Item
1. Financial Statements.
Bone
Biologics Corporation
Condensed
Consolidated Balance Sheets
See
accompanying notes to unaudited condensed consolidated financial statements.
Bone
Biologics Corporation
Condensed
Consolidated Statements of Operations
See
accompanying notes to unaudited condensed consolidated financial statements.
Bone
Biologics Corporation
Consolidated
Statement of Stockholders’ Equity
For
the Three Months ended March 31, 2022
(unaudited)
See
accompanying notes to unaudited condensed consolidated financial statements.
Bone
Biologics Corporation
Consolidated
Statement of Stockholders’ Deficit
For
the Three Months ended March 31, 2021
(unaudited)
| |
Common
Stock | | |
Additional
Paid-in | | |
Accumulated | | |
Total
Stockholders’ | |
| |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
| |
| | |
| | |
| | |
| | |
| |
Balance
at December 31, 2020 | |
| 12,273,036 | | |
$ | 12,273 | | |
$ | 55,160,339 | | |
$ | (68,864,922 | ) | |
$ | (13,692,310 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net
Loss | |
| - | | |
| - | | |
| - | | |
| (431,747 | ) | |
| (431,747 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at March 31, 2021 | |
| 12,273,036 | | |
$ | 12,273 | | |
$ | 55,160,339 | | |
$ | (69,296,669 | ) | |
$ | (14,124,057 | ) |
See
accompanying notes to unaudited condensed consolidated financial statements.
Bone
Biologics Corporation
Condensed
Consolidated Statements of Cash Flows
See
accompanying notes to unaudited condensed consolidated financial statements.
Bone
Biologics Corporation
Notes
to Unaudited Condensed Consolidated Financial Statements
For
the three months ended March 31, 2022
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 Inc. 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” 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 September 9, 2004.
We
are a medical device 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 osteostimulative 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 Technology Development Group on behalf of UC Regents (“UCLA TDG”). UCLA TDG
and the Company received guidance from the FDA that NELL-1/DBX® will be classified as a combination product with a device lead.
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 combination product
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. 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.
On
October 12, 2021, an amendment to our certificate of incorporation for a reverse split of the Company’s outstanding common stock
at a ratio of 1 for 2.5 became effective. All share and per share amounts have been retro-actively restated as of the reverse split occurred
at the beginning of the earliest period presented.
Going
Concern and Liquidity
The
Company has no significant operating history and since inception to March 31, 2022 has incurred accumulated losses of approximately $71.1
million. The Company will continue to incur significant expenses for development activities for their lead product NELL-1/DBX®. Operating
expenditures for the next twelve months are estimated at $6.5 million. The accompanying consolidated financial statements for the three
months ended March 31, 2022 have been prepared assuming the Company will continue as a going concern. As reflected in the financial statements,
the Company incurred a net loss of $689,499, and used net cash in operating activities of $860,779 during the three months ended March
31, 2022. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after
the date that the financial statements are issued. In addition, our independent accounting firm, in its audit report to the financial
statements included in our Annual Report for the year ended December 31, 2021, expressed substantial doubt about our ability to continue
as a going concern. The consolidated financial statements do not include any adjustments related to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue
as a going concern.
On
October 15, 2021, the Company completed a public offering generating net proceeds to the Company of $6,858,843.
The
Company will continue to attempt 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. If cash resources are insufficient to satisfy the Company’s on-going cash requirements, the Company
will be required to scale back or discontinue its product development programs, or obtain funds if available (although there can be no
certainties) through strategic alliances that may require the Company to relinquish rights to its technology, substantially reduce or
discontinue its operations entirely. No assurance can be given that any future financing will be available or, if available, that it
will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue
restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity
financing.
For
the past several years, we have depended on our relationship with Hankey Capital for working capital to fund our operations, which has
been raised in the form of both debt and equity capital. Hankey Capital, directly and indirectly, controls approximately 70% of our issued
and outstanding shares of common stock. However, no assurance can be given that any future financing from Hankey Capital will be available
or, if available, that it will be on terms that are satisfactory to the Company. In the absence of financing from other sources, the
inability to obtain additional financing from Hankey Capital will result in the scaling back or discontinuance of our product development
programs or operations entirely.
2.
Summary of Significant Accounting Policies
Basis
of Presentation
The
interim condensed consolidated financial statements included herein reflect all material adjustments (consisting of normal recurring
adjustments and reclassifications and non-recurring adjustments) which, in the opinion of management, are ordinary and necessary for
a fair presentation of results for the interim periods. Certain information and footnote disclosures required under the accounting principles
generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission (the “SEC”). The Company believes that the disclosures are adequate to make the
information presented not misleading. The condensed consolidated balance sheet information as of December 31, 2021 was derived from the
audited consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on March 15,
2022 (the “2021 Annual Report”). These condensed consolidated financial statements should be read in conjunction with the
Company’s audited financial statements for the year ended December 31, 2021 and notes thereto included in the 2021 Annual Report.
The
results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the
entire fiscal year ended December 31, 2022 or for any other period.
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
the assumptions used in the accrual for potential liabilities, the valuation of stock options and warrants issued for services, and deferred
tax valuation allowances. Actual results could differ from those estimates.
Impact
of the Novel Coronavirus (COVID-19) on the Company’s Business Operations
The
global outbreak of the novel coronavirus (COVID-19) has led to severe disruptions in general economic activities worldwide, as businesses
and governments have taken broad actions to mitigate this public health crisis. In
light of the uncertain and continually evolving situation relating to the spread of COVID-19, this pandemic could pose a risk to the
Company. The extent to which the coronavirus may impact the Company’s business operations will depend on future developments, which
are highly uncertain and cannot be predicted at this time. The Company intends to continue to monitor the situation and may adjust its
current business plans as more information and guidance become available.
The
coronavirus pandemic presents a challenge to medical facilities worldwide. As the Company’s clinical trials are conducted on an
outpatient basis, it is not currently possible to predict the full impact of this developing health crisis on such clinical trials, which
could include delays in and increased costs of such clinical trials. Current indications from the clinical research organizations conducting
the clinical trials for the Company are that such clinical trials are being delayed or extended for several months as a result of the
coronavirus pandemic.
There
is also significant uncertainty as to the effect that the coronavirus may have on the amount and type of financing available to the Company
in the future.
Fair
Value of Financial Instruments
The
Company’s consolidated financial instruments are cash and accounts payable. The recorded values of cash and accounts payable approximate
their values based on their short-term nature.
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 nine 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.
Stock
Based Compensation
ASC
718, Compensation – Stock Compensation, prescribes accounting and reporting standards for all share-based payment transactions
in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options,
and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees,
including grants of employee stock options, are recognized as compensation expense in the consolidated financial statements based on
their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for
the award, known as the requisite service period (usually the vesting period).
Loss
per Common Share
The
Company utilizes FASB ASC Topic No. 260, Earnings per Share. Basic loss per share is computed by dividing loss available to common
shareholders by the weighted-average number of common shares outstanding. Shares issued for collateral for outstanding loans of -0- and
9,361,702 at March 31, 2022 and 2021, respectively are excluded from weighted average shares outstanding. Diluted loss per share is computed
similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would
have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted loss
per common share reflects the potential dilution that could occur if convertible debentures, options and warrants were to be exercised
or converted or otherwise resulted in the issuance of common stock that then shared in the earnings of the entity.
Since
the effects of outstanding options, warrants, and the conversion of convertible debt are anti-dilutive for the period ended March 31,
2022 and 2021, shares of common stock underlying these instruments have been excluded from the computation of loss per common share.
The
following sets forth the number of shares of common stock underlying outstanding options, warrants, and convertible debt as of March
31, 2022 and 2021:
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share
| |
March
31, | |
| |
2022 | | |
2021 | |
Warrants | |
| 1,827,650 | | |
| 33,303 | |
Stock
options | |
| 342,294 | | |
| 192,281 | |
Convertible
promissory notes | |
| - | | |
| 4,768,774 | |
| |
| 2,169,944 | | |
| 4,994,358 | |
New
Accounting Standards
Recent
accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future consolidated financial statements.
3.
Stockholders’ Deficit
Preferred
Stock
The
Company’s amended and restated certificate of incorporation authorizes the Company to issue a total of 20,000,000 shares of preferred
stock. No shares have been issued.
Common
Stock
The
Company’s amended and restated certificate of incorporation authorizes the Company to issue a total of 100,000,000
shares of common stock. As of March 31, 2022
and December 31, 2021, the Company had an aggregate of 10,350,579
and 10,350,574
shares of common stock outstanding, respectively.
Common
Stock Warrants
A
summary of warrant activity for the period ended March 31, 2022 is presented below:
Schedule of Warrant Activity
| |
Number
of | | |
Weighted
Average Exercise | | |
Weighted
Average | |
Subject
to Exercise | |
Warrants | | |
Price | | |
Life
(Years) | |
Outstanding
as of December 31, 2021 | |
| 1,827,650 | | |
$ | 6.30 | | |
| 4.79 | |
Granted
– 2022 | |
| - | | |
| - | | |
| - | |
Forfeited/Expired
– 2022 | |
| - | | |
| - | | |
| - | |
Exercised
– 2022 | |
| - | | |
| - | | |
| - | |
Outstanding
as of March 31, 2022 | |
| 1,827,650 | | |
$ | 6.30 | | |
| 4.54 | |
As
of March 31, 2022, the Company had outstanding vested and unexercised Common Stock Warrants as follows:
Schedule of Outstanding Vested and Unexercised Common Stock Warrants
Date
Issued | |
Exercise
Price | | |
Number
of Warrants | | |
Expiration
date |
October
2021 | |
$ | 6.30 | | |
| 1,737,023 | | |
October
13, 2026 |
October
2021 | |
$ | 6.30 | | |
| 90,627 | | |
October
13, 2026 |
| |
| | | |
| | | |
|
Total
outstanding warrants at March 31, 2022 | |
| | | |
| 1,827,650 | | |
|
Based
on a fair market value of $2.78 per share on March 31, 2022, there were no exercisable but unexercised in-the-money common stock warrants
on that date. Accordingly, there was no intrinsic value attributed to exercisable but unexercised common stock warrants at March 31,
2022.
4.
Stock-based Compensation
2015
Equity Incentive Plan
The
Company has 560,000 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 is 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.
A
summary of stock option activity for the period ended March 31, 2022, is presented below:
Schedule
of Stock Option Activities
| |
Number
of | | |
Weighted
Average Exercise | | |
Weighted
Average | | |
Aggregate
Intrinsic | |
Subject
to Exercise | |
Options | | |
Price | | |
Life
(Years) | | |
Value | |
Outstanding
as of December 31, 2021 | |
| 241,128 | | |
$ | 32.76 | | |
| 5.43 | | |
$ | 9,445 | |
Granted
– 2022 | |
| 101,166 | | |
| 3.67 | | |
| 4.07 | | |
| - | |
Forfeited/Expired
– 2022 | |
| - | | |
| - | | |
| - | | |
| - | |
Exercised
– 2022 | |
| - | | |
| - | | |
| - | | |
| - | |
Outstanding
as of March 31, 2022 | |
| 342,294 | | |
$ | 24.16 | | |
| 5.05 | | |
$ | 9,445 | |
As
of March 31, 2022, the Company had outstanding stock options as follows:
Schedule of Outstanding Stock Options
Date
Issued | |
Exercise
Price | | |
Number
of Options | | |
Expiration
date |
August
2015 | |
$ | 39.75 | | |
| 41,624 | | |
December
27, 2025 |
September 2015 | |
$ | 39.75 | | |
| 8,000 | | |
December
27, 2025 |
November 2015 | |
$ | 39.75 | | |
| 48,986 | | |
December
27, 2025 |
December 2015 | |
$ | 39.75 | | |
| 2,228 | | |
December
27, 2025 |
January 2016 | |
$ | 39.75 | | |
| 51,032 | | |
January
9, 2026 |
May 2016 | |
$ | 51.25 | | |
| 10,766 | | |
May
26, 2026 |
September 2016 | |
$ | 51.25 | | |
| 3,973 | | |
May
31, 2026 |
January 2017 | |
$ | 51.25 | | |
| 2,142 | | |
January
1, 2027 |
January 2018 | |
$ | 49.25 | | |
| 1,566 | | |
January
1, 2028 |
January 2019 | |
$ | 2.35 | | |
| 21,964 | | |
January
1, 2029 |
October 2021 | |
$ | 5.25 | | |
| 48,847 | | |
October
26, 2031 |
January 2022 | |
$ | 3.52 | | |
| 26,166 | | |
January
1, 2032 |
January 2022 | |
$ | 3.72 | | |
| 50,000 | | |
January
1, 2024 |
January
2022 | |
$ | 3.72 | | |
| 25,000 | | |
January
3, 2024 |
| |
| | | |
| | | |
|
Total
outstanding options at March 31, 2022 | |
| | | |
| 342,294 | | |
|
The
aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (i.e. , the difference between our closing
stock price on the respective date and the exercise price, times the number of shares) that would have been received by the option holders
had all option holders exercised their options. No options were exercised and none cancelled during the period ended March 31, 2022.
There
were 101,166 options granted during the period ended March 31, 2022 with a fair value of $171,592. Vesting of options differs based on
the terms of each option. The Company has valued the options at their date of grant utilizing the Black-Scholes option pricing model.
As of the issuance of these consolidated financial statements, there was no active public market for the Company’s shares. Accordingly,
the fair value of the options was determined based on the historical volatility data of similar companies, considering the industry,
products and market capitalization of such other entities. The risk-free interest rate used in the calculations is based on the implied
yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options as calculated using the
simplified method. The expected life of the options used was based on the contractual life of the option granted. Stock-based compensation
is a non-cash expense because we settle these obligations by issuing shares of our common stock from our authorized shares instead of
settling such obligations with cash payments.
During
the period ended March 31, 2022 and 2021, the Company had stock-based compensation expense of $152,844 and $-0-, respectively, related
to the vesting of stock options granted to the Company’s employees and directors included in our reported net loss. Our policy
is to account for forfeitures of the unvested portion of option grants when they occur; therefore, these forfeitures are recorded as
a reversal to expense, which can result in a credit balance in the statement of operations.
The
Company utilized the Black-Scholes option-pricing model. The assumptions used for the periods ended March 31, 2022 and 2021 are as follows:
Schedule
of Assumptions Using Black-Scholes Option Pricing Model
| |
| March
31, 2022 | | |
| March
31, 2021 | |
Risk
free interest rate | |
| 0.39%
- 1.279 | % | |
| - | % |
Expected
life (in years) | |
| 1.00
- 5.37 | | |
| - | |
Expected
Volatility | |
| 96.24%
- 112.54 | % | |
| - | % |
Expected
dividend yield | |
| - | % | |
| - | % |
A
summary of the changes in the Company’s non-vested options during the period ended March 31, 2022, is as follows:
Schedule
of Stock Options Non-vested
| |
Number
of Non-vested Options | | |
Weighted
Average Fair Value at
Grant Date | |
Non-vested at December
31, 2021 | |
| - | | |
$ | - | |
Granted
in 2022 | |
| 101,166 | | |
$ | 1.77 | |
Forfeited
in 2022 | |
| - | | |
$ | - | |
Vested
in 2022 | |
| (88,083 | ) | |
$ | 1.60 | |
Non-vested at March
31, 2022 | |
| 13,083 | | |
$ | 2.87 | |
Exercisable
at March 31, 2022 | |
| 329,211 | | |
$ | 22.57 | |
Outstanding
at March 31, 2022 | |
| 342,294 | | |
$ | 21.81 | |
As
of March 31, 2022, total unrecognized compensation cost related to unvested stock options was $18,748. The cost is expected to be recognized
over a weighted average period of 0.25 years.
5.
Commitments and Contingencies
UCLA
TDG Exclusive License Agreement
Effective
April 9, 2019, the Company entered into an Amended and Restated Exclusive License Agreement dated as of March 21, 2019 (the “Amended
License Agreement”) with the UCLA TDG. The Amended License Agreement amends and restates the Amended and Restated Exclusive License
Agreement, dated as of June 19, 2017 (the “2017 Agreement”). The 2017 Agreement amended and restated the Exclusive License
Agreement, effective March 15, 2006, between the Company and UCLA TDG, as amended by ten amendments. Under the terms of the Amended License
Agreement, the Regents have continued to grant the Company exclusive rights to develop and commercialize NELL-1 (the “Licensed
Product”) for spinal fusion, osteoporosis and trauma applications. The Licensed Product is a recombinant human protein growth factor
that is essential for normal bone development.
We
have agreed to pay an annual maintenance fee to UCLA TDG of $10,000 as well as to pay certain royalties to UCLA TDG under the Restated
License Agreement at the rate of 3.0% of net sales of licensed products. We must pay the royalties to UCLA TDG 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 TDG patents, then we may
reduce the royalty owed to UCLA TDG 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 TDG patent, then we will pay to UCLA TDG 10% to 20% of the sublicensing income we receive from such sublicense.
We
are obligated to make the following milestone payments to UCLA TDG 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: |
|
|
|
|
● |
$
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 TDG a cash milestone payment within thirty (30) days of a Liquidity Event (including a Change of Control
Transaction and a payment election by UCLA TDG exercisable after December 22, 2019) 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 TDG patents set forth in the Restated
License Agreement. UCLA TDG 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 Restated License Agreement.
We
must reimburse or pre-pay UCLA TDG for patent prosecution and maintenance costs incurred during the term of the Restated License Agreement.
We have the right to bring infringement actions against third party infringers of the Restated License Agreement, UCLA TDG may join voluntarily,
at its own expense, or, at our expense, be joined involuntarily to the action. We are required to indemnify UCLA TDG against any third
party claims arising out of our exercise of the rights under the Restated License Agreement or any sublicense.
On
August 13, 2020 the Company and UCLA TDG entered into a First Amendment to the Amended and Restated License Agreement pursuant to which
the due dates for certain Development Milestones were updated to better reflect delays caused by the COVID-19 Pandemic and to address
the Company’s failure to pay certain amounts with regard to patent prosecution, cost reimbursement, maintenance fees, and late
fees, and in connection therewith, a revised payment schedule was set forth.
On
June 30, 2021 the Company and UCLA TDG entered into a Second Amendment to the Amended and Restated License Agreement pursuant to which
the due dates for certain Development Milestones was updated to better reflect delays caused by the COVID-19 Pandemic.
We
must reimburse or pre-pay UCLA TDG for patent prosecution and maintenance costs incurred during the term of the Amended License Agreement.
We have the right to bring infringement actions against third party infringers of the Amended License Agreement, UCLA TDG may join voluntarily,
at its own expense, or, at our expense, be joined involuntarily to the action. We are required to indemnify UCLA TDG against any third
party claims arising out of our exercise of the rights under the Amended License Agreement or any sublicense.
Payments
to UCLA TDG under the Amended License Agreement for the three months ended March 31, 2022 and 2021 were $10,000 and $45,500, respectively.
Contingencies
The
Company is subject to claims and assessments from time to time in the ordinary course of business. The Company’s management does
not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s business,
financial condition, results of operations or cash flows.
In
July 2019, Dr. Bessie (Chia) Soo and Dr. Kang (Eric) Ting (“Plaintiffs”) filed a complaint (the “Complaint”)
in federal court in Massachusetts against the Company, Bruce Stroever (“Stroever”), John Booth (“Booth”), Stephen
LaNeve (“LaNeve”, and together with Stroever and Booth, the “Individual Defendants”), and MTF Biologics (f/k/a
The Musculoskeletal Transplant Foundation, Inc.) (“MTF”). The Complaint alleges claims for breach of contract against the
Company and tortious interference with contract against the Individual Defendants and MTF arising from the termination of the Professional
Service Agreements, dated as of January 8, 2016, between the Company and each of the Plaintiffs. The Individual Defendants have been
sued for actions taken by them in connection with their service to the Company as directors and/or officers of the Company. As such,
the Company has certain indemnification obligations to the Individual Defendants. The Company and the Individual Defendants intend to
vigorously defend against the allegations in the Complaint. Based on the very early stage of the litigation, it is not possible to estimate
the amount or range of any possible loss arising from the expenditure of defense fees, a judgment or settlement of the matter.
6.
Subsequent Events
The
Company has evaluated subsequent events through May 13, 2022, the date which the consolidated financial statements were available to
be issued. There were no additional subsequent events noted that would require adjustment to or disclosure in these consolidated financial
statements.
Item
2. Management’s Discussion and Analysis.
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed
consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and audited consolidated
financial statements for the years ended December 31, 2021 and 2020 and the related notes included in our Annual Report on Form 10-K
filed for the fiscal year ended December 31, 2021, with the SEC on March 15, 2022. This discussion contains forward-looking statements
reflecting our current expectations that involve risks and uncertainties. See “Note Regarding Forward-Looking Statements”
for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events
could differ materially from those discussed in our forward-looking statements as a result of many factors.
Overview
We
are a medical device 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 osteostimulative 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 Technology Development Group on behalf of UC Regents (“UCLA
TDG”). UCLA TDG 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.
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
TDG Exclusive License Agreement
Effective
April 9, 2019, the Company entered into an Amended and Restated Exclusive License Agreement dated as of March 21, 2019 (the “Amended
License Agreement”) with the UCLA TDG. The Amended License Agreement amends and restates the Amended and Restated Exclusive License
Agreement, dated as of June 19, 2017 (the “2017 Agreement”). The 2017 Agreement amended and restated the Exclusive License
Agreement, effective March 15, 2006, between the Company and UCLA TDG, as amended by ten amendments. Under the terms of the Amended License
Agreement, the Regents have continued to grant the Company exclusive rights to develop and commercialize NELL-1 (the “Licensed
Product”) for spinal fusion, osteoporosis and trauma applications. The Licensed Product is a recombinant human protein growth factor
that is essential for normal bone development.
We
have agreed to pay an annual maintenance fee to UCLA TDG of $10,000 as well as to pay certain royalties to UCLA TDG under the Restated
License Agreement at the rate of 3.0% of net sales of licensed products. We must pay the royalties to UCLA TDG 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 TDG patents, then we may
reduce the royalty owed to UCLA TDG 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 TDG patent, then we will pay to UCLA TDG 10% to 20% of the sublicensing income we receive from such sublicense.
We
are obligated to make the following milestone payments to UCLA TDG 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 TDG a cash milestone payment within thirty (30) days of a Liquidity Event (including a Change of Control
Transaction and a payment election by UCLA TDG exercisable after December 22, 2019) 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 TDG patents set forth in the Restated
License Agreement. UCLA TDG 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 Restated License Agreement.
We
must reimburse or pre-pay UCLA TDG for patent prosecution and maintenance costs incurred during the term of the Restated License Agreement.
We have the right to bring infringement actions against third party infringers of the Restated License Agreement, UCLA TDG may join voluntarily,
at its own expense, or, at our expense, be joined involuntarily to the action. We are required to indemnify UCLA TDG against any third
party claims arising out of our exercise of the rights under the Restated License Agreement or any sublicense.
On
August 13, 2020 the Company and UCLA TDG entered into a First Amendment to the Amended and Restated License Agreement pursuant to which
the due dates for certain Development Milestones were updated to better reflect delays caused by the COVID-19 Pandemic and to address
the Company’s failure to pay certain amounts with regard to patent prosecution, cost reimbursement, maintenance fees, and late
fees, and in connection therewith, a revised payment schedule was set forth.
On
June 30, 2021 the Company and UCLA TDG entered into a Second Amendment to the Amended and Restated License Agreement pursuant to which
the due dates for certain Development Milestones was updated to better reflect delays caused by the COVID-19 Pandemic.
Results
of Operations
Impact
of the Novel Coronavirus (COVID-19) on the Company’s Business Operations
The
global outbreak of the novel coronavirus (COVID-19) has led to severe disruptions in general economic activities worldwide, as businesses
and governments have taken broad actions to mitigate this public health crisis. In light of the uncertain and continually evolving situation
relating to the spread of COVID-19, this pandemic could pose a risk to the Company. The extent to which the coronavirus may impact the
Company’s business operations will depend on future developments, which are highly uncertain and cannot be predicted at this time.
The Company intends to continue to monitor the situation and may adjust its current business plans as more information and guidance become
available.
The
coronavirus pandemic presents a challenge to medical facilities worldwide. As the Company’s clinical trials will be conducted on
an outpatient basis, it is not currently possible to predict the full impact of this developing health crisis on such clinical trials,
which could include delays in and increased costs of such clinical trials. Current indications from the clinical research organizations
conducting the clinical trials for the Company are that such clinical trials are being delayed or extended for several months as a result
of the coronavirus pandemic.
There
is also significant uncertainty as to the effect that the coronavirus may have on the amount and type of financing available to the Company
in the future.
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.
Three
Months ended March 31, 2022 compared to the Three Months ended March 31, 2021
| |
Three-months
ended
March 31, 2022 | | |
Three-months
ended March 31, 2021 | | |
%
Change | |
Operating
expenses | |
| | | |
| | | |
| | |
Research
and development | |
$ | 36,400 | | |
$ | 45,500 | | |
| (20.00 | )% |
General
and administrative | |
| 620,022 | | |
| 135,424 | | |
| 357.84 | % |
| |
| | | |
| | | |
| | |
Total
operating expenses | |
| 656,422 | | |
| 180,924 | | |
| 262.82 | % |
| |
| | | |
| | | |
| | |
Loss
from operations | |
| (656,422 | ) | |
| (180,924 | ) | |
| 262.82 | % |
| |
| | | |
| | | |
| | |
Interest
expense, related party | |
| - | | |
| (250,823 | ) | |
| (100.00 | )% |
| |
| | | |
| | | |
| | |
Provision
for income taxes | |
| 33,077 | | |
| - | | |
| 100.00 | % |
| |
| | | |
| | | |
| | |
Net
loss | |
$ | (689,499 | ) | |
$ | (431,747 | ) | |
| 59.70 | % |
Research
and Development
Our
research and development decreased from $45,500 during the three months ended March 31, 2021 to $36,400 during the three months ended
March 31, 2022. We continue to implement research activities after curtailing our operations during 2021. We will incur significant expenses
for development activities for NELL-1 in the future.
General
and Administrative
Our
general and administrative expenses increased from $135,424 during the three months ended March 31, 2021 to $620,022 during the three
months ended March 31, 2022. The $484,598 increase was due to resuming operations in 2022. Significant expenses incurred during 2022
were Directors and Officers insurance, directors’ compensation and the revised CFO employment agreement for full-time services.
During the three month period ended March 31, 2022, we engaged the services of an investor relations firm. We also incurred stock based
compensation expense for our directors and management team totalling $152,844.
Interest
Expense
Our
interest expense decreased from $250,823 for the three months ended March 31, 2021 to $-0- during the three months ended March 31, 2022.
All the outstanding convertible notes were converted in October 2021.
Liquidity
and Capital Resources
The
Company has no significant operating history and since inception to March 31, 2022 has incurred accumulated losses of approximately $71.1
million. The Company will continue to incur significant expenses for development activities for their lead product NELL-1/DBX®. Operating
expenditures for the next twelve months are estimated at $6.5 million. The accompanying consolidated financial statements for the three
months ended March 31, 2022 have been prepared assuming the Company will continue as a going concern. As reflected in the financial statements,
the Company incurred a net loss of $689,499, and used net cash in operating activities of $860,779 during the three months ended March
31, 2022. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after
the date that the financial statements are issued. In addition, our independent accounting firm, in its audit report to the financial
statements included in our Annual Report for the year ended December 31, 2021, expressed substantial doubt about our ability to continue
as a going concern. The consolidated financial statements do not include any adjustments related to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue
as a going concern.
On
October 15, 2021, the Company completed a public offering generating net proceeds to the Company of $6,858,843.
The
Company will continue to attempt 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. If cash resources are insufficient to satisfy the Company’s on-going cash requirements, the Company
will be required to scale back or discontinue its product development programs, or obtain funds if available (although there can be no
certainties) through strategic alliances that may require the Company to relinquish rights to its technology, substantially reduce or
discontinue its operations entirely. No assurance can be given that any future financing will be available or, if available, that it
will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue
restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity
financing.
For
the past several years, we have depended on our relationship with Hankey Capital for working capital to fund our operations, which has
been raised in the form of both debt and equity capital. Hankey Capital, directly and indirectly, controls approximately 70% of our issued
and outstanding shares of common stock. However, no assurance can be given that any future financing from Hankey Capital will be available
or, if available, that it will be on terms that are satisfactory to the Company. In the absence of financing from other sources, the
inability to obtain additional financing from Hankey Capital will result in the scaling back or discontinuance of our product development
programs or operations entirely.
As
of March 31, 2022 and December 31, 2021, we had cash of $5,814,586 and $6,675,365, respectively.
We
anticipate that it will require approximately $10 million to complete first in man studies, and an estimated additional $27 million to
achieve FDA approval for a spine interbody fusion indication.
Cash
Flows
Operating
activities
During
the three months ended March 31, 2022 and 2021, cash used in operating activities was $860,779 and $127,983, respectively. Cash expenditures
for the three months ended March 31, 2022 increased primarily due to Directors and Officers insurance, directors’ compensation
and the revised CFO employment agreement for full-time services.
Financing
activities
During
the three months ended March 31, 2022, there were no financing activities. During the three months ended March 31, 2021, cash provided
by financing activities of $199,148 resulted from draws on our second credit facility with Hankey Capital.
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.