As filed with the Securities and Exchange Commission on September 7, 2017                                Registration No. 333-200156

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-1

 

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

Bone Biologics Corporation
(Exact Name of Registrant as Specified in Its Charter)

 

Delaware   3842   42-1743430
(State or Other Jurisdiction of   (Primary Standard Industrial   (I.R.S. Employer
Incorporation or Organization)   Classification Code Number)   Identification Number)

 

Bone Biologics Corporation

2 Burlington Woods Drive, Ste 100, Burlington, MA 01803

(781) 552-4452

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Officers)

 

Stephen R. LaNeve

Chief Executive Officer

Bone Biologics Corporation

2 Burlington Woods Drive, Ste 100, Burlington, MA 01803

(781) 552-4452

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

Copies to:

David L. Ficksman, Esq.

TroyGould PC

1801 Century Park East

16 th Floor

Los Angeles, California 90067

(310) 553-4441

 

Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: [X]

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in rule 12b-2 of the Exchange Act.

 

[  ] Large accelerated filer [  ] Accelerated filer
   

[  ] Non-accelerated files (Do not check if a smaller reporting company)

[X] Smaller reporting company
   
[X] Emerging growth company  

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 
 

 

Explanatory Note

 

This Post-Effective Amendment No. 2 on Form S-1 (this “Registration Statement”) is filed in compliance with Section 10(a)(3) of the Securities Act of 1933, as amended, to update the Amendment No. 1 to Form S-1 Registration Statement (Registration No. 333-200156), which was previously declared effective by the Securities and Exchange Commission (“SEC”) on August 8, 2016, to include the audited financial statements and the notes thereto included in the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and the interim financial statements included in Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2017 that have been filed with the SEC since the Registration Statement was declared effective by the SEC, and to update the prospectus.

 

All applicable registration fees were paid at the time of the original filing of such Registration Statement on November 12, 2014.

 

The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

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The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED September 7, 2017

 

8,046,129 Shares

 

Bone Biologics Corporation

 

Common Stock

 

This prospectus relates to the resale by selling stockholders named herein of up to an aggregate of 8,046,129 shares of common stock, par value $0.001 per share, of Bone Biologics Corporation. The shares of common stock being registered constitute approximately 20.59% of our outstanding securities, which also includes 621,263 shares issuable upon the exercise of outstanding warrants.

 

The selling stockholders may sell their shares of our common stock on any stock exchange, market or facility on which our common stock may be traded, in privately negotiated transactions or otherwise at market prices prevailing at the time of sale, at prices related to such market prices or at negotiated prices. We have no basis for estimating either the number of shares of our common stock that will ultimately be sold by the selling stockholders or the prices at which such shares will be sold.

 

Our common stock is listed for quotation on the OTC Pink under the symbol “BBLG.” On August 22, 2017, the last reported price per share of our common stock was $5.50 per share.

 

All of the shares of common stock are being sold by the selling stockholders named in this prospectus. We will not receive any of the proceeds from the sale of the shares of common stock being sold by the selling stockholders. We are bearing all of the expenses in connection with the registration of the shares of common stock, but all selling and other expenses incurred by the selling stockholders, including commissions and discounts, if any, attributable to the sale or disposition of the shares will be borne by them.

 

You should read this prospectus, the applicable prospectus supplement, if any, and other offering materials carefully before you invest.

 

An investment in our common stock involves substantial risks. See “Risk Factors” beginning on page 7 of this prospectus.

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is                             , 2017

 

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TABLE OF CONTENTS

 

Prospectus

 

    Page
     
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS   1
SUMMARY   1
RISK FACTORS   7
USE OF PROCEEDS   21
DIVIDEND POLICY   21
DETERMINATION OF OFFERING PRICE   21
DILUTION   21
CAPITALIZATION   21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  

22

BUSINESS   32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT   45
SELLING SHAREHOLDERS   47
MANAGEMENT   49
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  
DESCRIPTION OF SECURITIES    
FEDERAL INCOME TAX CONSEQUENCES   62
PLAN OF DISTRIBUTION   65
LEGAL MATTERS   67
EXPERTS   67
WHERE YOU CAN FIND MORE INFORMATION   68
INDEX TO FINANCIAL STATEMENTS   69

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements. These statements are based on the Company’s (as hereinafter defined) current beliefs, expectations and assumptions about future events, conditions and results and on information currently available to them. All statements, other than statements of historical fact, included herein regarding the Company’s strategy, future operations, financial position, future revenues, projected costs, plans, prospects and objectives are forward-looking statements. Words such as “expect,” “may,” “anticipate,” “intend,” “would,” “plan,” “believe,” “estimate,” “should,” and similar words and expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements. Forward-looking statements in the prospectus include express or implied statements concerning the Company’s future revenues, expenditures, capital or other funding requirements, the adequacy of the Company’s current cash and working capital to fund present and planned operations and financing needs, expansion of and demand for product offerings, and the growth of the Company’s business and operations through acquisitions or otherwise, as well as future economic and other conditions both generally and in the Company’s specific geographic and product markets. These statements are based on currently available operating, financial and competitive information and are subject to various risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements due to a number of factors including, but not limited to, those set forth below in the section entitled “Risk Factors” in prospectus beginning on page 7. Given those risks, uncertainties and other factors, many of which are beyond the Company’s control, you should not place undue reliance on these forward-looking statements.

 

Before purchasing the Shares, you should carefully read and consider the risks described under the section entitled “Risk Factors.” You should be prepared to accept any and all of the risks associated with purchasing the securities, including a loss of all of your investment.

 

The forward-looking statements relate only to events as of the date on which the statements are made. The Company does not undertake any obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, even if experience or future changes make it clear that any projected results or events expressed or implied therein will not be realized. You are advised, however, to consult any further disclosures we make in future public filings, statements and press releases.

 

SUMMARY

 

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our common stock. You should read this entire prospectus, including the section entitled “Risk Factors,” and our financial statements and the notes thereto before deciding to invest in our common stock.

 

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 the 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.

 

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We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700.0 million as of the end of the second quarter of that fiscal year; or (iii) the date on which we have, during the previous three-year period, issued more than $1.07 billion in non-convertible debt securities. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. We have elected to take advantage of these reduced disclosure obligations, and may elect to take advantage of other reduced reporting obligations in the future.

 

The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to irrevocably “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted.

 

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 trials.

 

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.

 

PRODUCTS

 

We have developed a stand-alone platform technology through significant laboratory and small and large animal research over more than ten years to generate the current applications across broad fields of use. The platform technology is our recombinant human protein, known as NELL-1, a proprietary skeletal specific growth factor which is a bone void filler. NELL-1 provides regulation over skeletal tissue formation and stem cell differentiation during bone regeneration. The Company obtained the platform technology pursuant to an exclusive license agreement with UCLA TDG.

 

We are currently focused on bone regeneration in lumbar spinal fusion, in keeping with our exclusive license agreement, using NELL-1 in combination with DBX®, a proprietary demineralized bone matrix from Musculoskeletal Transplant Foundation (“MTF”). The NELL-1/DBX® medical device is a combination product which is an osteostimulative recombinant protein that provides target specific 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.

 

Our lead product is expected to be purified NELL-1 mixed with 510(k) cleared DBX® Demineralized Bone Putty recommended for use in conjunction with applicable hardware consistent with the indication. 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 spine and orthopedic applications.

 

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While the product is initially targeted at the lumbar spine fusion market, in keeping with our exclusive license agreement, 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 greater than 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 optimal use 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 extended period 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 TDG and government grants. Since licensing the exclusive worldwide intellectual property rights from UCLA TDG, our continued development has been funded through various strategic investments. Our research and development expenses, which include the fair value of stock options issued to our consultants, for the years ended December 31, 2016 and 2015 were $11,602,776 and $3,666,108, respectively. We anticipate that it will require an additional $22 million to complete protein synthesis, animal studies, and commence first in man studies. An estimated additional $137 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 laboratory bench models to recapitulate normal human growth and development to provide control over bone and cartilage regeneration.

 

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 to further strengthen the patent portfolio.

 

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. Our focus continues to narrow from the research to the development stage 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.

 

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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.

 

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.

 

We have an intellectual property portfolio that includes exclusive, worldwide licenses from UCLA TDG 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 fifteen (15) UCLA TDG issued patents.

 

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.

 

UCLA TDG Exclusive License Agreement

 

Effective August 18, 2017, the Company entered into an Amended and Restated Exclusive License Agreement (the “Restated License Agreement”) with the UCLA Technology Development Group on behalf of UC Regents (“UCLA TDG”). The Restated License Agreement amends and restates the Exclusive License Agreement, effective March 15, 2006, between the Company and UCLA TDG, as amended by ten amendments. Under the terms of the Restated License Agreement, the Regents have continued to grant the Company exclusive rights to develop and commercialize NELL-1 (the “Licensed Product”) for spinal fusion applications. The Licensed Product is a recombinant human protein growth factor that is essential for normal bone development.

 

Following the completion of several key milestones, Bone Biologics has expanded its Field of Use definition beyond spine fusion within the NELL-1 license agreement with UCLA TDG. Consistent with that expansion, Bone Biologics has entered into an exclusive license agreement with UCLA TDG for the worldwide application of the NELL-1 protein for both osteoporosis and trauma through a technology transfer.

 

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 that 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.

 

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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, 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 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.

 

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Corporate Information

 

Our principal executive offices are located at 2 Burlington Woods Drive, Ste 100, Burlington, MA 01803, and our telephone number is (781) 552-4452.

 

The Offering

 

Common stock offered by the selling stockholders:   8,046,129 shares, including 621,263 shares issuable upon the exercise of outstanding warrants.
     
Common stock outstanding:  

39,077,322 shares as of August 22, 2017, excluding 10,390,820 shares issuable upon the exercise of outstanding warrants, 8,403,911 shares issuable upon exercise of outstanding options, and 9,596,203 shares issuable upon conversion of debt.

     
Trading market:   Our common stock is currently quoted on the OTC Pink Market.
     
Use of proceeds:   We will not receive any of the proceeds from the sale or other disposition of the shares of common stock offered hereby.
     
Risk factors:   We are subject to a number of risks that you should be aware of before you decide to purchase our common stock. These risks are discussed more fully in the section captioned “Risk Factors,” beginning on page 7 of this prospectus.

 

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RISK FACTORS

 

Information provided in this prospectus may contain forward-looking statements which reflect management’s current view with respect to future events, the viability or efficacy of our products and our future performance. Such forward-looking statements may include projections with respect to market size and acceptance, revenues and earnings, marketing and sales strategies and business operations, as well as efficacy of our products.

 

We operate in a highly competitive and highly regulated business environment. Our business can be expected to be affected by government regulation, economic, political and social conditions, business’ response to new and existing products and services, technological developments and the ability to obtain and maintain patent and/or other intellectual property protection for our products and intellectual property. Our actual results could differ materially from management’s expectations because of changes both within and outside of our control. Due to such uncertainties and the risk factors set forth in this prospectus, prospective investors are cautioned not to place undue reliance upon such forward-looking statements.

 

An investment in our securities involves a high degree of risk and many uncertainties. You should carefully consider the specific factors listed below together with the other information included in this prospectus before purchasing our securities in this offering. If any of the possibilities described as risks below actually occurs, our operating results and financial condition would likely suffer and the trading price of our securities could fall, causing you to lose some or all of your investment in the securities we are offering. The following is a description of what we consider the key challenges and material risks to our business and an investment in our securities.

 

Risks Related to Our Business

 

Our ability to grow and compete in the future will be adversely affected if adequate capital is not available to us or not available on terms favorable to us.

 

The ability of our business to grow and compete depends on the availability of adequate capital. We currently have no cash flow. We cannot assure you that we will be able to obtain equity or debt financing on acceptable terms or at all to implement our growth strategy. As a result, we cannot assure you that adequate capital will be available to finance our current growth plans, take advantage of business opportunities or respond to competitive pressures, any of which could harm our business.

 

Our recurring operating losses have raised substantial doubt regarding our ability to continue as a going concern.

 

Our recurring operating losses raise substantial doubt about our ability to continue as a going concern. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as and for the years ended December 31, 2016 and 2015 with respect to this uncertainty. The perception of our ability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the loss of confidence by investors, suppliers and employees.

 

We have incurred losses for the years ended December 31, 2016 and 2015 and we expect our operating expenses to increase in the foreseeable future, which may make it more difficult for us to achieve and maintain profitability.

 

We have no significant operating history and have never been profitable. From our inception through June 30, 2017, we have generated a net loss of approximately $49 million. We have negative cash flow from operations, working capital deficiencies and have not established the commercial viability of our products. These conditions raise doubts as to the Company’s ability to continue as a going concern. The Company’s December 31, 2016 audited financial statements contained a notation by our auditors regarding the Company’s ability to continue as a going concern. The Company 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. 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. As a result, we can provide no assurance as to whether or if we will ever be profitability. If we are not able to achieve and maintain profitability, the value of our company and our common stock could decline significantly.

 

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There may be conflicts of interest between our management and our non-management stockholders and other affiliates.

 

Conflicts of interest create the risk that management may have an incentive to act adversely to the interests of the Company. A conflict of interest may arise between our management’s personal pecuniary interest and its fiduciary duty to our stockholders.

 

We face a number of risks associated with our incurrence of substantial debt which could adversely affect our financial condition.

 

The Company has the following debt outstanding:

 

Note Type   Issue Date     Maturity Date     Interest Rate     June 30, 2017  
                         
First Secured Convertible Note     10/24/14       12/31/19       8.5 %     5,000,000  
                                 
Second Secured Convertible Note     5/4/15       12/31/19       8.5 %     2,000,000  
                                 
Third Secured Convertible Note     2/24/16       2/23/19       8.5 %     2,000,000  
                                 
Convertible Promissory Notes     10/14/16       12/31/17       8.5 %     1,200,000  
                                 
Convertible Promissory Notes     02/06/17       12/31/17       8.5 %     2,000,000  
                                 
Convertible Promissory Note     08/18/17       12/31/17       8.5 %     700,000  
                                 
Total Notes payable                           $ 12,900,000  

 

Incurring a substantial amount of debt may require us to use a significant portion of any cash flow to pay principal and interest on the debt, which will reduce the amount available to fund working capital, capital expenditures, and other general purposes. Our indebtedness may negatively impact our ability to operate our business and limit our ability to borrow additional funds by increasing our borrowing costs, and impact the terms, conditions, and restrictions contained in possible future debt agreements, including the addition of more restrictive covenants; impact our flexibility in planning for and reacting to changes in our business as covenants and restrictions contained in possible future debt arrangements may require that we meet certain financial tests and place restrictions on the incurrence of additional indebtedness and place us at a disadvantage compared to similar companies in our industry that have less debt.

 

We operate in a highly competitive environment.

 

The medical device industry is characterized by rapidly evolving technology and intense competition. Our competitors include major multi-national orthopedic and med-tech companies developing both generic and proprietary therapies to treat serious diseases. Many of these companies are well-established and possess technical, human, research and development, financial and sales and marketing resources significantly greater than ours. In addition, many of our potential competitors have formed strategic collaborations, partnerships and other types of joint ventures with larger, well established industry competitors that afford these companies potential research and development and commercialization advantages in the therapeutic areas we are currently pursuing.

 

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Academic research centers, governmental agencies and other public and private research organizations are also conducting and financing research activities which may produce products directly competitive to those being developed by us. In addition, many of these competitors may be able to obtain patent protection, obtain FDA and other regulatory approvals, and begin commercial sales of their products before us.

 

Our limited operating history makes it difficult to evaluate our current business and future prospects.

 

We have a limited operating history, and there is a risk that we will be unable to continue as a going concern. We have minimal assets and no significant financial resources. Our limited operating history makes it difficult to evaluate our current business model and future prospects. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development. Potential investors should carefully consider the risks and uncertainties that a new company with no operating history will face. In particular, potential investors should consider that there is a significant risk that we will not be able to:

 

  implement or execute our current business plan, which may or may not be sound;
     
  maintain our anticipated management and advisory team; and
     
  raise sufficient funds in the capital markets to effectuate our business plan.

 

If we cannot execute any one of the foregoing or similar matters relating to our business, the business may fail, in which case you would lose the entire amount of your investment in the Company.

 

Our future success is dependent, in part, on the performance and continued service of our officers and directors.

 

We are presently dependent to a great extent upon the experience, abilities and continued services of Stephen R. LaNeve, our President and Chief Executive Officer, and Jeffrey Frelick, our Chief Operating Officer. The loss of services of Mr. LaNeve or Mr. Frelick could have a material adverse effect on our business, financial condition or results of operation.

 

Acceptance of our formulations or products in the marketplace is uncertain and failure to achieve market acceptance will prevent or delay our ability to generate revenues.

 

Our future financial performance will depend, at least in part, upon the introduction and customer acceptance of our products. Even if approved for marketing by the necessary regulatory authorities, our formulations or products may not achieve market acceptance. The degree of market acceptance will depend upon a number of factors, including:

 

  receipt of regulatory clearance of marketing claims for the uses that we are developing;
     
  establishment and demonstration of the advantages, safety and efficacy of our formulations, products and technologies;
     
  pricing and reimbursement policies of government and third-party payers such as insurance companies, health maintenance organizations and other health plan administrators;
     
  Our ability to attract corporate partners, including pharmaceutical companies, to assist in commercializing our proposed products; and
     
  Our ability to market our products.

 

Physicians, patients, payers or the medical community in general may be unwilling to accept, utilize or recommend any of our proposed formulations or products. If we are unable to obtain regulatory approval, commercialize and market our proposed formulations or products when planned, we may not achieve any market acceptance or generate revenue.

 

9  
 

 

Our long-term capital requirements are subject to numerous risks.

 

We anticipate that it will require an additional $22 million to complete protein synthesis, animal studies, and commence first in man studies. An estimated additional $137 million will be required to achieve product launch. We anticipate we will need to raise substantial additional funds for the pivotal clinical trial prior to marketing our first product. Our long term capital requirements are expected to depend on many factors, including, among others:

 

  the number of potential formulations, products and technologies in development;
     
  continued progress and cost of our research and development programs;
     
  progress with pre-clinical studies and clinical trials;
     
  time and costs involved in obtaining regulatory (including FDA) clearance;
     
  costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;
     
  costs of developing sales, marketing and distribution channels and our ability to sell our formulations or products;
     
  costs involved in establishing manufacturing capabilities for commercial quantities of our products;
     
  competing technological and market developments;
     
  market acceptance of our drug formulations or products;
     
  costs for recruiting and retaining employees and consultants;
     
  costs for training physicians; and
     
  legal, accounting and other professional costs.

 

We may consume available resources more rapidly than currently anticipated, resulting in the need for additional funding. We may seek to raise any necessary additional funds through equity or debt financings, collaborative arrangements with corporate partners or other sources, which may be dilutive to existing stockholders or otherwise have a material effect on our current or future business prospects. If adequate funds are not available, we may be required to significantly reduce or refocus our development and commercialization efforts with regard to our delivery technologies and our proposed formulations and products.

 

Competitors could develop and/or gain FDA approval of our products for a different indication.

 

We cannot provide any assurances that any other company won’t obtain FDA approval for similar products that might adversely affect our ability to develop and market these products in the U.S. We are aware that other companies have intellectual property protection and have conducted clinical trials. Many of these companies may have more resources than us. We cannot provide any assurances that our products will be FDA-approved prior to our competitors.

 

The FDA does not regulate the practice of medicine and, as a result, cannot direct physicians to select certain products for their patients. Consequently, we might be limited in our ability to prevent off-label use of a competitor’s product to treat the diseases we intend to commercialize, even if we have issued method of use patents for that indication. If we are not able to obtain and enforce our patents, a competitor could develop and commercialize similar products for the same indications that we are pursuing. We cannot provide any assurances that a competitor will not obtain FDA approval for a product that contains the same active ingredients as our products.

 

10  
 

 

We rely on method patents and patent applications and various regulatory exclusivities to protect some of our product candidates, and our ability to compete may be limited or eliminated if we are not able to protect our products.

 

The patent positions of medical device companies are uncertain and involve complex legal and factual questions. We may incur significant expenses in protecting our intellectual property and defending or assessing claims with respect to intellectual property owned by others. Any patent or other infringement litigation by or against us could cause us to incur significant expense and divert the attention of our management.

 

Others may file patent applications or obtain patents on similar technologies or compounds that compete with our products. We cannot predict how broad the claims in any such patents or applications will be and whether they will be allowed. Once claims have been issued, we cannot predict how they will be construed or enforced. We may infringe upon intellectual property rights of others without being aware of it. If another party claims we are infringing their technology, we could have to defend an expensive and time consuming lawsuit, pay a large sum if we are found to be infringing, or be prohibited from selling or licensing our products unless we obtain a license or redesign our product, which may not be possible.

 

We also rely on trade secrets and proprietary know-how to develop and maintain our competitive position. Some of our current or former employees, consultants, scientific advisors, current or prospective corporate collaborators, may unintentionally or willfully disclose our confidential information to competitors or use our proprietary technology for their own benefit. Furthermore, enforcing a claim alleging the infringement of our trade secrets would be expensive and difficult to prove, making the outcome uncertain. Our competitors may also independently develop similar knowledge, methods, and know-how or gain access to our proprietary information through some other means.

 

We may fail to retain or recruit necessary personnel, and we may be unable to secure the services of consultants.

 

As of the date of this prospectus, we have three full-time employees. We also engaged regulatory consultants to advise us on our dealings with the FDA and other foreign regulatory authorities and have been and will be required to retain additional consultants and employees. Our future performance will depend in part on our ability to successfully integrate newly hired officers into our management team and our ability to develop an effective working relationship among senior management.

 

Certain of our directors, officers, scientific advisors, and consultants serve as officers, directors, scientific advisors, or consultants of other healthcare and life science companies or institutes that might be developing competitive products. Other than corporate opportunities, none of our directors are obligated under any agreement or understanding with us to make any additional products or technologies available to us. Similarly, we can give no assurances, and we do not expect and stockholders should not expect, that any biomedical or pharmaceutical product or technology identified by any of our directors or affiliates in the future would be made available to us other than corporate opportunities. We can give no assurances that any such other companies will not have interests that are in conflict with its interests.

 

Losing key personnel or failing to recruit necessary additional personnel would impede our ability to attain our development objectives. There is intense competition for qualified personnel in the drug-development field, and we may not be able to attract and retain the qualified personnel we need to develop our business.

 

We rely on independent organizations, advisors and consultants to perform certain services for us, including handling substantially all aspects of regulatory approval, clinical management, manufacturing, marketing, and sales. We expect that this will continue to be the case. Such services may not always be available to us on a timely basis.

 

11  
 

 

We rely on third parties to supply our raw materials, and if certain manufacturing-related services do not timely supply these products and services, it may delay or impair our ability to develop, manufacture and market our products.

 

We rely on suppliers for raw materials and other third parties for certain manufacturing-related services to produce material that meets appropriate content, quality and stability standards and to use in clinical trials of its products. To succeed, clinical trials require adequate supplies of drug substance and drug product, which may be difficult or uneconomical to procure or manufacture. We and our suppliers and vendors may not be able to (i) produce our drug substance or drug product to appropriate standards for use in clinical studies, (ii) perform under any definitive manufacturing, supply or service agreements or (iii) remain in business for a sufficient time to successfully produce and market our product candidates. If we do not maintain important manufacturing and service relationships, we may fail to find a replacement supplier or required vendor or develop our own manufacturing capabilities which could delay or impair our ability to obtain regulatory approval for our products and substantially increase our costs or deplete profit margins, if any. If we do find replacement providers, we may not be able to enter into agreements with suppliers on favorable terms and conditions, or there could be a substantial delay before a new third party could be qualified and registered with the FDA and foreign regulatory authorities as a provider.

 

Clinical trials are very expensive, time-consuming, and difficult to implement.

 

Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial process is also time-consuming. We estimate that clinical trials of our product candidates would take at least several years to complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. Commencement and completion of clinical trials may be delayed by several factors, including:

 

  obtaining an IDE approval with the FDA to commence clinical trials;
     
  identification of, and acceptable arrangements with, one or more clinical sites;
     
  obtaining Institutional Review Board (“IRB”) approval to commence clinical trials;
     
  unforeseen safety issues;
     
  determination of dosing;
     
  lack of effectiveness during clinical trials;
     
  slower than expected rates of patient recruitment;
     
  inability to monitor patients adequately during or after treatment;
     
  inability or unwillingness of medical investigators to follow clinical protocols; and
     
  unwillingness of the FDA or IRBs to permit the clinical trials to be initiated.

 

In addition, we, IRBs or the FDA may suspend clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if IRBs or the FDA finds deficiencies in our submissions or the conduct of our trials.

 

The results of our clinical trials may not support our product candidate claims and the results of preclinical studies and completed clinical trials are not necessarily predictive of future results.

 

To date, long-term safety and efficacy have not yet been demonstrated in clinical trials for any of our diagnostic product candidates. Favorable results in early studies or trials, if any, may not be repeated in later studies or trials. Even if our clinical trials are initiated and completed as planned, it cannot be certain that the results will support our product candidate claims. Success in preclinical testing and pilot clinical trials does not ensure that later pilot or pivotal clinical trials will be successful. We cannot be sure that the results of later clinical trials would replicate the results of prior clinical trials and preclinical testing. In particular, the limited results we have obtained for our tests may not predict results from studies in larger numbers of subjects drawn from more diverse populations over a longer period of time. Clinical trials may fail to demonstrate that our product candidates are safe for humans and effective for indicated uses. Any such failure could cause us to abandon a product candidate and might delay development of other product candidates. Preclinical and clinical results are frequently susceptible to varying interpretations that may delay, limit or prevent regulatory approvals or commercialization. Any delay in, or termination of, our clinical trials would delay us in obtaining FDA approval for the affected product candidate and, ultimately, our ability to commercialize that product candidate.

 

12  
 

 

We depend on third parties, including researchers, who are not under our control.

 

We depend upon independent investigators and scientific collaborators, such as universities and medical institutions or private physician scientists, to conduct our preclinical and clinical trials under agreements. These collaborators are not our employees, and they cannot control the amount or timing of resources that they devote to their programs or the timing of their procurement of clinical-trial data or their compliance with applicable regulatory guidelines. Should any of these scientific inventors/advisors become disabled or die unexpectedly, or should they fail to comply with applicable regulatory guidelines, we may be forced to scale back or terminate development of that program. They may not assign as great a priority to our programs or pursue them as diligently as we would if it were undertaking those programs itself. Failing to devote sufficient time and resources to our drug-development programs, or substandard performance and failure to comply with regulatory guidelines, could result in delay of any FDA applications and our commercialization of the drug candidate involved.

 

These collaborators may also have relationships with other commercial entities, some of which may compete with us. Our collaborators assisting our competitors at our expense could harm our competitive position. We have been and continue to be highly dependent on our strategic partner, MTF, for technical support and administrative support.

 

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights, as well as costs associated with lawsuits.

 

If any other person files patent applications, or is issued patents, claiming technology also claimed by us, we may be required to participate in interference proceedings in the U.S. Patent and Trademark Office to determine priority of invention. We or our licensors may also need to participate in interference proceedings involving issued patents and pending applications of another entity.

 

The intellectual property environment in our industry is particularly complex, constantly evolving and highly fragmented. Other companies and institutions have issued patents and have filed or will file patent applications that may issue into patents that cover or attempt to cover products, processes or technologies similar to us. We have not conducted freedom-to-use patent searches on all aspects of our product candidates or potential product candidates and may be unaware of relevant patents and patent applications of third parties. In addition, the freedom-to-use patent searches that have been conducted may not have identified all relevant issued patents or pending patents. We cannot provide assurance that our proposed products in this area will not ultimately be held to infringe one or more valid claims owned by third parties which may exist or come to exist in the future or that in such case we will be able to obtain a license from such parties on acceptable terms.

 

We cannot guarantee that our technologies will not conflict with the rights of others. In some foreign jurisdictions, we could become involved in opposition proceedings, either by opposing the validity of another’s foreign patent or by persons opposing the validity of our foreign patents.

 

We may also face frivolous litigation or lawsuits from various competitors or from litigious securities attorneys. The cost of any litigation or other proceeding relating to these areas, even if deemed frivolous or resolved in our favor, could be substantial and could distract management from its business. Uncertainties resulting from initiation and continuation of any litigation could have a material adverse effect on our ability to continue our operations.

 

13  
 

 

If we infringe the rights of others, we could be prevented from selling products or forced to pay damages.

 

If our products, methods, processes, and other technologies are found to infringe the proprietary rights of other parties, we could be required to pay damages, or may be required to cease using the technology or to license rights from the prevailing party. Any prevailing party may be unwilling to offer us a license on commercially acceptable terms.

 

Our product candidates are at an early stage of development and may not be successfully developed or commercialized.

 

Our products are in the early stage of development and will require substantial further capital expenditures, development, testing, and regulatory clearances prior to commercialization. The development and regulatory approval process takes several years, and it is not likely that our products, technologies or processes, even if successfully developed and approved by the FDA, would be commercially available for five or more years. Of the large number of drugs in development, only a small percentage successfully completes the FDA regulatory approval process and is commercialized. Accordingly, even if we are able to obtain the requisite financing to fund our development programs, we cannot assure you that our product candidates will be successfully developed or commercialized. Our failure to develop, manufacture or receive regulatory approval for or successfully commercialize any of our product candidates, could result in the failure of our business and a loss of all of your investment in our company.

 

Any product candidates advanced into clinical development are subject to extensive regulation, which can be costly and time consuming, cause unanticipated delays or prevent the receipt of the required approvals to commercialize such product candidates.

 

The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing and distribution of our product candidates are subject to extensive regulation by the FDA in the U.S. and by comparable health authorities in foreign markets. In the U.S., we may not be permitted to market our product candidates until we receive approval of our PMA from the FDA. The process of obtaining PMA approval is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. In addition to the significant clinical testing requirements, our ability to obtain marketing approval for these products depends on obtaining the final results of required non-clinical testing, including characterization of the manufactured components of our product candidates and validation of our manufacturing processes. The FDA may determine that our product manufacturing processes, testing procedures or facilities are insufficient to justify approval. Approval policies or regulations may change and the FDA has substantial discretion in the approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed.

 

The FDA or another regulatory agency can delay, limit or deny approval of a product candidate for many reasons, including, but not limited to:

 

  the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of clinical trials;
     
  We may be unable to demonstrate to the satisfaction of the FDA that a product candidate is safe and effective for any indication;
     
  the FDA may not accept clinical data from trials which are conducted by individual investigators or in countries where the standard of care is potentially different from the U.S.;
     
  the results of clinical trials may not meet the level of statistical significance required by the FDA for approval;
     
  We may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

14  
 

 

  the FDA may disagree with our interpretation of data from preclinical studies or clinical trials;
     
  the FDA may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we or our collaborators contract for clinical and commercial supplies; or
     
  the approval policies or regulations of the FDA may significantly change in a manner rendering our clinical data insufficient for approval.

 

With respect to foreign markets, approval procedures vary among countries and, in addition to the aforementioned risks, can involve additional product testing, administrative review periods and agreements with pricing authorities. In addition, recent events raising questions about the safety of certain marketed pharmaceuticals may result in increased cautiousness by the FDA and comparable foreign regulatory authorities in reviewing new pharmaceuticals based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals. Any delay in obtaining, or inability to obtain, applicable regulatory approvals could prevent us from commercializing our product candidates.

 

Any product candidate we advance into clinical trials may cause unacceptable adverse events or have other properties that may delay or prevent their regulatory approval or commercialization or limit their commercial potential.

 

Unacceptable adverse events caused by any of our product candidates that we advance into clinical trials could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval by the FDA or other regulatory authorities for any or all targeted indications and markets. This, in turn, could prevent us from commercializing the affected product candidate and generating revenues from its sale.

 

We have not yet completed testing of any of our product candidates for the treatment of the indications for which we intend to seek product approval in humans, and we currently do not know the extent of adverse events, if any, that will be observed in patients who receive any of our product candidates. If any of our product candidates cause unacceptable adverse events in clinical trials, we may not be able to obtain regulatory approval or commercialize such product or, if such product candidate is approved for marketing, future adverse events could cause us to withdraw such product from the market.

 

Delays in the commencement of clinical trials could result in increased costs and delay our ability to pursue regulatory approval.

 

The commencement of clinical trials can be delayed for a variety of reasons, including delays in:

 

  obtaining regulatory clearance to commence a clinical trial;
     
  identifying, recruiting and training suitable clinical investigators;
     
  reaching agreement on acceptable terms with prospective clinical research organizations, and trial sites, the terms of which can be subject to extensive negotiation, may be subject to modification from time to time and may vary significantly among different clinical research organizations and trial sites;
     
  obtaining sufficient quantities of a product candidate for use in clinical trials;
     
  obtaining an IRB or ethics committee approval to conduct a clinical trial at a prospective site;
     
  identifying, recruiting and enrolling patients to participate in a clinical trial; and
     
  retaining patients who have initiated a clinical trial but may withdraw due to adverse events from the therapy, insufficient efficacy, fatigue with the clinical trial process or personal issues.

 

15  
 

 

Any delays in the commencement of clinical trials will delay our ability to pursue regulatory approval for our product candidates. In addition, many of the factors that cause, or lead to, a delay in the commencement of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate.

 

Suspensions or delays in the completion of clinical testing could result in increased costs to us and delay or prevent our ability to complete development of that product or generate product revenues.

 

Once a clinical trial has begun, patient recruitment and enrollment may be slower than we anticipate. Clinical trials may also be delayed as a result of ambiguous or negative interim results or difficulties in obtaining sufficient quantities of product manufactured in accordance with regulatory requirements. Further, a clinical trial may be modified, suspended or terminated by us, an IRB, an ethics committee or a data safety monitoring committee overseeing the clinical trial, any clinical trial site with respect to that site, or the FDA or other regulatory authorities due to a number of factors, including:

 

  failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
     
  inspection of the clinical trial operations or clinical trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
     
  stopping rules contained in the protocol;
     
  unforeseen safety issues or any determination that the clinical trial presents unacceptable health risks; and/or
     
  lack of adequate funding to continue the clinical trial.

 

Any changes in the current regulatory requirements and guidance also may occur, and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit clinical trial protocols to IRBs for re-examination, which may impact the costs, timing and the likelihood of a successful completion of a clinical trial. If we experience delays in the completion of, or if we must suspend or terminate, any clinical trial of any product candidate, our ability to obtain regulatory approval for that product candidate will be delayed and the commercial prospects, if any, for the product candidate may suffer as a result. In addition, many of these factors may also ultimately lead to the denial of regulatory approval of a product candidate.

 

Privacy Provisions of HIPAA

 

HIPAA, among other things, protects the privacy and security of individually identifiable health information by limiting its use and disclosure. HIPAA directly regulates “covered entities” (healthcare providers, insurers and clearinghouses) and indirectly regulates “business associates” with respect to the privacy of patients’ medical information. All entities that receive and process protected health information are required to adopt certain procedures to safeguard the security of that information. It is uncertain whether we would be deemed to be a covered entity under HIPAA, and it is unlikely that we, based on our current business model, would be a business associate. Nevertheless, we may be contractually required to physically safeguard the integrity and security of any patient information that we receive, store, create or transmit. If we fail to adhere to our contractual commitments, then certain of our contract counterparties may be subject to civil monetary penalties and this could adversely affect our ability to market our product. If we are deemed to be a vendor, under the Health Information Technology for Economic and Clinical Health Act, enacted as part of the American Recovery and Reinvestment Act of 2009, then we will be obligated to adopt various security measures. We may also be subject to state and foreign privacy laws under which breaches could lead to substantial fines and liability.

 

We may be subject to claims that our consultants or independent contractors have wrongfully used or disclosed alleged trade secrets of their other clients or former employers to us.

 

As is common in the medical device industry, we engage the services of consultants to assist in the development of our product candidates. Many of these consultants were previously employed at, or may have previously been or are currently providing consulting services to, other healthcare and life science companies, including our competitors or potential competitors. We may become subject to claims that we or our consultants have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of our former employers or their former or current customers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.

 

16  
 

 

We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications for which there may be a greater likelihood of success.

 

Because we have limited financial and managerial resources, we are focused on one research program. As a result, we may forego or delay pursuit of opportunities with other product candidates or, for other indications for which there may be a greater likelihood of success or may prove to have greater commercial potential. Notwithstanding our investment to date and anticipated future expenditures, we may never successfully develop, any marketed treatments using these products. Research programs to identify new product candidates or pursue alternative indications for current product candidates require substantial technical, financial and administrative support.

 

We may incur substantial product liability or indemnification claims relating to the clinical testing of our product candidates.

 

We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials, and claims could be brought against us if use or misuse of one of our product candidates causes, or merely appears to have caused, personal injury or death. While we have and intend to maintain product liability insurance relating to our clinical trials, our coverage may not be sufficient to cover claims that may be made, and we may be unable to maintain such insurance. Any claims, regardless of their merit, could severely harm our financial condition, strain our management and other resources or destroy the prospects for commercialization of the product which is the subject of any such claim. We are unable to predict if we will be able to obtain or maintain product liability insurance for any products that may be approved for marketing. Additionally, it is expected that we will need to enter into various agreements where we indemnify third parties for certain claims relating to the testing of our product candidates. These indemnification obligations may require us to pay significant sums of money for claims that are covered by these indemnifications.

 

Our research and development activities could be affected or delayed as a result of possible restrictions on animal testing.

 

Certain laws and regulations require us to test our product candidates on animals before initiating clinical trials involving humans. Animal testing activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through protests and other means. To the extent the activities of these groups are successful, our research and development activities may be interrupted, delayed or become more expensive.

 

We use biological materials and may use hazardous materials, and any claims relating to improper handling, storage or disposal of these materials could be time consuming or costly.

 

We may use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to human health and safety or the environment. Our operations also produce hazardous waste products. Federal, state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage, and our property and casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.

 

17  
 

 

Risks Related to Ownership of Our Common Stock

 

Because we are registering 20.59% of our outstanding common stock, the market price of our shares would most likely decline if a substantial number of shares were sold all at once or in large blocks.

 

The offer or sale of a large number of shares under this Registration Statement may cause the market price of our common stock to fall. Sales of substantial amounts of common stock or the perception that such transactions could occur may materially and adversely affect prevailing markets prices for our common stock.

 

There is a limited public trading market for our Common Stock, and you may not be able to resell your Common Stock.

 

There is a limited public trading market for our securities. We cannot assure you that a regular trading market will develop or that if developed, will be sustained. In the absence of a trading market, an investor may be unable to liquidate its investment, which will result in the loss of your investment.

 

We have no plans to pay 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.

 

The application of the SEC’s “penny stock” rules to our Common Stock could limit trading activity in the market, and our stockholders may find it more difficult to sell their stock.

 

It is expected that our Common Stock will be trading at less than $5.00 per share and will therefore be subject to the SEC’s penny stock rules. Penny stocks generally are equity securities with a price of less than $5.00. Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our Common Stock and may affect your ability to resell our Common Stock.

 

If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our Common Stock.

 

Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer, or persons performing similar functions, and effected by our 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 generally accepted accounting principles.

 

As a public company, we have significant additional requirements for enhanced financial reporting and internal controls. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.

 

18  
 

 

We cannot assure you that we will, in the future, identify areas requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to remediate any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on the market price for shares of our Common Stock.

 

The market price of our Common Stock may be volatile.

 

The market price of our Common Stock may be highly volatile. Some of the factors that may materially affect the market price of our Common Stock are beyond our control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which we operate or sales of our Common Stock. These factors may materially adversely affect the market price of our Common Stock, regardless of our performance. In addition, public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our Common Stock.

 

Because our directors and executive officers are among our largest stockholders, they can exert significant control over our business and affairs and have actual or potential interests that may depart from those of investors in the subsequent financings.

 

The holdings of our directors and executive officers may increase in the future upon vesting or other maturation of exercise rights under any of the options or warrants they may hold or in the future be granted or if they otherwise acquire additional shares of Common Stock. The interests of such persons may differ from the interests of our other stockholders, including purchasers of our securities, including shares of Common Stock, in future financing. As a result, in addition to their board seats and offices, such persons will have significant influence over and control all corporate actions requiring stockholder approval, irrespective of how the Company’s other stockholders, including purchasers in the future financings, may vote, including the following actions:

 

  to elect or defeat the election of our directors;
     
  to amend or prevent amendment of our Amended and Restated Certificate of Incorporation or By-laws;
     
  to effect or prevent a merger, sale of assets or other corporate transaction; and
     
  to control the outcome of any other matter submitted to our stockholders for vote.

 

This concentration of ownership by itself may have the effect of impeding a merger, consolidation, takeover or other business consolidation, or discouraging a potential acquirer from making a tender offer for the Common Stock which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

 

We cannot assure you that the Common Stock will be listed on NASDAQ or any other securities exchange.

 

We intend to seek a possible listing of our Common Stock on NASDAQ. However, we cannot assure you that we will be able to meet the initial listing standards of either of those or any other stock exchange, or that we will be able to maintain a listing of the Common Stock on either of those or any other stock exchange. This would also make it more difficult for us to raise additional capital. There are no assurances that an active market for our shares will develop even if we are listed.

 

19  
 

 

We may issue more shares in a future financing or pursuant to existing agreements which will result in substantial dilution.

 

Our Amended and Restated Certificate of Incorporation authorizes the issuance of a maximum of 100,000,000 shares of Common Stock and a maximum of 20,000,000 shares of Preferred Stock. Any future merger or acquisition effected by us would result in the issuance of additional securities without stockholder approval and the substantial dilution in the percentage of our Common Stock held by our then existing stockholders. Moreover, the Common Stock issued in any such merger or acquisition transaction may be valued on an arbitrary or non-arm’s-length basis by our management, resulting in an additional reduction in the percentage of Common Stock held by our then existing stockholders. Additionally, we expect to seek additional financing in order to provide working capital to the operating business. Our Board of Directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of Common Stock or Preferred Stock are issued in connection with and following a business combination or otherwise, dilution to the interests of our stockholders will occur and the rights of the holders of Common Stock might be materially and adversely affected.

 

Our Board of Directors is authorized to issue Preferred Stock without obtaining shareholder approval.

 

Our Amended and Restated Certificate of Incorporation authorizes the issuance of up to 20,000,000 shares of Preferred Stock with designations, rights and preferences determined from time to time by the Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue Preferred Stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the Common Stock. In the event of issuance, the Preferred Stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company. Although we have no present intention to issue any shares of Preferred Stock, there can be no assurance that the Company will not do so in the future.

 

There can be no assurance that the results and events contemplated by forward-looking statements will, in fact, transpire.

 

There are statements in this Registration Statement that are not historical facts. These “forward-looking statements” can be identified by the use of terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions. You should be aware that these forward-looking statements are subject to risks and uncertainties that are beyond our control. Actual results could differ significantly from these forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking statements contained in this Registration Statement will in fact transpire. You are cautioned to not place undue reliance on these forward-looking statements, which speak only as of their dates. We do not undertake any obligation to update or revise any forward-looking statements.

 

IN ADDITION TO THE ABOVE RISKS, BUSINESSES ARE OFTEN SUBJECT TO RISKS NOT FORESEEN OR FULLY APPRECIATED BY OUR MANAGEMENT. IN REVIEWING THIS PROSPECTUS, POTENTIAL INVESTORS SHOULD KEEP IN MIND THAT THERE MAY BE OTHER POSSIBLE RISKS THAT COULD BE IMPORTANT.

 

20  
 

 

USE OF PROCEEDS

 

We will not receive any of the proceeds from the sale or other disposition of the shares of common stock offered hereby.

 

DIVIDEND POLICY

 

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.

 

DETERMINATION OF OFFERING PRICE

 

The selling stockholders will sell their shares of our common stock at prevailing market prices or privately negotiated prices. There is currently a very limited public market for our common stock.

 

DILUTION

 

Except for shares of common stock issuable upon the exercise of warrants, the common stock to be sold by the selling stockholders is common stock that is issued and outstanding. Accordingly, there will be no dilution to our existing stockholders.

 

CAPITALIZATION

 

The table below sets forth our cash and capitalization as of June 30, 2017 on an actual basis. You should read this table together with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus.

 

    As of  
    June 30, 2017  
    Actual  
Cash   $ 783,014  
         
Stockholders’ deficit        
         
Preferred Stock, $0.001 par value per share; 20,000,000 shares authorized; None issued and outstanding        
Common stock, $0.001 par value per share; 100,000,000 shares authorized; 38,828,607 shares issued and outstanding   $ 38,829  
Additional paid-in-capital     38,865,042  
Accumulated deficit     (49,153,642 )
         
Total stockholders’ deficit   $ (10,249,771 )
         
Total capitalization   $ (10,249,771 )

 

21  
 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

 

The following discussion and analysis of the results of operations and financial condition for the years ended December 31, 2016 and 2015 and for the three and six month periods ended June 30, 2017 and 2016 of the Company should be read in conjunction with our financial statements and the notes to those financial statements included elsewhere in this prospectus. The financial statements should not be relied on for an understanding of our current financial status. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

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 the 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.

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700.0 million as of the end of the second quarter of that fiscal year; or (iii) the date on which we have, during the previous three-year period, issued more than $1.07 billion in non-convertible debt securities. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. We have elected to take advantage of these reduced disclosure obligations, and may elect to take advantage of other reduced reporting obligations in the future.

 

The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to irrevocably “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted.

 

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 trials.

 

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.

 

22  
 

 

UCLA TDG Exclusive License Agreement

 

Effective August 18, 2017, the Company entered into an Amended and Restated Exclusive License Agreement (the “Restated License Agreement”) with the UCLA Technology Development Group on behalf of UC Regents (“UCLA TDG”). The Restated License Agreement amends and restates the Exclusive License Agreement, effective March 15, 2006, between the Company and UCLA TDG, as amended by ten amendments. Under the terms of the Restated License Agreement, the Regents have continued to grant the Company exclusive rights to develop and commercialize NELL-1 (the “Licensed Product”) for spinal fusion applications. The Licensed Product is a recombinant human protein growth factor that is essential for normal bone development.

 

Following the completion of several key milestones, Bone Biologics has expanded its Field of Use definition beyond spine fusion within the NELL-1 license agreement with UCLA TDG. Consistent with that expansion, Bone Biologics has entered into an exclusive license agreement with UCLA TDG for the worldwide application of the NELL-1 protein for both osteoporosis and trauma through a technology transfer.

 

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, 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 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.

 

23  
 

 

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.

 

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.

 

Three Months ended June 30, 2017 compared to the Three Months ended June 30, 2016

 

   

Three

Months

ended

June 30, 2017

   

Three

Months
ended
June 30, 2016

    % Change  
Operating expenses                        
Research and development   $ (3,093,863 )   $ 2,318,735       (233.43 )%
General and administrative     1,118,900       1,969,863       (43.20 )%
                         
Total operating expenses     (1,974,963 )     4,288,598       (146.05 )%
                         
Net Income (Loss) from operations     1,974,963       (4,288,598 )     (146.05 )%
                         
Interest expense, net     (1,108,742 )     (511,588 )     116.73 %
                         
Net Income (Loss) before provision for income taxes     866,221       (4,800,186 )     (118.05 )%
                         
Provision for income taxes     1,600       -       100.00 %
                         
Net Income (Loss)   $ 864,621     $ (4,800,186 )     (118.01 )%

 

Research and Development

 

Our research and development expenses decreased from $2,318,735 during the three months ended June 30, 2016 to $(3,093,863) during the three months ended June 30, 2017. The $5,412,598 decrease was primarily due to the fair value of options forfeited with the termination of the Professional Services Agreements with each of the Founders in April 2017. Our policy is to account for forfeitures when they occur; therefore these forfeitures are recorded as a reversal to expense. Forfeiture reversals related to the termination of the Agreements was $3,629,041 in research and development expense. We will continue to incur significant expenses for development activities for NELL-1.

 

General and Administrative

 

Our general and administrative expenses decreased from $1,969,863 during the three months ended June 30, 2016 to $1,118,900 during the three months ended June 30, 2017. The $850,963 decrease was primarily due to the amortization of the fair value of management options; decreased legal expense and consulting services incurred in 2016.

 

Interest Expense

 

Our net interest expense increased from $511,588 for the three months ended June 30, 2016 to $1,108,742 during the three months ended June 30, 2017. The increase in interest of $597,154 was related to our new loans in October 2016 and February 2017 and amortization of the fair value of the related beneficial conversion feature.

 

24  
 

 

Six Months ended June 30, 2017 compared to the Six Months ended June 30, 2016

 

   

Six Months ended June 30,

2017

   

Six Months ended June 30,

2016

    % Change  
Operating expenses                        
Research and development   $ (1,902,450 )   $ 6,996,936       (127.19 )%
General and administrative     2,087,661       3,851,889       (45.80 )%
                         
Total operating expenses     185,211       10,848,825       (98.29 )%
                         
Loss from operations     (185,211 )     (10,848,825 )     (98.29 )%
                         
Loss on disposal of assets     -       (4,862 )     (100.00 )%
Interest expense, net     (2,022,774 )     (922,797 )     119.20 %
Total other income/expense     (2,022,774 )     (927,659 )     118.05 %
                         
Loss before provision for income taxes     (2,207,985 )     (11,776,484 )     (81.25 )%
                         
Provision for income taxes     1,600       1,600       - %
                         
Net loss   $ (2,209,585 )   $ (11,778,084 )     (81.24 )%

 

Research and Development

 

Our research and development expenses decreased from $6,996,936 during the six months ended June 30, 2016 to $(1,902,450) during the six months ended June 30, 2017. The $8,899,386 decrease was primarily due to the fair value of options forfeited with the termination of the Professional Services Agreements with each of the Founders in April 2017. Our policy is to account for forfeitures when they occur; therefore these forfeitures are recorded as a reversal to expense. Forfeiture reversals related to the termination of the Agreements was $3,629,041 in research and development expense. We will continue to incur significant expenses for development activities for NELL-1.

 

General and Administrative

 

Our general and administrative expenses decreased from $3,851,889 during the six months ended June 30, 2016 to $2,087,661 during the six months ended June 30, 2017. The $1,764,228 decrease was primarily due to the amortization of the fair value of management options; decreased legal expense and consulting services incurred in 2016.

 

Interest Expense

 

Our net interest expense increased from $922,797 for the six months ended June 30, 2016 to $2,022,774 during the six months ended June 30, 2017. The increase in interest of $1,099,977 was related to our new loans in October 2016 and February 2017 and amortization of the fair value of the related beneficial conversion feature.

 

25  
 

 

Year ended December 31, 2016 compared to the Year ended December 31, 2015

 

   

Year ended
December 31,

2016

   

Year ended
December 31,

2015

    % Change  
Operating expenses                        
Research and development   $ 11,602,776     $ 3,666,108       216.49 %
General and administrative     6,246,461       8,329,978       (25.01 )%
                         
Total operating expenses     17,849,237       11,996,086       48.79 %
                         
Loss from operations     (17,849,237 )     (11,996,086 )     48.79 %
                         
Other expense     (4,862 )     -       100.00 %
Interest expense, net     (3,172,872 )     (1,872,001 )     69.49 %
Total other income/expense     (3,177,734 )     (1,872,001 )     69.75 %
                         
Loss before provision for income taxes     (21,026,971 )     (13,868,087 )     51.62 %
                         
Provision for income taxes     2,243       8,840       (74.64 )%
                         
Net loss   $ (21,029,214 )   $ (13,876,927 )     51.54 %

 

Research and Development

 

Our research and development expenses increased from $3,666,108 during the year ended December 31, 2015 to $11,602,776 during the year ended December 31, 2016. The $7,936,668 increase was primarily due to options issued to research and development consultants of $6,085,950, expense of our Sygnal license of $1,435,000 and increases in patent costs and development activities for our lead product NELL-1/DBX®. We will continue to incur significant expenses for development activities for NELL-1/DBX®.

 

General and Administrative

 

Our general and administrative expenses decreased from $8,329,978 during the year ended December 31, 2015 to $6,246,461 during the year ended December 31, 2016. The $2,083,517 decrease was primarily due to the issuance of shares for the MTF Revised Milestone Side Letter Agreement and fair value of services provided by AFH offset by increased wages for our CEO and COO who began serving the Company in August of 2015.

 

Interest Expense

 

Our net interest expense increased from $1,872,001 for the year ended December 31, 2015 to $3,172,872 during the year ended December 31, 2016. The increase in interest of $1,300,871 was related to interest and debt discount costs in connection with our new loans in February and October 2016 offset by warrants expensed in February 2015.

 

26  
 

 

Liquidity and Capital Resources

 

   

June 30,

2017

   

December 31,

2016

 
    (unaudited)        
Assets                
                 
Current assets                
Cash   $ 783,014     $ 620,375  
Prepaid expenses     85,181       80,523  
Prepaid expenses – Related Party     271,945       271,945  
                 
Total current assets     1,140,140       972,843  
                 
Property and equipment, net     194       242  
                 
Total assets   $ 1,140,334     $ 973,085  
                 
Liabilities and Stockholders’ Deficit                
                 
Current liabilities                
Accounts payable and accrued expenses   $ 432,330     $ 260,149  
Current notes payable, net of debt discount of $1,090,910 and $-0-, respectively     2,109,090       1,200,000  
Deferred compensation     141,667       41,667  
Shares to be issued     1,823,077       1,823,077  
                 
Total current liabilities     4,506,164       3,324,893  
                 
Note payable, net of debt discount of $2,116,059 and $2,717,752, respectively     6,883,941       6,282,248  
                 
Total liabilities     11,390,105       9,607,141  
                 
Commitments and Contingencies                
                 
Stockholders’ deficit                
Preferred Stock, $0.001 par value per share; 20,000,000 shares authorized; none issued or outstanding at June 30, 2017 and December 31, 2016     -       -  
Common stock, $0.001 par value per share; 100,000,000 shares authorized; 38,828,607 shares issued and outstanding at June 30, 2017 and December 31, 2016     38,829       38,829  
Additional paid-in capital     38,865,042       38,271,173  
Accumulated deficit     (49,153,642 )     (46,944,058 )
                 
Total stockholders’ deficit     (10,249,771 )     (8,634,056 )
                 
Total liabilities and stockholders’ deficit   $ 1,140,334     $ 973,085  

 

We have no significant operating history and, from our inception to June 30, 2017, we have generated a net loss of approximately $49 million. The financial statements for the six months ended June 30, 2017 and 2016 were prepared assuming we will continue as a going concern. Operating expenditures for the next twelve months are estimated at $5.5 million. The Company has principal payment requirements for the next 12 months of $3,200,000.

 

The Company will continue to incur significant expenses for development activities for our lead product NELL-1. The Company’s December 31, 2016 audited financial statements contained a notation by our auditors regarding the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements for the six months ended June 30, 2017 and 2016, have been prepared assuming the Company will continue as a going concern. The Company closed on $2 million of debt financing in February 2017.

 

The Company 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. 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 their rights to its technology, or discontinue its operations entirely.

 

As of June 30, 2017 and December 31, 2016, we had cash of $783,014 and $620,375, respectively.

 

27  
 

 

Cash Flows

 

The following is a summary of our cash flows provided by operating, investing and financing activities for the six months ended June 30, 2017 and 2016:

 

    Six Months
Ended
June 30, 2017
    Six Months
Ended
June 30, 2016
 
    (unaudited)     (unaudited)  
Operating activities                
Net loss   $ (2,209,585 )   $ (11,778,084 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     48       620  
Amortization of prepaid expenses – related party     -       39,093  
Debt discount amortization     1,392,103       415,653  
Debt issuance costs amortization     153,680       147,151  
Stock-based compensation     1,038,239       1,939,157  
Options issued to consultants     (2,444,369 )     2,874,147  
Warrants issued to consultants     -       100,930  
Interest expense deducted from loan proceeds     -       1,889  
Loss on disposal of assets     -       4,862  
Shares issued for Sygnal license     -       1,435,000  
Changes in operating assets and liabilities:                
Prepaid expenses and other current assets     (4,658 )     (29,203 )
Accounts payable and accrued expenses     172,181       294,890  
Deferred compensation     100,000       -  
                 
Net cash (used in) operating activities     (1,837,361 )     (4,553,895 )
                 
Financing activities                
Proceeds from exercise of warrants             1,250,000  
Proceeds from issuance of common stock             2,500,000  
Proceeds from issuance of notes payable     2,000,000       1,883,111  
Net cash provided by financing activities     2,000,000       5,633,111  
                 
Net increase in cash     162,639       1,079,216  
                 
Cash, beginning of period     620,375       1,115,109  
Cash, end of period   $ 783,014     $ 2,194,325  
                 
Supplemental non-cash information                
Interest paid   $ 436,192     $ 360,306  
Taxes paid   $ 1,600     $ 1,600  

 

Operating activities

 

During the six months ended June 30, 2017 and 2016, cash used in operating activities was $1,837,361 and $4,553,895 respectively. Cash expenditures the six months ended June 30, 2017 decreased primarily due to the timing of our development activities with our Contracted Manufacturing Organization (“CMO”) and management’s cash conservation efforts including a 20% deferral of wages and the Board’s 50% deferral of cash compensation.

 

28  
 

 

Financing activities

 

During the six months ended June 30, 2017, cash provided in financing activities of $2,000,000 resulted from the February 10, 2017 convertible notes. Cash provided during the six months ended June 30, 2016, of $5,633,111 resulted from the $1,883,311 proceeds, net of financing fee, of the February 24, 2016 note, exercise of $1,250,000 of warrants and $2,500,000 in equity financing.

 

The following is a summary of our cash flows provided by operating, investing and financing activities for the years ended December 31, 2016 and 2015:

 

   

December 31,

2016

   

December 31,

2015

 
             
Assets                
                 
Current assets                
Cash   $ 620,375     $ 1,115,109  
Prepaid expenses     80,523       85,998  
Prepaid expenses – Related Party     271,945       339,931  
                 
Total current assets     972,843       1,541,038  
                 
Property and equipment, net     242       5,804  
                 
Total assets   $ 973,085     $ 1,546,842  
                 
Liabilities and Stockholders’ Deficit                
                 
Current liabilities                
Accounts payable and accrued expenses   $ 260,149     $ 322,078  
Current notes payable     1,200,000       -  
Deferred compensation     41,667       -  
Shares to be issued     1,823,077       1,823,077  
                 
Total current liabilities     3,324,893       2,145,155  
                 
Notes payable, net of debt discount of $2,717,752 and $1,917,248, respectively     6,282,248       5,082,752  
                 
Total liabilities     9,607,141       7,227,907  
                 
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, 2016 and 2015     -       -  
Common stock, $0.001 par value per share; 100,000,000 shares authorized; 38,828,607 and 32,211,956 shares issued and outstanding at December 31, 2016 and 2015, respectively     38,829       32,212  
Additional paid-in capital     38,271,173       20,201,567  
Accumulated deficit     (46,944,058 )     (25,914,844 )
                 
Total stockholders’ deficit     (8,634,056 )     (5,681,065 )
                 
Total liabilities and stockholders’ deficit   $ 973,085     $ 1,546,842  

 

29  
 

 

We have no significant operating history and, from our inception to December 31, 2016, we have generated a net loss of approximately $46.9 million. The financial statements for the year ended December 31, 2016 and 2015 were prepared assuming we will continue as a going concern. Operating expenditures for the next twelve months are estimated at $3.5 million. The Company has principal payment requirements of $1,200,000 for the next 12 months.

 

The Company will continue to incur significant expenses for development activities for our lead product NELL-1/DBX®. The Company’s December 31, 2016 audited financial statements contain a notation by our auditors regarding the Company’s ability to continue as a going concern. The accompanying consolidated financial statements for the years ended December 31, 2016 and 2015, have been prepared assuming the Company will continue as a going concern. The Company closed on $5.7 million of debt and equity financing in February 2016 and $1.2 million of convertible notes in October 2016. Pursuant to the October 2016 Note Purchase Agreement, the Company may only use the proceeds from the issuance of the convertible notes to focus on prioritizing operations on essential research and development activities. Also pursuant to the October 2016 Note Purchase Agreement, the Company’s management has agreed to defer 20% of earned compensation and the Board of Directors has authorized a change in director compensation to defer 50% of the directors’ cash compensation until at least $5,000,000 has been received in cumulative funding from non-current stockholders. In February 2017, the Company closed on $2.0 million of convertible notes.

 

The Company 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. 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.

 

As of December 31, 2016 and 2015, we had cash of $620,375 and $1,115,109, respectively.

 

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Cash Flows

 

The following is a summary of our cash flows provided by operating, investing and financing activities for the year ended December 31, 2016 and 2015:

 

   

Year Ended
December 31,

2016

   

Year Ended
December 31,

2015

 
             
Operating activities                
Net loss   $ (21,029,214 )   $ (13,876,927 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:                
Depreciation     700       4,451  
Interest expense     -       105,669  
Amortization of prepaid expenses – related party     67,986       -  
Debt discount amortization     2,098,665       623,101  
Debt issuance costs amortization     300,831       661,617  
Stock-based compensation     3,460,078       3,700,431  
Options issued to consultants     6,085,950       -  
Warrants issued to consultants     -       497,003  
Interest expense deducted from loan proceeds     1,889       -  
Loss on disposal of assets     4,862       1,870  
Shares issued for services     100,930       2,825,943  
Shares to be issued for research & development services     -       1,823,077  
Shares issued for Sygnal license     1,435,000       -  
Changes in operating assets and liabilities:                
Prepaid expenses and other current assets     29,475       3,519  
Deferred financing costs     -       (185,000 )
Other receivables - related party     -       75,000  
Accounts payable and accrued expenses     73,336       194,463  
Deferred compensation     41,667       -  
                 
Net cash (used in) operating activities     (7,327,845 )     (3,545,783 )
                 
Investing activities                
Purchase of property and equipment     -       (504 )
                 
Net cash (used in) investing activities     -       (504 )
                 
Financing activities                
Proceeds from the issuance of common stock     2,500,000       -  
Proceeds from the exercise of warrants     1,250,000       -  
Proceeds from issuance of notes payable     3,083,111       2,000,000  
                 
Net cash provided by financing activities     6,833,111       2,000,000  
                 
Net (decrease) in cash     (494,734 )     (1,546,287 )
                 
Cash, beginning of year     1,115,109       2,661,396  
Cash, end of year   $ 620,375     $ 1,115,109  
                 
Supplemental non-cash information                
Accounts payable paid through issuance of Common Shares   $ 24,000     $ -  
Shares issued in lieu of cash bonuses   $ 135,265     $ -  
Legal expenses paid through relief of related party receivable   $ -     $ 75,000  
Related Party Debt and accrued interest converted into Common Shares   $ -     $ 3,852,771  
Interest paid   $ 751,306     $ 544,708  
Taxes paid   $ 2,243     $ 8,840  

 

Operating activities

 

During the year ended December 31, 2016 and 2015, cash used in operating activities was $7,327,845 and $3,545,783 respectively. Cash expenditures the year ended December 31, 2016 increased primarily due to development activities with our Contracted Manufacturing Organization (“CMO”), patent costs, increase in wages for our CEO and COO who began serving the Company in August 2015.

 

During the year ended December 31, 2016, cash used in operating activities was partially offset by non-cash of debt discount amortization of $2,098,665, debt issuance costs of $300,831, stock option expenses of $3,460,078 for employee options and $6,085,950 for consultant option expense. During the year ended December 31, 2015, cash used in operating activities was partially offset by non-cash increases in accrued interest expense of $105,669, debt discount amortization of $623,101, debt issuance costs amortization of $661,617, stock option expenses of $3,700,431 for employee options, $497,003 related to the issuance of warrants issued to consultants and $2,825,943 shares issued for services.

 

Investing activities

 

During the year ended December 31, 2016, there were no investing activities. In the year ended December 31, 2015, cash used in investing activities of $504 resulted from the purchase of equipment.

 

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Financing activities

 

During the year ended December 31, 2016, cash provided in financing activities of $6,833,111 resulted from the $1,883,311 proceeds, net of financing fee, of the February 24, 2016 note, $1,200,000 October 14, 2016 notes, exercise of $1,250,000 of warrants and $2,500,000 in equity financing. Cash provided during the year ended December 31, 2015 resulted from $2,000,000 in proceeds from a convertible note.

 

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.

 

BUSINESS

 

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 t he 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.

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700.0 million as of the end of the second quarter of that fiscal year; or (iii) the date on which we have, during the previous three-year period, issued more than $1.07 billion in non-convertible debt securities. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. We have elected to take advantage of these reduced disclosure obligations, and may elect to take advantage of other reduced reporting obligations in the future.

 

The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to irrevocably “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted.

 

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 trials.

 

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.

 

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PRODUCTS

 

We have developed a stand-alone platform technology through significant laboratory and small and large animal research over more than ten years to generate the current applications across broad fields of use. The platform technology is our recombinant human protein, known as NELL-1, a proprietary skeletal specific growth factor which is a bone void filler. NELL-1 provides regulation over skeletal tissue formation and stem cell differentiation during bone regeneration. The Company obtained the platform technology pursuant to an exclusive license agreement with UCLA TDG.

 

We are currently focused on bone regeneration in lumbar spinal fusion, in keeping with our exclusive license agreement, using NELL-1 in combination with DBX®, a proprietary demineralized bone matrix from Musculoskeletal Transplant Foundation (“MTF”). The NELL-1/DBX® medical device is a combination product which is an osteostimulative recombinant protein that provides target specific 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.

 

Our lead product is expected to be purified NELL-1 mixed with 510(k) cleared DBX® Demineralized Bone Putty recommended for use in conjunction with applicable hardware consistent with the indication. 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 spine and orthopedic applications.

 

While the product is initially targeted at the lumbar spine fusion market, in keeping with our exclusive license agreement, 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 greater than 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 optimal use 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 reconstructio n.

 

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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 extended period 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 TDG and government grants. Since licensing the exclusive worldwide intellectual property rights from UCLA TDG, our continued development has been funded through various strategic investments. Our research and development expenses, which include the fair value of stock options issued to our consultants, for the years ended December 31, 2016 and 2015 were $11,602,776 and $3,666,108, respectively. We anticipate that it will require an additional $22 million to complete protein synthesis, animal studies, and commence first in man studies. An estimated additional $137 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 laboratory bench models to recapitulate normal human growth and development to provide control over bone and cartilage regeneration.

 

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 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 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.

 

34  
 

 

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 osteostimulation.

 

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 TDG 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. Our focus continues to narrow from the research to the development stage 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. Pursuant to a Merger Agreement, dated September 19, 2014, by and among the Company, its wholly-owned subsidiary, Bone Biologics Acquisition Corp. 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” 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 June 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 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).

 

UCLA TDG Exclusive License Agreement

 

Effective August 18, 2017, the Company entered into an Amended and Restated Exclusive License Agreement (the “Restated License Agreement”) with the UCLA Technology Development Group on behalf of UC Regents (“UCLA TDG”). The Restated License Agreement amends and restates the Exclusive License Agreement, effective March 15, 2006, between the Company and UCLA TDG, as amended by ten amendments. Under the terms of the Restated License Agreement, the Regents have continued to grant the Company exclusive rights to develop and commercialize NELL-1 (the “Licensed Product”) for spinal fusion applications. The Licensed Product is a recombinant human protein growth factor that is essential for normal bone development.

 

Following the completion of several key milestones, Bone Biologics has expanded its Field of Use definition beyond spine fusion within the NELL-1 license agreement with UCLA TDG. Consistent with that expansion, Bone Biologics has entered into an exclusive license agreement with UCLA TDG for the worldwide application of the NELL-1 protein for both osteoporosis and trauma through a technology transfer.

 

35  
 

 

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 TDG10% 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, 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 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.

 

AFH Holding & Advisory LLC

 

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 (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.

 

36  
 

 

On April 7, 2016, the Company entered into a consulting agreement with AFH pursuant to which the Company engaged AFH for a term of three months to provide certain consulting services to the Company effective April 5, 2016. Under the consulting agreement, AFH received an up-front retainer of $100,000 and $33,333.33 per month for three months.

 

On June 1, 2016, the Company agreed (i) to issue to AFH 20,186 shares of common stock of the Company as an adjustment to the October 28, 2015 invoice and (ii) to issue 23,173 shares of common stock of the Company as an adjustment to the letter agreement dated February 10, 2016. The fair value of the shares issued for services, $100,930, was recorded as general and administrative expense.

 

In addition to the shares and warrants issued for services, AFH received cash totaling $-0- and $325,000 for services during the six months ended June 30, 2017 and 2016, respectively.

 

Amir Heshmatpour is the controlling party of AFH.

 

Musculoskeletal Transplant Foundation (MTF)

 

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.

 

On June 24, 2016, the Company exercised this option. As provided in the Option Agreement, the Company issued 700,000 shares of its restricted common stock in connection with the exercise of the Option. Additionally, within 30 days of exercising the Option, MTF will provide the Company with a written proposal of a Definitive Agreement that includes, inter alia , certain Critical Terms described in the Agreement 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. The Company expensed the cost of this license, $1,435,000, as research and development during the year ended December 31, 2016.

 

37  
 

 

On October 14, 2016, pursuant to a Note Purchase Agreement, the Company issued to MTF a convertible promissory note in the amount of $600,000 (See Note 6).

 

On February 10, 2017, pursuant to a Note Purchase Agreement, the Company issued to MTF a convertible promissory note in the amount of $1,000,000 (See Note 6).

 

On August 18, 2017, the Company entered into a share purchase agreement with MTF, pursuant to which MTF purchased from the Company an aggregate of 233,333 shares of common stock of the Company at a price per share equal to $3.00.

 

Bruce Stroever, our Chairman of the Board, is the President and Chief Executive Officer of MTF.

 

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 December 31, 2019 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 of $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 “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.

 

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 Second Convertible Note matures on December 31, 2019 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 of $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 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.

 

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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 Third 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.

 

Convertible Promissory Notes

 

On October 14, 2016, pursuant to a Note Purchase Agreement, the Company issued to each of MTF and Hankey Capital a convertible promissory note in the amount of $600,000 (each a “Convertible Note”). The Convertible Note matures on December 31, 2017 (the “Maturity Date”) and bears interest at an annual rate of interest of 8.5% per annum until maturity. Prior to the Maturity Date, each of MTF and Hankey Capital has a right, in its sole discretion, to convert their Convertible Note into shares of the Company’s common stock (the “Conversion Shares”), at a conversion rate equal to $1.00 per share. In the event of a financing resulting in gross proceeds of at least $5,000,000, the holders of the Convertible Notes will be required to convert their Convertible Notes into the same securities issued in such financing at the same price per share. In addition, if the Convertible Notes are not paid by the Maturity Date, they will be automatically converted in shares of Common Stock at a conversion price of $1.00 per share. Hankey Capital’s Convertible Note is secured by all of the Company’s assets. The Company has granted piggyback registration rights with respect to the Conversion Shares.

 

Pursuant to the October 2016 and February 2017 Note Purchase Agreements, the Company may only use the proceeds from the issuance of those convertible notes to focus on prioritizing operations on essential research and development activities. Also pursuant to the October 2016 Note Purchase Agreement, the Company’s management has agreed to defer 20% of earned compensation and the Board of Directors has authorized a change in director compensation to defer 50% of the directors’ cash compensation until at least $5,000,000 has been received in cumulative funding from non-current stockholders.

 

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On January 23, 2017 the Company, MTF and Hankey Capital, executed an amendment (the “Amendment”) to the Convertible Notes. The Amendment extends the maturity date of each of the Convertible Notes to December 31, 2017 from December 31, 2016. By extending the maturity date, the date that the Convertible Notes automatically convert into shares of the Company’s Common Stock was also extended to December 31, 2017. The Amendment was effective retroactive to December 31, 2016.

 

On February 10, 2017 pursuant to a Note Purchase Agreement, the Company issued to each of MTF and Hankey Capital a convertible promissory note in the amount of $1,000,000 (each a “Convertible Note”). The Convertible Note matures on December 31, 2017 (the “Maturity Date”) and bears interest at an annual rate of interest of 8.5% until maturity. Prior to the Maturity Date, each of MTF and Hankey Capital has a right, in its sole discretion, to convert their Convertible Note into shares of the Company’s common stock (the “Conversion Shares”), at a conversion rate equal to $1.00 per share. In the event of a financing resulting in gross proceeds of at least $5,000,000, the holders of the Convertible Notes will be required to convert their Convertible Notes into the same securities issued in such financing at the same price per share. Also, if the Convertible Notes are not paid by the Maturity Date, they will be automatically converted in shares of Common Stock at a conversion price of $1.00 per share. Hankey Capital’s Convertible Note is secured by all of the Company’s assets. The Company has granted piggyback registration rights with respect to the Conversion Shares.

 

On August 18, 2017 pursuant to a Note Purchase Agreement, the Company issued to Hankey Capital a convertible promissory note in the amount of $700,000 (“Convertible Note”). The Convertible Note matures on December 31, 2017 (the “Maturity Date”) and bears interest at an annual rate of interest of 8.5% until maturity. Prior to the Maturity Date, Hankey Capital has a right, in its sole discretion, to convert their Convertible Note into shares of the Company’s common stock (the “Conversion Shares”), at a conversion rate equal to $1.00 per share. In the event of a financing resulting in gross proceeds of at least $5,000,000, the holders of the Convertible Note will be required to convert their Convertible Note into the same securities issued in such financing at the same price per share. Also, if the Convertible Note is not paid by the Maturity Date, it will be automatically converted in shares of Common Stock at a conversion price of $1.00 per share. Hankey Capital’s Convertible Note is secured by all of the Company’s assets. The Company has granted piggyback registration rights with respect to the Conversion Shares.

 

Founders

 

The Company entered into a Letter Agreement effective October 2, 2015, with each of Dr. Chia Soo, Dr. Eric Kang Ting and Dr. Ben Wu (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) and is currently reported as shares to be issued.

 

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.

 

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On June 1, 2016, the Company agreed to issue to each Founder a 10-year stock options to purchase 33,105 shares of the Company’s common stock at an exercise price of $2.05 per share as an adjustment to the Professional Services Agreements with each of the Founders dated January 8, 2016.

 

On December 13, 2016, the Company provided written notice to each of the Founders that it was terminating the Agreements for cause, indicating that absent cure of the material breach of the Agreements, termination of the Agreements was to be effective on January 12, 2017. Despite lengthy discussions with the Founders, and multiple extensions of the termination date to accommodate such discussions, the Company was unable to resolve the outstanding issues under the Agreements, and the Company provided notice that the Agreements were terminated, effective April 8, 2017. Any shares subject to the stock options issued under the Agreements that were not vested on the date the Agreements terminated shall be forfeited on the date of termination. Our policy is to account for forfeitures when they occur therefore these forfeitures are recorded as a credit to expense. Forfeiture credits related to the termination of the Agreements was $3,629,041 in research and development expense.

 

Dr. Soo and Dr. Wu resigned as directors of the Company effective April 13, 2017, and Dr. Ting resigned as a member of the Company’s Scientific Advisory Board on April 13, 2017. Each of the Advisors were involved in the founding of the Company. Our licensing agreement with UCLA TDG is independent of the Founders’ services and remains unchanged as a result of the Founders resignation.

 

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.

 

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.

 

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INTELLECTUAL PROPERTY

 

We have an intellectual property portfolio that includes exclusive, worldwide licenses from UCLA TDG 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 fifteen (15) UCLA TDG 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

 

9447155   Isoform NELL-1 peptide   9/20/2016
         
9511115  

Pharmaceutical compositions for treating or preventing

bone conditions

 

  12/6/2016
9598480   Recombinant NEL-like (NELL) protein production   3/21/2017

 

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 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:

 

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  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.

 

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.

 

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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.

 

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.

 

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EMPLOYEES

 

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

 

Available Information

 

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We are not required to deliver an annual report to our security holders, but will provide one voluntarily if a written request is sent to us at our principal executive office at 2 Burlington Woods Drive, Ste 100, Burlington, MA 01803. Reports filed with the SEC pursuant to the Exchange Act, including our annual and quarterly reports, and other reports we file, can be inspected and copied on official business days during the hours of 10 a.m. to 3 p.m. prevailing Eastern Time at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Investors may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Investors can request copies of these documents upon payment of a duplicating fee by writing to the SEC. The reports we file with the SEC are also available on the SEC’s website ( http://www.sec.gov ).

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information with respect to the beneficial ownership of the Company’s Common Stock as of August 22, 2017, 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     15,028,511 (2)     36.2 %
                     
Don R. Hankey 4751 Wilshire Blvd #110
Los Angeles, CA 90010
  Common Stock     2,096,753 (3)     5.0 %
                     

AFH Holding & Advisory, LLC

6363 Lunita Road Malibu, CA 90265

  Common Stock     5,400,954 (4)     13.3 %
                     

Amir Heshmatpour

6363 Lunita Road Malibu, CA 90265

  Common Stock     6,800,954 (5)     16.7 %
                     
Dr. Bessie (Chia) Soo 115 N. Doheny Dr.
Beverly Hills, CA 90211
  Common Stock     3,560,489 (6)     9.0 %
                     
Orthofix Holdings Inc. 3451 Plano Parkway
Lewisville, TX 75056
  Common Stock     2,397,712 (7)     6.1 %
                     
Executive Officers and Directors:                    
                     
Stephen LaNeve 2 Burlington Woods Drive, Ste 100,
Burlington, MA 01803
  Common Stock     1,746,321 (8)     4.3 %
                     
Jeffrey Frelick 2 Burlington Woods Drive, Ste 100,
Burlington, MA 01803
  Common Stock     873,161 (9)     2.2 %
                     
Deina H. Walsh 2 Burlington Woods Drive, Ste 100,
Burlington, MA 01803
  Common Stock     395,090 (10)     1.0 %
                     
Bruce Stroever(11) 175 May Street, Suite 400 Edison,
NJ 08837
  Common Stock     -       -  
                     
John Booth 2 Burlington Woods Drive, Ste 100,
Burlington, MA 01803
  Common Stock     109,460 (12)     0.3 %
                     
Jimmy Delshad 2 Burlington Woods Drive, Ste 100,
Burlington, MA 01803
  Common Stock     129,460 (13)     0.3 %
                     
Total Officers and Directors as a Group (9 persons)   Common Stock     3,253,492 (14)     7.7 %

 

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