Stock Options: Mr. LaNeve was granted an option to purchase 6% of the then outstanding shares of the Company’s common stock, at an exercise price that equals to the fair market price on the date of the grant. These options will vest annually over three (3) years such that they are vested in full on the third year anniversary of the employment agreement date, provided, that any stock option that is unvested on the date of termination shall be forfeited on such date of termination, subject to certain exceptions.

 

Jeffrey Frelick, Chief Operating Officer:

 

Base Salary: Mr. Frelick’s base salary is $300,000.

 

Bonus: During each calendar year, Mr. Frelick shall be eligible to earn an annual target bonus of fifty percent (50%) of his base salary as in-effect for the applicable calendar year, subject to the achievement of personal and corporate objectives or milestones to be established by the board of directors, or any compensation committee thereof, (after considering any input or recommendations from Mr. Frelick) within sixty (60) days following the beginning of each calendar year during Mr. Frelick’s employment. In order to earn the annual bonus under this provision, the applicable objectives must be achieved and Mr. Frelick must be employed by Company at the time the annual bonus is distributed by Company. The annual bonus, if any, shall be paid on or before March 15th of the calendar year following the year in which it is considered earned. The actual annual bonus paid may be more or less than fifty percent (50%) of Mr. Frelick’s base salary.

 

Stock Options: Mr. Frelick was granted an option to purchase 3% of the then outstanding shares of the Company’s common stock, at an exercise price that equals to the fair market price on the date of the grant. These options will vest annually over three (3) years such that they are vested in full on the third year anniversary of the employment agreement date, provided, that any stock option that is unvested on the date of termination shall be forfeited on such date of termination, subject to certain exceptions.

 

Deina H. Walsh, Chief Financial Officer:

 

Base Salary: Ms. Walsh’s base salary is $200,000.

 

Bonus: During each calendar year beginning in 2016, Ms. Walsh shall be eligible to earn an annual target bonus of thirty-five percent (35%) of her base salary as in-effect for the applicable calendar year, subject to the achievement of personal and corporate objectives or milestones to be established by the board of directors, or any compensation committee thereof, (after considering any input or recommendations from Ms. Walsh) within sixty (60) days following the beginning of each calendar year during Ms. Walsh’s employment. In order to earn the annual bonus under this provision, the applicable objectives must be achieved and Ms. Walsh must be employed by Company at the time the annual bonus is distributed by Company. The annual bonus, if any, shall be paid on or before March 15th of the calendar year following the year in which it is considered earned. The actual annual bonus paid may be more or less than thirty-five percent (35%) of Ms. Walsh’s base salary.

 

Stock Options: On November 4, 2014, Ms. Walsh was granted an option to purchase 0.75% of the Company’s fully diluted shares of common stock. The option will be granted under Company’s stock plan and related stock option documents. The Option is intended to be an “incentive stock option” (within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended) to the greatest extent permitted under the code. The option has an exercise price of $1.00 per share, equal to the price of the shares awarded under the Merger Agreement in connection with the Merger. As a condition of receipt of the option, Ms. Walsh was required to sign Company’s standard form of stock option agreement and the option is subject to the terms and conditions of the plan, the option agreement and her employment agreement. The option vests over a three-year period from the effective date subject to Ms. Walsh’s continued Service (as defined in the plan), with 33.33% of the shares subject to the option becoming vested and exercisable on the date that Ms. Walsh’s employment agreement is executed, 33.33% of the shares subject to the option becoming vested and exercisable on the date that is twelve (12) months after the effective date, and 33.34% of the shares subject to the option vesting and becoming exercisable on the date that is twenty four (24) months after the effective date; provided, however, that all unvested shares subject to the option (and any additional equity awards hereafter issued by Company to Ms. Walsh pursuant to the plan) shall fully vest and be exercisable if Ms. Walsh’s service ceases as a result of a “qualifying termination” occurring on or within twelve (12) months after a “change in control.”

 

 32 
 

 

On December 1, 2015, Ms. Walsh is entitled to purchase 465,795 shares of Common Stock of the Company as of the date of the grant on the condition that i) the exercise price will be the current market price on the date of the grant; and ii) 155,265 of the shares underlying the grant shall vest on the first anniversary of the execution of the Letter Agreement, 155,265 of the shares underlying the grant shall vest on the second anniversary of the execution of the Letter Agreement and 155,265 of the shares underlying the grant shall vest on the third anniversary of the Letter Agreement. Any portion of the stock option grant that is unvested on the date of her termination shall be forfeited on such date of termination except: (i) in the case of termination by the Company without cause; and (ii) upon a change in control (as defined in the equity incentive plan) of the Company, which shall result in the immediate accelerated vesting of all options granted but unvested under the letter agreement as of (i) or (ii). such options shall be subject to the terms of the equity incentive plan and stock option agreements which shall be entered into at a later mutually agreed-upon date to prevent or mitigate dilution of her equity interests in the Company, in connection with each financing, she shall be provided an opportunity to invest in the Company such that her interest, at her option, remains un-diluted or partially diluted.

 

The Company’s compensation committee believes these agreements and other incentives granted to these named executive officers in 2015 align our named executive officers’ interests with those of our stockholders. Our compensation committee and board of directors continues to evaluate our executive compensation program with a view toward motivating our named executive officers to meet our strategic operational and financial goals in the best interests of our stockholders.

 

Potential Payments upon Termination of Change in Control

 

None.

 

Changes to Potential Payments upon Termination of Change in Control

 

None.

 

Consulting Agreements for Executives

 

None other than noted above.

 

Grants of Plan-Based Awards

 

Name/Date Issued  Exercise Price   Number of
Shares
   Expiration date
            
Stephen R. LaNeve/August 2015  $1.59    2,081,191   December 27, 2025
Jeffrey Frelick/August 2015  $1.59    1,040,596   December 27, 2025
Deina Walsh/November 2015  $1.59    465,795   December 27, 2025
Dr. William Jay Treat/December 2015  $1.59    216,355   December 27, 2025
Deina Walsh/ December 2015  $1.59    64,907   December 27, 2025
Total options issued to executives for the year ended December 31, 2015        3,868,844    

 

 

 33 
 

 

Executives Outstanding Equity Awards at Fiscal Year End

 

Name  Number of securities underlying unexercised options (#) exercisable   Number of securities underlying unexercised options (#) unexercisable   Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)   Option exercise price ($)   Option expiration date   Number of shares or units of stock that have not vested (#)   Market value of shares of units of stock that have not vested ($)   Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)   Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($) 
(a)  (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i)   (j) 
Mike Schuler, CEO   -    -    -    -    -    -    -    -    - 
Stephen R. LaNeve, Chief Executive Officer, President, Director
2015
   -    2,081,191    -   $1.59    December 27, 2025                38,414   $78,750 
2014        -    -         -    -    -    -      
Jeffrey Frelick, Chief Operating   -    1,040,596    -   $1.59    December 27, 2025     -    -    16,463   $33,750 
Officer   -    -    -    -    -    -    -    -    - 
Dr. William Jay Treat, Chief Technology Officer
2015
   534,867    264,547    -   $1.59(1)   December 27, 2025     -    -    -    - 
2014   198,202    384,857    -   $1.00    -    -    -    -    - 
Deina Walsh, Chief Financial Officer  
2015
   159,884    545,736    -   $1.59(1)   December 27, 2025     -    -    11,104   $22,764 
2014   58,306    116,612    -   $1.00    -    -    -    -    - 

  

(1) Our 2014 Stock Option Plan was never submitted for approval to the shareholders therefore ineffective. Our 2015 Equity Incentive Plan was approved by majority shareholder consent on December 30, 2015 and all options outstanding as of the effective date were re-issued under the new plan at current plan terms. The change in terms was considered a modification to the existing stock options and the incremental fair value is included in the amounts reflected above.

 

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Director Compensation

 

The following table shows information regarding the compensation earned during the fiscal year ended December 31, 2015 by the members of our board of directors.

 

Name  Fees Earned
or
Paid in Cash
   Option
Awards
   Share
Awards
   Total 
Bruce Stroever(1)  $35,000   $76,709    79,499   $191,208 
Dr. Chia Soo   25,000    100,642    50,000    175,642 
William Coffin   30,000    100,642    50,000    180,6432 
John Booth   30,000    100,642    50,000    180,642 
Jimmy Delshad   25,000    100,642    50,000    175,642 
Steve Warnecke(2)   30,000    76,709    79,499    186,208 
George A. Oram(3)   25,000    91,794    50,000    166,794 
Dr. Benjamin Wu   4,167    64,500    -    68,667 
                     
Total  $204,167   $712,280    408,998   $1,325,445 

 

(1) MTF is paid compensation for Mr. Stroever’s services per a consulting agreement with the Company.
(2) Mr. Warnecke resigned March 1, 2016.
(3) Mr. Oram resigned March 11, 2016.

 

Changes in Director Compensation

 

The Board adopted a Non-Employee Director Compensation Policy (the “Director Compensation Policy”) which revised the directors’ compensation to the following:

 

Annual Cash Compensation

 

Commencing at the beginning of the first calendar quarter following the Effective Date, each Non-Employee Director will receive the cash compensation set forth below for service on the Board. The annual cash compensation amounts will be payable in equal quarterly installments, in arrears following the end of each quarter in which the service occurred, pro-rated for any partial months of service. All annual cash fees are vested upon payment.

 

1. Annual Board Service Retainer:

 

  a. All Non-Employee Directors other than the Board Chair: $25,000
     
  b. Non-Employee Director who is the Board Chair: $35,000

 

2. Annual Committee Chair Service Retainer (in addition to Annual Board Service Retainer):

 

  a. Chairman of the Audit Committee: $5,000
     
  b. Chairman of the Compensation Committee: $5,000
     
  c. Chairman of the Corporate Governance Committee: $5,000

 

Equity Compensation

 

Equity awards will be granted under the Company’s 2015 Equity Incentive Plan or any successor equity incentive plan (the “Plan”). All stock options granted under this Director Compensation Policy will be Nonstatutory Stock Options (as defined in the Plan), with a term of ten years from the date of grant and an exercise price per share equal to 100% of the Fair Market Value (as defined in the Plan) of the underlying common stock of the Company (“Common Stock”) on the date of grant.

 

 35 
 

 

  (a) Automatic Equity Grants.

 

(i) Initial Grant for New Directors. Without any further action of the Board, each person who, after the Effective Date, is elected or appointed for the first time to be a Non-Employee Director will automatically, upon the date of his or her initial election or appointment to be a Non-Employee Director, be granted a Nonstatutory Stock Option to purchase 50,000 shares of Common Stock (the “Initial Grant”), regardless of when such person is elected or appointed to the Board. Each Initial Grant will fully vest on the date of the annual meeting of the stockholders of the Company (“Annual Meeting”) next following the Initial Grant.

 

(ii) Annual Grant. Without any further action of the Board, at the close of business on the date of each Annual Meeting following the Effective Date, each person who is then a Non-Employee Director will automatically be granted a Nonstatutory Stock Option to purchase a number of shares of Common Stock having an Option Value (calculated on the date of grant) of $50,000 (the “Annual Grant”). Each Annual Grant will vest in a series of four (4) successive equal quarterly installments over the one-year period measured from the date of grant.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  

The following table sets forth information with respect to the beneficial ownership of the Company’s Common Stock as of March 14, 2016, by each person or group of affiliated persons known to the Company to beneficially own 5% or more of its Common Stock, each director, each named executive officer, and all of its directors and named executive officers as a group.

 

Name of Beneficial Owner or Identity of Group  Title of Class  Shares(1)   Percentage 
            
5% or greater stockholders:             
              
The Musculoskeletal Transplant Foundation, Inc.
175 May Street
Edison, NJ 08837
  Common Stock   12,483,479 (2)   32.1%
              
Don R. Hankey
4751 Wilshire Blvd #110
Los Angeles, CA 90010
  Common Stock   1,981,139 (3)   5.0%
              
AFH Holding & Advisory, LLC
269 Beverly Drive, Ste. 1600
Beverly Hills, CA 90212
  Common Stock   6,287,209 (4)   15.8%
              
Amir Heshmatpour
269 Beverly Drive, Ste. 1600
Beverly Hills, CA 90212
  Common Stock   7,678,209 (5)   19.4%
              
Orthofix Holdings Inc.
3451 Plano Parkway
Lewisville, TX 75056
  Common Stock   2,397,712 (6)   6.2%

   

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Executive Officers and Directors:             
Stephen LaNeve
321 Columbus Avenue
Boston, MA 02116
  Common Stock   -    - 
              
Jeffrey Frelick
321 Columbus Avenue
Boston, MA 02116
  Common Stock   -    -- 
              
Deina H. Walsh 321
Columbus Avenue
Boston, MA 02116
  Common Stock   159,884 (7)   0.4%
             
Bruce Stroever(8)
175 May Street, Suite 400
Edison, NJ 08837
      -    - 
              
Dr. Chia Soo
321 Columbus Avenue
Boston, MA 02116
  Common Stock   3,170,675 (9)   8.3%
              
Dr. Benjamin Wu
321 Columbus Avenue
Boston, MA 02116
  Common Stock   1,020,991 (10)   2.7%
              
William Coffin
321 Columbus Avenue
Boston, MA 02116
  Common Stock   109,375 (11)   0.3%
              
John Booth
321 Columbus Avenue
Boston, MA 02116
  Common Stock   89,375 (12)   0.2%
              
Jimmy Delshad
321 Columbus Avenue
Boston, MA 02116
  Common Stock   109,375 (13)   0.3%
              
Total Officers and Directors as a Group (8 persons)  Common Stock   4,659,675 (14)   12.1%
              
Reserve for Future Issuance:             
Option Plan      2,250,682      

 

 37 
 

 

(1) Based on 38,014,507 issued and outstanding shares. The number of shares issued and outstanding that was used to calculate the percentage ownership of each listed person includes the shares underlying convertible debt, stock options and warrants that are exercisable 60 days from our report date.
   
(2) Consists of 11,640,096 shares, 793,383 shares underlying warrants exercisable within 60 days and 50,000 shares underlying stock options exercisable within 60 days.
   
(3) Consists of 450,000 shares owned by Don R. Hankey, Trustee of the Don Hankey Trust over which Mr. Hankey has voting and investment control and 731,139 shares and 800,000 shares underlying debt convertible at any time held by Hankey Capital, LLC over which Mr. Hankey has voting and investment control. This amount does not include the 11,392,407 shares that were issued as collateral for the three (3) convertible notes to Hankey Capital, 4,896,203 shares underlying debt conversion and 5,577,340 shares underlying warrants in accordance with provisions limiting the exercise/conversion thereof.
   
(4) Includes 1,632,596 shares underlying warrants exercisable within 60 days.
   
(5) Consists of (a) 6,287,209 shares beneficially owned by AFH Holding of which Mr. Heshmatpour is the sole member and over which he has sole voting and investment control, (b) 300,000 shares owned by KIG LLC of which Mr. Heshmatpour’s spouse is the sole member and over which she has sole voting and investment control and (c) 900,000 shares owned by Mr. Heshmatpour’s children.
   
(6) Includes 458,334 shares underlying warrants exercisable within 60 days.
   
(7) Includes 159,884 shares underlying stock options exercisable within 60 days.
   
(8) Mr. Stroever is the President and Chief Executive Officer of the Musculoskeletel Transplant Foundation, Inc. (MTF) and, as such, advises MTF with respect to voting and investment decisions relating to the shares of the Company owned by MTF but does not have or share voting and investment power over such shares. Mr. Stroever disclaims beneficial ownership of any shares owned by MTF.
   
(9) Includes 119,318 shares underlying warrants exercisable within 60 days, 384,616 issuable on the earlier of September 24, 2018 and the occurrence of certain events described in a letter agreement dated September 24, 2015 and 68,553 shares underlying stock options exercisable within 60 days.
   
(10) Includes 384,615 issuable on the earlier of September 24, 2018 and the occurrence of certain events described in a letter agreement dated September 24, 2015 and 50,000 shares underlying stock options exercisable within 60 days.
   
(11) Includes 68,553 shares underlying stock options exercisable within 60 days.
   
(12) Includes 68,553 shares underlying stock options exercisable within 60 days.
   
(13) Includes 68,553 shares underlying stock options exercisable within 60 days.
   
(14)

Includes 119,318 shares underlying warrants exercisable within 60 days, 769,231 shares issuable on the earlier of September 24, 2018 and the occurrence of certain events described in a letter agreement dated September 24, 2015 and 484,096 shares underlying stock options exercisable within 60 days.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

Except as disclosed below, none of the following persons has any direct or indirect material interest in any transaction to which we are a party since our incorporation or in any proposed transaction to which we are proposed to be a party:

 

   ● Any of our directors or officers;
     
    Any proposed nominee for election as our director;
     
    Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our Common Stock; or
     
    Any relative or spouse of any of the foregoing persons, or any relative of such spouse, who has the same house as such person or who is a director or officer of any parent or subsidiary of our Company.

 

 38 
 

 

Review, Approval or Ratification of Transactions with Related Persons

 

Due to the small size of our Company, we do not at this time have a formal written policy regarding the review of related party transactions, and rely on our full Board of Directors to review, approve or ratify such transactions and identify and prevent conflicts of interest. Our Board of Directors reviews any such transaction in light of the particular affiliation and interest of any involved director, officer or other employee or stockholder and, if applicable, any such person’s affiliates or immediate family members. Management aims to present transactions to our Board of Directors for approval before they are entered into or, if that is not possible, for ratification after the transaction has occurred. If our Board of Directors finds that a conflict of interest exists, then it will determine the appropriate action or remedial action, if any. Our Board of Directors approves or ratifies a transaction if it determines that the transaction is consistent with our best interests and the best interest of our stockholders.

 

Director Independence

 

Our Board of Directors currently consists of seven (7) members, including Bruce Stroever, Dr. Chia Soo, William Coffin, John Booth, Jimmy Delshad, Dr. Benjamin Wu and Stephen R. LaNeve. Our Board of Directors undertook a review of the composition of our Board of Directors and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our Board of Directors has determined that William Coffin, John Booth, and Jimmy Delshad (the “Independent Directors”) would qualify as “independent” as that term is defined by NASDAQ Listing Rule 5605(a) (2). Further, our Board of Directors has determined that each of the independent directors would qualify as “independent” under NASDAQ Listing Rules applicable to such board committees. Bruce Stroever would not qualify as “independent” under applicable NASDAQ Listing Rules applicable to the Board of Directors generally or to separately designated board committees because he is the Chief Executive Officer of MTF, a significant shareholder of the Company and an entity to whom the Company continues to owe obligations to pursuant to notes outstanding to MTF. Dr. Chia Soo would not qualify as “independent” under applicable NASDAQ Listing Rules applicable to the Board of Directors generally or to separately designated board committees because she has a professional services agreement with the Company to provide services in excess of $120,000. Dr. Benjamin Wu would not qualify as “independent” under applicable NASDAQ Listing Rules applicable to the Board of Directors generally or to separately designated board committees because he has a professional services agreement with the Company to provide services in excess of $120,000. In making such determinations, our Board of Directors considered the relationships that each of our nonemployee directors has with the Company and all other facts and circumstances deemed relevant in determining independence, including the beneficial ownership of our capital stock by each non-employee director.

 

Subject to some exceptions, NASDAQ Listing Rule 5605(a)(2) provides that a director will only qualify as an “independent director” if, in the opinion of our Board of Directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director, and that a director cannot be an “independent director” if (a) the director is, or in the past three years has been, an employee of ours; (b) a member of the director’s immediate family is, or in the past three years has been, an executive officer of ours; (c) the director or a member of the director’s immediate family has received more than $120,000 per year in direct compensation from us within the preceding three years, other than for service as a director or benefits under a tax-qualified retirement plan or non-discretionary compensation (or, for a family member, as a non-executive employee); (d) the director or a member of the director’s immediate family is a current partner of our independent public accounting firm, or has worked for such firm in any capacity on our audit at any time during the past three years; (e) the director or a member of the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation committee; or (f) the director or a member of the director’s immediate family is an executive officer, partner or controlling shareholder of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month period during our past three fiscal years, exceeds the greater of 5% of the recipient’s consolidated gross revenues for that year or $200,000 (except for payments arising solely from investments in our securities or payments under non-discretionary charitable contribution matching programs). Additionally, in order to be considered an independent member of an audit committee under Rule 10A-3 of the Exchange Act, a member of an audit committee may not, other than in his or her capacity as a member of the audit committee, the Board of Directors, or any other committee of the Board of Directors, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the applicable company or any of its subsidiaries or otherwise be an affiliated person of the applicable company or any of its subsidiaries.

 

 39 
 

 

Item 14. Accounting Fees and Services

 

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

 

The audit committee pre-approves all audit and permissible non-audit services provided by our independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. The audit committee has adopted policies and procedures for the pre-approval of services provided by our independent registered public accounting firm. The policies and procedures provide that management and our independent registered public accounting firm jointly submit to the audit committee a schedule of audit and non-audit services for approval as part of the annual plan for each year. In addition, the policies and procedures provide that the audit committee may also pre-approve particular services not in the annual plan on a case-by-case basis. For each proposed service, management must provide a detailed description of the service and the projected fees and costs (or a range of such fees and costs) for the service. The policies and procedures require management and our independent registered public accounting firm to provide quarterly updates to the audit committee regarding services rendered to date and services yet to be performed.

 

The following table sets forth the aggregate fees billed to us for the years ended December 31, 2015 and 2014.

 

Audit Fees

 

   2015   2014 
Anton & Chia (1)  $58,347   $73,628 
BDO (2)  $-   $28,925 
Anton & Chia (3)  $-   $2,080 

 

  (1) Includes review and consent of Form S-1 registration statement and the audit of the historical financial statements of Bone Biologics Inc. included in the Company’s Form 8k filed on September 24, 2014.
     
  (2) BDO was initially engaged to audit the historical financial statements of Bone Biologics Inc.
     
  (3) Fees paid for services provided prior to the merger for audit of the shell entity.

 

Audit Related Fees

 

There were no fees billed to the Company by Anton & Chia for assurance and related services that are reasonably related to the performance of the audit related fees.

 

Tax Fees

 

Foster, Griffith and Allen, Inc.  $3,775   $3,373 

 

Part IV

 

Item 15. Exhibits, Financial Statement Schedules

 

(a) Exhibits

 

See Exhibit Index.

 

(b) Financial Statements:

 

The financial statements required to be included in this Annual Report are included at pages 45 to 68

 

 40 
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 28, 2016.

 

  BONE BIOLOGICS CORPORATION
     
  By: /s/ Stephen R. LaNeve
  Name: Stephen R. LaNeve
  Title: Chief Executive Officer

 

 41 
 

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stephen R. LaNeve and Deina H. Walsh, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Stephen R. LaNeve        
Stephen R. LaNeve  

Chief Executive Officer

(Principal Executive Officer)

 

 

March 28, 2016

         
/s/ Deina H. Walsh        
Deina H. Walsh  

Chief Financial Officer (Principal

Financial Officer and Principal

Accounting Officer)

 

 

March 28, 2016

         
/s/ Bruce Stroever        
Bruce Stroever   Director   March 28, 2016
         
/s/ Dr. Chia Soo        
Dr. Chia Soo   Director   March 28, 2016
         
/s/ William Coffin        
William Coffin   Director   March 28, 2016
         
/s/ John Booth        
John Booth   Director   March 28, 2016
         
/s/ Jimmy Delshad        
Jimmy Delshad   Director   March 28, 2016
         
/s/ Dr. Benjamin Wu   Director   March 28, 2016
Dr. Benjamin Wu        

  

 42 
 

 

Bone Biologics Corporation

 

Contents

 

 

Financial Statements  
   
Report of Independent Registered Public Accounting Firm 44
   
Consolidated Balance Sheets 45
   
Consolidated Statements of Operations 46
   
Consolidated Statements of Stockholders’ Deficit 47
   
Consolidated Statements of Cash Flows 48
   
Notes to Consolidated Financial Statements 49 – 70

 

 43 
 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors

 

Bone Biologics, Corp.

321 Columbus Ave.

Boston, MA 02116

 

We have audited the accompanying consolidated balance sheets of Bone Biologics, Corp. (the “Company”) as of December 31, 2015 and 2014 and the related consolidated statements of operations, consolidated changes in stockholders’ deficit and consolidated cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2015 and 2014 and the consolidated results of its operations and its consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, these conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

 

/s/ Anton & Chia, LLP  
Newport Beach, California  
March 25, 2016  

 

 44 
 

 

Bone Biologics Corporation

Consolidated Balance Sheets

 

   December 31, 2015  December 31, 2014
           
Assets          
           
Current assets          
Cash  $1,115,109   $2,661,396 
Prepaid expenses   85,998    89,517 
Deferred financing fees   873,274    983,857 
Other receivables - related party   -    75,000 
           
Total current assets   2,074,381    3,809,770 
           
Property and equipment, net   5,804    11,621 
           
Total assets  $2,080,185   $3,821,391 
           
Liabilities and Stockholders’ Deficit          
           
Current liabilities          
Accounts payable and accrued expenses  $322,078   $215,389 
Shares to be issued   1,823,077    - 
Note payable to related party   -    3,659,328 
           
Total current liabilities   2,145,155    3,874,717 
           
Note payable, net of debt discount of $1,383,905 and $1,354,806, respectively   5,616,095    3,645,194 
           
Total liabilities   7,761,250    7,519,911 
           
Commitments and Contingencies          
           
Stockholders’ deficit          
Preferred Stock, $0.001 par value per share; 20,000,000 shares authorized; none issued or outstanding at December 31, 2015 and 2014   -    - 
Common stock, $0.001 par value per share; 100,000,000 shares authorized; 32,211,956 and 24,269,047 shares issued and outstanding at December 31, 2015 and 2014, respectively   32,212    24,269 
Additional paid-in capital   20,201,567    8,315,128 
Accumulated deficit   (25,914,844)   (12,037,917)
           
Total stockholders’ deficit   (5,681,065)   (3,698,520)
           
Total liabilities and stockholders’ deficit  $2,080,185   $3,821,391 

  

See accompanying notes to consolidated financial statements.

 

 45 
 

 

Bone Biologics Corporation

Statements of Operations

 

   Year Ended
December 31, 2015
  Year Ended
December 31, 2014
       
Revenues  $   $- 
           
Cost of revenues       - 
           
Gross profit       - 
           
Operating expenses          
Research and development   3,666,108     623,522 
General and administrative   8,329,978     1,509,306 
Transaction costs       877,776 
           
Total operating expenses   11,996,086     3,010,604 
           
Loss from operations   (11,996,086 )   (3,010,604)
           
Other expenses          
Other expense       (9,624)
Interest expense, net   (1,872,001 )   (1,402,585)
           
Total other expenses   (1,872,001)    (1,412,209)
           
Loss before provision for income taxes   (13,868,087 )   (4,422,813)
           
Provision for income taxes   8,840     1,600 
           
Net loss  $(13,876,927 )  $(4,424,413)
           
Weighted average shares outstanding - basic and diluted   28,462,386     14,952,205 
           
Loss per share - basic and diluted  $(0.49 )  $(0.30)

 

See accompanying notes to consolidated financial statements.

 

 46 
 

 

Bone Biologics Corporation

Consolidated Statements of Stockholders’ Deficit

 

    Common Stock     Additional
Paid-in
    Accumulated     Total
Stockholders’
 
    Shares     Amount     Capital     Deficit     Deficit  
                               
Balance at December 31, 2013     10,928,099     $ 10,928     $ 1,994,470     $ (7,613,504 )   $ (5,608,106 )
                                         
Warrants issued in connection with Notes Payable                     2,312,755       -       2,312,755  
                                         
Issuance of common stock, net of issuance costs     500,000       500       479,500       -       480,000  
                                         
Shares issued to existing AFH Acquisition X, Inc. shareholders     3,853,600       3,854       (3,854 )     -       -  
                                         
Debt converted into common shares     2,658,234       2,658       2,488,350       -       2,491,008  
                                         
Warrants issued for Services     -       -       787,266       -       787,266  
                                         
Stock Compensation     -       -       256,641       -       256,641  
                                         
Common shares issued for collateral on note payable     6,329,114       6,329       -       -       6,329  
                                         
Net Loss     -       -       -       (4,424,413 )     (4,424,413)  
                                         
Balance at December 31, 2014     24,269,047     $ 24,269     $ 8,315,128     $ (12,037,917 )   $ (3,698,520 )
                                         
Stock Compensation     -       -       3,291,434       -       3,291,434  
                                         
Warrants issued for Services     -       -       860,502       -       860,502  
                                         
Warrants issued in connection with Notes Payable     -       -       652,200       -       652,200  
                                         
Common shares issued for collateral on note payable     2,531,646       2,532       -         -     2,532  
                                         
Shares issued for Services     2,105,637       2,106       3,232,837       -       3,234,943  
                                         
Claw-back shares issued to AFH Acquisition X, Inc. shareholders     867,163       867       (867 )     -       -  
                                         
Debt converted into common shares     2,438,463       2,438       3,850,333       -       3,852,771  
                                         
Net Loss     -       -       -       (13,876,927 )     (13,876,927)  
                                         
Balance at December 31, 2015     32,211,956     $ 32,212     $ 20,201,567     $ (25,914,844 )   $ (5,681,065 )

 

See accompanying notes to consolidated financial statements.

 

 47 
 

 

Bone Biologics Corporation

Statements of Cash Flows

 

  

Year Ended

December 31, 2015

  Year Ended
December 31, 2014
       
Operating activities          
Net loss  $(13,876,927)  $(4,424,413)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Depreciation   4,451    280 
Interest expense   105,669    318,215 
Amortization of deferred financing costs   661,617    60,398 
Debt discount amortization   623,101    437,115 
Stock-based compensation   3,700,431    256,642 
Warrants issued with Line of Credit   -    520,487 
Warrants issued to consultants   497,003    379,349 
Loss on sale of marketable securities   -    9,624 
Shares issued for services   2,825,943    - 
Transaction costs financed through notes payable   -    590,000 
Shares to be issued for research & development services   1,823,077    - 
Loss on disposal of fixed equipment   1,870    - 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   3,519    (78,750)
Deferred financing costs   (185,000)   (543,401)
Other receivables - related party   75,000    (75,000)
Advances due to related party   -    (41,300)
Accounts payable and accrued expenses   194,463    (164,864)
           
Net cash (used in) operating activities   (3,545,783)   (2,755,618)
           
Investing activities          
Purchase of property and equipment   (504)   (11,901)
Proceeds from sale of marketable securities   -    37,377 
           
Net cash (used in) provided by investing activities   (504)   25,476 
           
Financing activities          
Proceeds from the issuance of common stock   -    480,000 
Repayment of debt   -    (590,000)
Proceeds from issuance of notes payable - related party   -    553,371 
Repayment of notes payable - related party   -    (303,371)
Proceeds from issuance of notes payable   2,000,000    5,250,000 
           
Net cash provided by financing activities   2,000,000    5,390,000 
           
Net increase (decrease) in cash   (1,546,287)   2,659,858 
           
Cash, beginning of period   2,661,396    1,538 
Cash, end of period  $1,115,109   $2,661,396 
           
Supplemental non-cash information          
Legal expenses paid through relief of related party receivable  $75,000   $- 
Issuance of warrants in connection with Notes Payable, net of amortization included above  $-   $248,744 
Related Party Debt and accrued interest converted into Common Shares  $3,852,771   $- 
Issuance of warrants in payment of financing fees  $-   $21,738 
Note payable received in the form of investments  $-   $50,000 
Interest paid  $544,708   $72,014 
Taxes paid  $8,840   $1,600 

 

See accompanying notes to consolidated financial statements.

 

 48 
 

 

Bone Biologics Corporation

Notes to Consolidated Financial Statements

 

1. The Company

 

Bone Biologics Corporation (the “Company”) was incorporated under the laws of the State of Delaware on October 18, 2007 as AFH Acquisition X, Inc. Pursuant to a Merger Agreement, dated September 19, 2014, by and among the Company, its wholly-owned subsidiary, Bone Biologics Acquisition Corp., a Delaware corporation (“Merger Sub”), and Bone Biologics, Inc. Merger Sub merged with and into Bone Biologics Inc., with Bone Biologics remaining as the surviving corporation in the Merger. Upon the consummation of the Merger, the separate existence of Merger Sub ceased. On September 22, 2014 the Company officially changed its name to “Bone Biologics Corporation” (“Bone” or “Bone Biologics”) to more accurately reflect the nature of its business and Bone Biologics, Inc. became a wholly-owned subsidiary of the Company. Bone Biologics, Inc. was incorporated in California on March 9, 2004.

 

Bone is a biotechnology company that is currently focused on bone regeneration in spinal fusion using the recombinant human protein, known as UCB-1 (or “NELL-1”). The NELL-1 protein is an osteoinductive recombinant protein that provides target specific control over bone regeneration. The protein has been licensed exclusively for worldwide applications to Bone Biologics through a technology transfer from the University of California, Los Angeles (“UCLA”). Bone Biologics received guidance from the United States Food and Drug Administration (“FDA”) that NELL-1 will be classified as a combination product with a device lead.

 

The Company is a development stage entity. The production and marketing of the Company’s products and its ongoing research and development activities will be subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any drug developed by the Company must undergo rigorous preclinical (animal) and clinical (human) testing and an extensive regulatory approval process implemented by the FDA under the Food, Drug and Cosmetic Act. The Company has limited experience in conducting and managing the preclinical and clinical testing necessary to obtain regulatory approval. There can be no assurance that the Company will not encounter problems in clinical trials that will cause the Company or the FDA to delay or suspend clinical trials.

 

The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.

 

Recapitalization

 

In connection with the Merger, the 5,000,000 outstanding shares of common stock of the Company, par value $0.001 per share (“Common Stock”), prior to the Merger were consolidated into 3,853,600 shares of Common Stock and the remaining shares were cancelled.

 

Additionally, all of the issued and outstanding shares of Bone Biologics Inc.’s $0.0001 par value common stock converted into a combined total of 19,897,587 shares of the Company’s Common Stock (including 2,151,926 shares issuable upon the exercise of outstanding warrants and 5,648,658 shares issuable upon the conversion of debt). In exchange, Bone Biologics agreed to pay AFH Holding & Advisory, LLC (“AFH”) the principal sum of $590,000.

 

Going Concern and Liquidity

 

The Company has no significant operating history and, since inception to December 31, 2015, has generated a net loss of approximately $25.9 million. The Company will continue to incur significant expenses for development activities for their lead product NELL-1. Operating expenditures for the next twelve months are estimated at $6.9 million. The accompanying consolidated financial statements for the year ended December 31, 2015 have been prepared assuming the Company will continue as a going concern. In connection with the LOI (See Note 5), management intends to raise additional debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet the Company’s needs.

 

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2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements and related notes included activities of the Company and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

Use of Estimates

 

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period. Significant estimates include warrants and income tax valuation allowances. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company’s consolidated financial instruments are accounts payable and notes payable. The recorded values of accounts payable approximate their values based on their short term nature. Notes payable are recorded at their issue value or if warrants are attached at their issue value less the value of the warrant.

 

The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last is considered unobservable:

 

Level 1: Quoted prices in active markets for identical assets or liabilities.

 

Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 assumptions: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities including liabilities resulting from embedded derivatives associated with certain warrants to purchase common stock.

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, ranging from three to seven years. Expenditures for additions and improvements are capitalized, while repairs and maintenance costs are expensed as incurred. The cost and related accumulated depreciation of property and equipment sold or otherwise disposed of are removed from the accounts and any gain or loss is recorded in the year of disposal.

 

Impairment of Long-Lived Assets

 

The long-lived assets held and used by the Company are reviewed for impairment no less frequently than annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability is performed. Management has determined that there was no impairment in the value of long-lived assets during the year ended December 31, 2015.

 

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Research and Development Costs

 

Research and development costs include, but are not limited to, patents and license expenses, payroll and other personnel expenses, consultants, expenses incurred under agreements with contract research and manufacturing organizations and animal clinical investigative sites and the cost to manufacture clinical trial materials. Costs related to research, design and development of products are charged to research and development expense as incurred.

 

Patents and Licenses

 

In March 2006, the Company entered into an exclusive license agreement (“Exclusive License Agreement”), with UCLA for the worldwide application of the NELL-1 protein through a technology transfer. See Note 5 for commitments related to the Exclusive License Agreement. Patent expenses include costs to acquire the license of Nell -1, which was de minimus, and costs to file patent applications related to NELL-1.

 

The Company expenses the costs incurred to file patent applications, all costs related to abandoned patent applications and maintenance costs, and these costs are included in research and development expenses. Costs associated with licenses acquired to be able to use products from third parties prior to receipt of regulatory approval to market the related products are also expensed. The Company’s licensed technologies may have alternative future uses in that they are enabling (or platform) technologies that can be the basis for multiple products that would each target a specific indication. Costs of acquisition of licenses are expensed.

 

Deferred Financing Costs

 

Deferred financing costs represent costs incurred in connection with the issuance of the convertible notes payable and private equity financing. Deferred financing costs related to the issuance of debt are being amortized over the term of the financing instrument using the effective interest method, while deferred financing costs from equity financings are netted against the gross proceeds received from the equity financings.

 

As a result, the deferred financing cost as of December 31, 2014 was $983,857. During the year ended December 31, 2015, the Company incurred and capitalized $551,034 related cost associated with the May 2015 financing. As of December 31, 2015, the deferred financing cost was $873,274. Amortization of deferred financing costs was $661,617 and $60,398 for the years ended December 31, 2015 and 2014, respectively.

 

Other receivables – related party

 

Other receivables – related party represented a receivable from AFH, a shareholder, for fees paid on their behalf for legal services. In 2015 the Company offset the receivable against legal expenses incurred by AFH for Company expenses.

 

Concentration of Credit Risk and Other Risks and Uncertainties

 

Cash balances are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced